Rule No. 424(b)(2)
Registration No. 33-51413
PROSPECTUS SUPPLEMENT ISSUED August 8, 1995 (Subject to Completion)
(To Prospectus dated January 11, 1994)
2,500,000 WARRANTS
MORGAN STANLEY GROUP INC.
NIKKEI 225 INDEX * CALL WARRANTS
EXPIRING AUGUST , 1997
Each Warrant will entitle the holder thereof to receive from Morgan
Stanley Group Inc. (the "Company"), upon exercise (including automatic
exercise), an amount in U.S. Dollars calculated by reference to increases in
the Nikkei Stock Average (the "Nikkei 225 Index") published by Nihon Keizai
Shimbun, Inc. ("NKS"). Such amount (the "Cash Settlement Value") will equal
the quotient (rounded down to the nearest cent) of (A) the amount, if any, by
which the Spot Nikkei 225 Index for the applicable Valuation Date exceeds the
Strike Level divided by (B) the product of 4.0 and the fixed Japanese Yen/U.S.
Dollar exchange rate of ___Yen per U.S. $1.00. If the Strike Level is equal to
or exceeds the Spot Nikkei 225 Index on such Valuation Date, the Cash
Settlement Value will be zero, in which case the Warrantholder will be
permitted, subject to certain exceptions, to re-exercise such Warrant prior to
the Expiration Date or any Delisting Date. The "Strike Level" is ,
which is the closing value (afternoon session) of the Nikkei 225 Index on the
date of this Prospectus Supplement. The "Spot Nikkei 225 Index" for any date
means the closing value (afternoon session) on such date of the Nikkei 225
Index. On the date of this Prospectus Supplement, the Cash Settlement Value of
the Warrants is zero. In the event that a Substitute Index is substituted for
the Nikkei 225 Index, the Strike Level and the formula used to determine the
Cash Settlement Value will be adjusted so as to preserve any increase or
decreases in the Nikkei 225 Index which have occurred as of the time of such
substitution, and the Spot Nikkei 225 Index on any date thereafter will be the
closing level of the Substitute Index.
THE WARRANTS INVOLVE A HIGH DEGREE OF RISK, INCLUDING THE RISK OF EXPIRING
WORTHLESS IF THE LEVEL OF THE NIKKEI 225 INDEX DOES NOT INCREASE DURING THE
PERIOD WHEN THE WARRANTS MAY BE EXERCISED. PURCHASERS SHOULD BE PREPARED TO
SUSTAIN A TOTAL LOSS OF THE PURCHASE PRICE OF THEIR WARRANTS AND ARE ADVISED
TO CONSIDER CAREFULLY THE INFORMATION UNDER "CERTAIN RISK FACTORS CONCERNING
THE WARRANTS" ON PAGES S-8 TO S-14 HEREIN AND "RISK FACTORS RELATING TO THE
WARRANTS" ON PAGES 4 AND 5 IN THE ACCOMPANYING PROSPECTUS, AS WELL AS THE
OTHER INFORMATION HEREIN AND IN THE ACCOMPANYING PROSPECTUS.
The Warrants have been approved for listing on the American Stock Exchange
(the "AMEX"), subject
to official notice of issuance. The AMEX symbol for the Warrants is "JMS.WS".
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
MAXIMUM PRICE $ A WARRANT
Maximum
Underwriting
Maximum Discounts and Proceeds to
Price to Public(1) Commissions(1)(2) Company(2)(3)
------------------ ----------------- -------------
Per Warrant......... $ $ $
Total(4)............ $ $ $
(1) The price to public and underwriting discounts and commissions for
investors purchasing 100,000 or more Warrants in any single
transaction will be $ per Warrant, and $ per Warrant,
respectively, subject to the holding period requirement described
under "Underwriters" herein. Should investors who are subject to the
holding period requirement sell their Warrants once the holding period
requirement is no longer applicable, the market price of the Warrants
may be adversely affected. See "Underwriters" herein.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
(3) Before deducting expenses payable by the Company estimated at $ .
