CONFORMED COPY
CERTIFICATE OF DESIGNATION
OF
DONALDSON, LUFKIN & JENRETTE, INC.
3,500,000 SHARES FIXED/ADJUSTABLE RATE
CUMULATIVE PREFERRED STOCK, SERIES B
Pursuant to Section 151(g) of the
General Company Law of the State of Delaware
January 8, 1998
TABLE OF CONTENTS
------------
Page
Section 1. Number of Shares and Designation............. 1
Section 2. Ranking...................................... 1
Section 3. Dividends.................................... 1
Section 4. Liquidation Preference....................... 8
Section 5. Voting Rights................................ 8
Section 6. Redemption................................... 9
CERTIFICATE OF DESIGNATION
OF 3,500,000 SHARES OF FIXED/ADJUSTABLE RATE
CUMULATIVE PREFERRED STOCK, SERIES B
OF DONALDSON, LUFKIN & JENRETTE, INC.
The undersigned, Charles J. Hendrickson and Marjorie S. White,
being respectively a Senior Vice President and the Secretary of Donaldson,
Lufkin & Jenrette, Inc., a corporation organized and existing under the
General Company Law of the State of Delaware (the "Company"), certify that,
pursuant to the authority expressly granted to and vested in the Board of
Directors of the Company (the "Board of Directors") by the Restated
Certificate of Incorporation of the Company, which authorizes the issuance, by
the Company, of up to 25,000,000 shares of preferred stock, par value $.01 per
share, which authority was delegated to the Pricing Committee of the Board of
Directors pursuant to a resolution adopted by the Board of Directors in
accordance with Section 141 of the General Company Law of the State of
Delaware on November 19, 1997, the Pricing Committee of the Board of Directors
on January 6, 1998 duly adopted resolutions creating and providing for the
issuance of a series of preferred stock of the Company with the following
terms and conditions:
Section 1. Number of Shares and Designation. Three million
five hundred thousand (3,500,000) shares of the 25,000,000 authorized shares
of preferred stock, par value $.01 per share of the Company are hereby
constituted as a series of preferred stock, par value $.01 per share,
designated as "Fixed/Adjustable Rate Cumulative Preferred Stock, Series B"
(hereinafter called the "Preferred Stock").
Section 2. Ranking. The Preferred Stock will, on the date of
original issuance, rank on a parity as to payment of dividends and
distribution of assets upon dissolution, liquidation or winding up of the
Company with each other outstanding series of preferred stock of the Company.
The Preferred Stock, together with each other series of preferred stock of the
Company, will rank prior to the Common Stock of the Company as to the payment
of dividends and distribution of assets upon dissolution, liquidation or
winding up of the Company.
Section 3. Dividends. (i) General. Cumulative cash dividends
will be payable on each share of Preferred Stock when, as, and if declared by
the Board of Directors or a duly authorized committee thereof, out of funds
legally available therefor.
The initial dividend for the dividend period commencing on
January 9, 1998 to (but excluding) April 15, 1998, will be $.7067 per share
and will be payable on April 15, 1998. Thereafter, dividends on the Preferred
Stock will be payable quarterly, as, if and when declared by the Board of
Directors of the Company on January 15, April 15, July 15 and October 15 of
each year (each a "Dividend Payment Date") at the annual rate of 5.30% or
$2.65 per share through January 15, 2003. After January 15, 2003, dividends
on the Preferred Stock will be payable on each Dividend Payment Date, as, if
and when declared by the Board of Directors of the Company at the Applicable
Rate from time to time in effect. The Applicable Rate per annum for each
dividend period beginning on or after January 15, 2003 will be equal to 0.40%
plus the highest of the Treasury Bill Rate, the Ten Year Constant Maturity
Rate or the Thirty Year Constant Maturity Rate (each as defined below), as
determined in advance of such dividend period, however, the Applicable Rate
per annum for each dividend period beginning January 15, 2003 will not be
less than 5.70% nor greater than 11.30% (without taking into account any
adjustments as described below).