(4) The Company has granted the Underwriters an option, exercisable within
30 days of the date hereof, to purchase up to an additional 375,000
Warrants at the price to public less underwriting discounts and
commissions, for the purpose of covering over-allotments, if any. If
the Underwriters exercise such option in full, the maximum price to
public, maximum underwriting discounts and commissions and proceeds to
Company will be $ , $ and $ , respectively. See
"Underwriters" herein.
The Warrants are offered, subject to prior sale, when, as and if
accepted by the Underwriters named herein and subject to approval of certain
legal matters by Davis Polk & Wardwell, counsel for the Underwriters. The
Warrants are being offered for sale only in the United States and in
jurisdictions where it is legal to make such offers. It is expected that
delivery of the Warrants will be made on or about August , 1995 at the
office of Morgan Stanley & Co. Incorporated, New York, N.Y., against payment
therefor in New York funds.
MORGAN STANLEY & CO. DONALDSON, LUFKIN & JENRETTE OPPENHEIMER & CO., INC.
Incorporated Securities Corporation
* The use of and references to the term "Nikkei 225 Index" herein has been
consented to by NKS.
August , 1995
INFORMATION CONTAINED IN THIS PRELIMINARY PROSPECTUS SUPPLEMENT IS SUBJECT TO
COMPLETION OR AMENDMENT. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO
BUY BE ACCEPTED PRIOR TO THE TIME A FINAL PROSPECTUS SUPPLEMENT IS DELIVERED.
THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS SHALL NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL
THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER,
SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION
UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
The Warrants are unsecured contractual obligations of the Company and
will rank on a parity with the Company's other unsecured contractual
obligations and with the Company's unsecured and unsubordinated debt.
The valuation of and payment for any exercised Warrant (including in the
case of automatic exercise) may be postponed as a result of an Extraordinary
Event or an Exercise Limitation Event (each as hereinafter defined) or as a
result of the exercise of a number of Warrants exceeding the maximum
permissible amount as described herein, in which case the Warrantholder (as
defined herein) will receive a Cash Settlement Value or, under certain
circumstances, the Alternative Settlement Amount (as defined herein) for such
Warrant, in either case determined as of a later date. In addition, following
the occurrence of an Extension Event (as defined herein), exercises of
Warrants will be suspended and, under certain circumstances, any unexercised
Warrants will be deemed to be worthless. See "Description of the
Warrants--Extension Events, Extraordinary Events and Exercise Limitation
Events" herein.
The Warrants will be exercisable immediately upon issuance and at any
time until 3:00 P.M., New York City time, on the earlier of (i) the New York
Business Day immediately preceding August , 1997, the Expiration Date for
the Warrants or (ii) any Delisting Date. Any Warrant not exercised at or
before 3:00 P.M., New York City time, on such New York Business Day will be
automatically exercised on the Expiration Date, subject to an automatic
extension of the term of the Warrants as described herein. All exercises of
Warrants (other than on the Expiration Date or any Delisting Date or following
the occurrence of an Extension Event) are subject, at the Company's option, to
the limitation that not more than 750,000 Warrants in total may be exercised
on any Exercise Date and not more than 250,000 Warrants may be exercised by or
on behalf of any person or entity, either individually or in concert with any
other person or entity, on any Exercise Date. See "Description of the
Warrants -- Exercise of Warrants -- Maximum Exercise Amount" herein.
A Warrantholder may exercise no fewer than 500 Warrants at any one time,
except in the case of automatic exercise. See "Description of the Warrants --
Exercise of Warrants -- Minimum Exercise Amount" herein. A Warrantholder
tendering Warrants for exercise will have the option of specifying that,
unless an Alternative Settlement Amount is payable in respect of such
Warrants, such Warrants are not to be exercised if the Spot Nikkei 225 Index
as of the applicable valuation date is five hundred (500) or more points lower
than the most recent closing level of the Nikkei 225 Index prior to exercise
(subject to adjustment in the case of any substitution of a Substitute Index
for the Nikkei 225 Index.) See "Description of the Warrants -- Limit Option"
herein.