If a Dividend Payment Date is not a business day, dividends (if
declared) on the Preferred Stock will be paid on the next business day, without
interest. A dividend period with respect to a Dividend Payment Date is the
period commencing on the preceding Dividend Payment Date and ending on the day
immediately prior to the next Dividend Payment Date. Dividends will be
payable to holders of record as they appear on the stock books of the Company
on the record date fixed by the Board of Directors of the Company which will
not be more than 60 days nor less than 10 days preceding the payment date
thereof.
Dividends on the Preferred Stock will be cumulative and rights
will accrue to the holders of the Preferred Stock if the Company fails to
declare one or more dividends on the Preferred Stock in any amount, whether or
not the earnings or financial condition of the Company were sufficient to pay
such dividends in whole or in part.
(ii) Adjustable Rate Dividends. The "Applicable Rate" per
annum for each dividend period beginning January 15, 2003 will be equal to
0.40% plus the Effective Rate (as defined below) for such dividend period, but
not less than 5.70% nor greater than 11.30% except as provided below in this
paragraph. The "Effective Rate" for each dividend period beginning January
15, 2003 will be equal to the highest of the Treasury Bill Rate, the Ten Year
Constant Maturity Rate and the Thirty Year Constant Maturity Rate (each as
defined below) for such dividend period. In the event that the Company
determines in good faith that for any reason: (A) any one of the Treasury Bill
Rate, the Ten Year Constant Maturity Rate or the Thirty Year Constant Maturity
Rate cannot be determined for any dividend period, then the Effective Rate for
such dividend period will be equal to the higher of whichever two of such
rates can be so determined; (B) only one of the Treasury Bill Rate, the Ten
Year Constant Maturity Rate or the Thirty Year Constant Maturity Rate can be
determined for any dividend period, then the Effective Rate for such dividend
period will be equal to whichever such rate can be so determined; or (C) none
of the Treasury Bill Rate, the Ten Year Constant Maturity Rate or the Thirty
Year Constant Maturity Rate can be determined for any dividend period, then
the Effective Rate for the preceding dividend period will be continued for the
succeeding dividend period.
The "Treasury Bill Rate" will be the arithmetic average of the
two most recent weekly per annum market discount rates (or the one weekly per
annum market discount rate, if only one such rate is published during the
relevant Calendar Period (as defined below)) for three-month U.S. Treasury
bills, as published weekly by the Federal Reserve Board (as defined below)
during the Calendar Period immediately preceding the last ten calendar days
preceding the dividend period for which the dividend rate on the Preferred
Stock is being determined, except as described below in this paragraph. In the
event that the Federal Reserve Board does not publish such a weekly per annum
market discount rate during any such Calendar Period, then the Treasury Bill
Rate for such dividend period will be the arithmetic average of the two most
recent weekly per annum market discount rates (or the one weekly per annum
market discount rate, if only one such rate is published during the relevant
Calendar Period) for three-month U.S. Treasury bills, as published weekly
during such Calendar Period by any Federal Reserve Bank or by any U.S.
Government department or agency selected by the Company. In the event that a
per annum market discount rate for three-month U.S. Treasury bills is not
published by the Federal Reserve Board or by any Federal Reserve Bank or by
any U.S. Government department or agency during such Calendar Period, then the
Treasury Bill Rate for such dividend period will be the arithmetic average of
the two most recent weekly per annum market discount rates (or the one weekly
per annum market discount rate, if only one such rate is published during the
relevant Calendar Period) for all of the U.S. Treasury bills then having
remaining maturities of not less than 80 nor more than 100 days, as published
during such Calendar Period by the Federal Reserve Board or, if the Federal
Reserve Board does not publish such rates, by any Federal Reserve Bank or by
any U.S. Government department or agency selected by the Company. In the
event that the Company determines in good faith that for any reason no such
U.S. Treasury Bill Rates are published as provided above during such Calendar
Period, then the Treasury Bill Rate for such dividend period will be the
arithmetic average of the per annum market discount rates based upon the
closing bids during such Calendar Period for each of the issues of marketable
non-interest-bearing U.S. Treasury securities with a remaining maturity of not
less than 80 nor more than 100 days from the date of each such quotation, as
chosen and quoted daily for each business day in New York City (or less
frequently if daily quotations are not generally available) to the Company by
at least three recognized dealers in U.S. Government securities selected by
the Company. In the event that the Company determines in good faith that for
any reason the Company cannot determine the Treasury Bill Rate for any
dividend period as provided above in this paragraph, the Treasury Bill Rate
for such dividend period will be the arithmetic average of the per annum
market discount rates based upon the closing bids during such Calendar Period
for each of the issues of marketable interest-bearing U.S. Treasury securities
with a remaining maturity of not less than 80 nor more than 100 days, as
chosen and quoted daily for each business day in New York City (or less
frequently if daily quotations are not generally available) to the Company by
at least three recognized dealers in U.S. Government securities selected by
the Company.
The "Ten Year Constant Maturity Rate" will be the arithmetic
average of the two most recent weekly per annum Ten Year Average Yields (as
defined below) (or the one weekly per annum Ten Year Average Yield, if only
one such yield is published during the relevant Calendar Period), as published
weekly by the Federal Reserve Board during the Calendar Period immediately
preceding the last ten calendar days preceding the dividend period for which
the dividend rate on the Preferred Stock is being determined, except as
described below in this paragraph. In the event that the Federal Reserve
Board does not publish such a weekly per annum Ten Year Average Yield during
such Calendar Period, then the Ten Year Constant Maturity Rate for such
dividend period will be the arithmetic average of the two most recent weekly
per annum Ten Year Average Yields (or the one weekly per annum Ten Year
Average Yield, if only one such yield is published during the relevant
Calendar Period), as published weekly during such Calendar Period by any
Federal Reserve Bank or by any U.S. Government department or agency selected
by the Company. In the event that a per annum Ten Year Average Yield is not
published by the Federal Reserve Board or by any Federal Reserve Bank or by
any U.S. Government department or agency during such Calendar Period, then the
Ten Year Constant Maturity Rate for such dividend period will be the
arithmetic average of the two most recent weekly per annum average yields to
maturity (or the one weekly per annum average yield to maturity, if only one
such yield is published during the relevant Calendar Period) for all of the
actively traded marketable U.S. Treasury fixed interest rate securities (other
than Special Securities (as defined below)) then having remaining maturities
of not less than eight nor more than twelve years, as published during such
Calendar Period by the Federal Reserve Board or, if the Federal Reserve Board
does not publish such yields, by any Federal Reserve Bank or by any U.S.
Government department or agency selected by the Company. In the event that
the Company determines in good faith that for any reason the Company cannot
determine the Ten Year Constant Maturity Rate for any dividend period as
provided above in this paragraph, then the Ten Year Constant Maturity Rate for
such dividend period will be the arithmetic average of the per annum average
yields to maturity based upon the closing bids during such Calendar Period for
each of the issues of actively traded marketable U.S. Treasury fixed interest
rate securities (other than Special Securities) with a final maturity date not
less than eight nor more than twelve years from the date of each such
quotation, as chosen and quoted daily for each business day in New York City
(or less frequently if daily quotations are not generally available) to the
Company by at least three recognized dealers in U.S. Government securities
selected by the Company.
The "Thirty Year Constant Maturity Rate" will be the arithmetic
average of the two most recent weekly per annum Thirty Year Average Yields (as
defined below) (or the one weekly per annum Thirty Year Average Yield, if only
one such yield is published during the relevant Calendar Period), as published
weekly by the Federal Reserve Board during the Calendar Period immediately
preceding the last ten calendar days preceding the dividend period for which
the dividend rate on the Preferred Stock is being determined except as
described below in this paragraph. In the event that the Federal Reserve
Board does not publish such a weekly per annum Thirty Year Average Yield
during such Calendar Period, then the Thirty Year Constant Maturity Rate
for such dividend period will be the arithmetic average of the two most
recent weekly per annum Thirty Year Average Yields (or the one weekly per
annum Thirty Year Average Yield, if only one such yield is published during
the relevant Calendar Period), as published weekly during such Calendar
Period by any Federal Reserve Bank or by any U.S. Government department or
agency selected by the Company. In the event that a per annum Thirty Year
Average Yield is not published by the Federal Reserve Board or by any
Federal Reserve Bank or by any U.S. Government department or agency during
such Calendar Period, then the Thirty Year Constant Maturity Rate for such
dividend period will be the arithmetic average of the two most recent
weekly per annum average yields to maturity (or the one weekly per annum
average yield to maturity, if only one such yield is published during the
relevant Calendar Period) for all of the actively traded marketable U.S.
Treasury fixed interest rate securities (other than Special Securities)
then having remaining maturities of not less than twenty-eight nor more
than thirty years, as published during such Calendar Period by the Federal
Reserve Board or, if the Federal Reserve Board does not publish such
yields, by any Federal Reserve Bank or by any U.S. Government department
or agency selected by the Company. In the event that the Company
determines in good faith that for any reason the Company cannot determine
the Thirty Year Constant Maturity Rate for any applicable dividend period
as provided above in this paragraph, then the Thirty Year Constant Maturity
Rate for such dividend period will be the arithmetic average of the per
annum average yields to maturity based upon the closing bids during such
Calendar Period for each of the issues of actively traded marketable U.S.
Treasury fixed interest rate securities (other than Special Securities)
with a final maturity date not less than twenty-eight nor more than thirty
years from the date of each such quotation, as chosen and quoted daily for
each business day in New York City (or less frequently if daily quotations
are not generally available) to the Company by at least three recognized
dealers in U.S. Government securities selected by the Company.
The Treasury Bill Rate, the Ten Year Constant Maturity Rate and
the Thirty Year Constant Maturity Rate will each be rounded to the nearest five
hundredths of a percent.
The Applicable Rate with respect to each dividend period
beginning January 15, 2003 will be calculated as promptly as practicable by the
Company according to the appropriate method described above. The Company will
cause notice of the Applicable Rate for the next dividend period to be
enclosed with the dividend payment check mailed to the holders of Preferred
Stock.
As used above, the term "Calendar Period" means a period of
fourteen calendar days; the term "Federal Reserve Board" means the Board of
Governors of the Federal Reserve System; the term "Special Securities" means
securities which can, at the option of the holder, be surrendered at face value
in payment of any Federal estate tax or which provide tax benefits to the
holder and are priced to reflect such tax benefits or which were originally
issued at a deep or substantial discount; the term "Ten Year Average Yield"
means the average yield to maturity for actively traded marketable U.S.
Treasury fixed interest rate securities (adjusted to constant maturities of ten
years); and the term "Thirty Year Average Yield" means the average yield to
maturity for actively traded marketable U.S. Treasury fixed interest rate
securities (adjusted to constant maturities of thirty years).
(iii) Changes in the Dividends Received Percentage. If, prior
to 18 months after the original issuance of the Preferred Stock, one or more
amendments to the Internal Revenue Code of 1986, as amended (the "Code"), are
enacted which change the percentage of the dividends received deduction as
specified in Section 243(a)(1) of the Code or any successor provision (the
"Dividends Received Percentage"), the amount of each dividend on each share
of the Preferred Stock for dividend payments made on or after the date of
enactment of such change will be adjusted by multiplying the amount of the
dividend payable determined as described above (before adjustment) by a
factor, which will be the number determined in accordance with the following
formula (the "DRD Formula"), and rounding the result to the nearest cent:
1-[.35 (1 - .70)]
-----------------
1-[.35 (1 - DRP)]
For the purposes of the DRD Formula, "DRP" means the new
Dividends Received Percentage applicable to the dividend in question; provided
however, that if the Dividends Received Percentage applicable to the dividend
in question shall be less than 50%, then the DRP shall equal .50. No
amendment to the Code, other than a change in the percentage of the dividends
received deduction set forth in Section 243(a)(1) of the Code or any successor
provision, will give rise to an adjustment. Notwithstanding the foregoing
provisions, in the event that, with respect to any such amendment, the Company
shall receive either an unqualified opinion of nationally recognized
independent tax counsel selected by the Company or a private letter ruling or
similar form of authorization from the Internal Revenue Service to the effect
that such an amendment does not apply to dividends payable on the Preferred
Stock, then any such amendment shall not result in the adjustment provided for
pursuant to the DRD Formula. The opinion referenced in the previous sentence
will be based upon a specific exception in the legislation amending the DRP or
upon a published pronouncement of the Internal Revenue Service addressing such
legislation. Unless the context otherwise requires, references to dividends
herein shall mean dividends as adjusted by the DRD Formula. The Company's
calculation of the dividends payable as so adjusted and as certified accurate
as to calculation and reasonable as to method by the independent certified
public accountants then regularly engaged by the Company, shall be final and
not subject to review.
If any amendment to the Code which reduces the Dividends
Received Percentage is enacted after a record date and before the next Dividend
Payment Date, the amount of dividend payable on such Dividend Payment Date
will not be increased, but instead, an amount equal to the excess of (x) the
product of the dividends paid by the Company on such Dividend Payment Date and
the DRD Formula (where the DRP used in the DRD Formula would be equal to the
greater of the Dividends Received Percentage applicable to the dividend in
question and .50) over (y) the dividends paid by the Company on such Dividend
Payment Date, will be payable (if declared) to holders of record on the next
succeeding Dividend Payment Date in addition to any other amounts payable on
such date.
In addition, if any such amendment to the Code is enacted that
reduces the Dividends Received Percentage and such reduction retroactively
applies to a Dividend Payment Date as to which the Company previously paid
dividends on the Preferred Stock (each an "Affected Dividend Payment Date"),
the Company will pay (if declared), additional dividends (the "Additional
Dividends") on the next succeeding Dividend Payment Date (or if such amendment
is enacted after the dividend payable on such Dividend Payment Date has been
declared, on the second succeeding Dividend Payment Date following the date of
enactment) to holders of record on such succeeding Dividend Payment Date in an
amount equal to the excess of (x) the product of the dividends paid by the
Company on each Affected Dividend Payment Date and the DRD Formula (where the
DRP used in the DRD Formula would be equal to the greater of the Dividends
Received Percentage and .50 applied to each Affected Dividend Payment Date)
over (y) the dividends paid by the Company on each Affected Dividend Payment
Date.
Notwithstanding the foregoing, Additional Dividends will not be
paid as a result of the enactment of any amendment to the Code 18 months or
more after the date of original issuance of the Preferred Stock which
retroactively reduces the Dividends Received Percentage, or if such amendment
would not result in an adjustment due to the Company having received either an
opinion of counsel or tax ruling referred to in the third preceding paragraph.
The Company will make only one payment of Additional Dividends.
In the event that the amount of dividend payable per share of
the Preferred Stock will be adjusted pursuant to the DRD Formula and/or
Additional Dividends are to be paid, the Company will cause notice of each
such adjustment and, if applicable, any Additional Dividends, to be sent to the
holders of the Preferred Stock with the payment of dividends on the next
Dividend Payment Date after the date of such adjustment.
Section 4. Liquidation Preference. In the event of any
voluntary or involuntary liquidation, dissolution or winding up of the
Company, the holders of shares of Preferred Stock will be entitled to receive
out of the assets of the Company available for distribution to stockholders,
before any distribution of assets is made on the Company's Common Stock or any
other class or series of stock of the Company ranking junior to the Preferred
Stock upon liquidation, liquidating distributions in the amount of $50 per
share, plus an amount equal to the sum of all accrued and unpaid dividends
including any increase in dividends payable due to changes in the Dividends
Received Percentage and Additional Dividends (whether or not earned or
declared) for the then current dividend period and all dividend periods prior
thereto.
Section 5. Voting Rights. The holders of shares of Preferred
Stock will not be entitled to vote, except as set forth below or as expressly
required by applicable law.
If the equivalent of six quarterly dividends payable on the
Preferred Stock or any other class or series of preferred stock are in
default, the number of directors of the Company will be increased by two
(without duplication of any increase made pursuant to the terms of any other
series of preferred stock of the Company), and the holders of the Preferred
Stock, voting as a single class with the holders of shares of any other class
of the Company's preferred stock ranking on a parity with the Preferred Stock
either as to dividends or distribution of assets and upon which like voting
rights have been conferred and are exercisable, will be entitled to elect such
two directors to fill such newly-created directorships. Such right shall
continue until full cumulative dividends for all past dividend periods on all
preferred shares of the Company, including any shares of the Preferred Stock,
have been paid or declared and set apart for payment. Any such elected
directors shall serve until the Company's next annual meeting of stockholders
(notwithstanding that prior to the end of such term the dividend default shall
cease to exist) or until their respective successors shall be elected and
qualify.
The affirmative vote or consent of the holders of at least
66-2/3% of the outstanding shares of the Preferred Stock will be required for
any amendment of the articles of incorporation of the Company (or any
certificate supplemental thereto) which will adversely affect the powers,
preferences, privileges or rights of the Preferred Stock. The affirmative
vote or consent of the holders of at least 66-2/3% of the outstanding shares
of the Preferred Stock and any other series of the Company's preferred stock
ranking on a parity with the Preferred Stock either as to dividends or upon
liquidation, voting as a single class without regard to series, will be
required to issue, authorize or increase the authorized amount of, or issue or
authorize any obligation or security convertible into or evidencing a right to
purchase, any additional class or series of stock ranking prior to the
Preferred Stock as to dividends or upon liquidation, or to reclassify any
authorized stock of the Company into such prior shares, but such vote will not
be required for the Company to take any such actions with respect to any stock
ranking on a parity with or junior to the Preferred Stock.
Section 6. Redemption. Prior to January 15, 2003, the
Preferred Stock is not redeemable. On or after such date, each share of
Preferred Stock will be redeemable, in whole or in part at the option of the
Company at any time and from time to time upon not less than thirty nor more
than sixty days' notice, out of funds legally available therefor, at a
redemption price of $50 per share, together in each case with accrued and
unpaid dividends (whether or not declared) to the date fixed for redemption
including any increase in dividends payable due to changes in the Dividends
Received Percentage and Additional Dividends. If fewer than all the
outstanding shares of Preferred Stock are to be redeemed, the Company will
select those to be redeemed by lot or pro rata or by any other method as may
be determined by the Board of Directors to be equitable.
In addition, if the holders of the shares of the Preferred
Stock are entitled to vote upon or consent to a merger or consolidation of the
Company, and if the Company offers to purchase all of the outstanding shares
of the Preferred Stock (the "Offer"), then each holder of Preferred Stock who
does not sell their shares of Preferred Stock pursuant to the Offer shall be
deemed irrevocably to have voted or consented all shares of Preferred Stock
owned by such holder in favor of the merger or consolidation of the Company
without any further action by the holder. The Offer shall be at a price of
$50 per share, together with accrued and unpaid dividends, if any, to the date
fixed for redemption, including any increase in dividends payable due to
increases in the Dividends Received Percentage and Additional Dividends. The
Offer must remain open for acceptance for a period of at least 30 days.
Holders of Preferred Stock will have no right to require
redemption of the Preferred Stock.
The Preferred Stock is not subject to any mandatory redemption,
sinking fund or other similar provisions.
IN WITNESS WHEREOF, the Company has caused this Certificate
of Designation to be signed by one of its Vice Presidents and attested to by
its Secretary, as of the 8th day of January, 1998.
DONALDSON, LUFKIN & JENRETTE, INC.
By: /s/ Charles J. Hendrickson
------------------------------
Name: Charles J. Hendrickson
Title: Senior Vice President
and Treasurer
Attest /s/ Marjorie S. White
------------------------------
Name: Marjorie S. White
Title: Secretary