TABLE OF CONTENTS
Page
----
Prospectus Supplement
Summary......................... S-3
References...................... S-8
Use of Proceeds and Hedging..... S-8
Certain Risk Factors
Concerning the Warrants....... S-8
Description of the Warrants..... S-14
The Nikkei 225 Index............ S-27
Certain United States Federal
Income Tax Considerations..... S-32
Underwriters.................... S-34
Appendix A: Index of Key Terms. A-1
Appendix B: List of Underlying.
Stocks........... B-1
Page
----
Prospectus
Available Information........... 2
Incorporation of Documents
by Reference.................. 2
The Company..................... 4
Use of Proceeds................. 4
Risk Factors Relating to
the Warrants.................. 4
Description of the Warrants..... 5
ERISA Matters for Pension Plans
and Insurance Companies....... 13
Plan of Distribution............ 13
Legal Matters................... 14
Experts......................... 14
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
WARRANTS OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN
THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE AMERICAN STOCK
EXCHANGE, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in the Prospectus and this Prospectus
Supplement and in the documents incorporated therein and herein by reference.
Refer to "Index of Terms" attached hereto as Appendix A for a listing of
defined terms and pages on which they are defined in this Prospectus
Supplement.
Securities Offered................... 2,500,000 Nikkei 225 Index Call Warrants
Expiring August , 1997.
Cash Settlement Value................ Upon exercise (including automatic
exercise), each Warrant will entitle the
holder thereof to receive from the
Company an amount in U.S. Dollars
computed by reference to increases in
the Nikkei 225 Index. Such amount (the
"Cash Settlement Value") will equal the
quotient (rounded down to the nearest
cent) of (A) the amount, if any, by
which the Spot Nikkei 225 Index for the
applicable Valuation Date exceeds the
Strike Level divided by (B) the product
of 4.0 and the fixed Japanese Yen/U.S.
Dollar exchange rate of Yen per U.S.
$1.00.
If the Strike Level is equal to or
exceeds the Spot Nikkei 225 Index for
the applicable Valuation Date, the Cash
Settlement Value will be zero, in which
case (except in the case of automatic
exercise), the Warrantholder will be
permitted, subject to certain
exceptions, to re-exercise such Warrant.
The Strike Level is , which is the
closing value (afternoon session) of the
Nikkei 225 Index on the date of this
Prospectus Supplement. The "Spot Nikkei
225 Index" for any date means the
closing value (afternoon session) on
such date of the Nikkei 225 Index. As of
the date hereof, the Spot Nikkei 225
Index is and the Cash Settlement
Value of each Warrant is zero. In the
event that a Substitute Index (as
defined herein) is substituted for the
Nikkei 225 Index, the Strike Level and
the formula used to determine the Cash
Settlement Value will be adjusted so as
to preserve any increases or decreases
in the Nikkei 225 Index which have
occurred as of the time of such
substitution, and the Spot Nikkei 225
Index on any date thereafter will be the
closing level of the Substitute Index.
See "Nikkei 225 Index -- Substitution of
the Nikkei 225 Index" herein.
Maximum Price........................ U.S.$ per Warrant. The initial
public offering price for the Warrants
will be $ per Warrant, except that
the price will be $ per Warrant for
investors purchasing 100,000 or more
Warrants in a single transaction,
subject to a 45-day holding period
requirement. See "Underwriters" herein.
Nikkei 225 Index..................... The Nikkei 225 Index is a modified,
price-weighted stock index calculated,
published and disseminated by NKS. The
Nikkei 225 Index is being used by the
Company with the permission of NKS. The
Nikkei 225 Index measures the composite
price performance of 225 Japanese stocks
trading on the Tokyo Stock Exchange (the
"TSE") representing a broad cross
section of Japanese industries. Stocks
that constitute the Nikkei 225 Index may
be deleted or added at the discretion of
the NKS which is under no obligation to
continue the calculation and the
dissemination of the Nikkei 225 Index.
See "The Nikkei 225 Index" herein.
Under certain circumstances, a
Substitute Index may be substituted for
the Nikkei 225 Index for purposes of
determining the Spot Nikkei 225 Index.
As further described herein, any such
substitution will be made for the
purpose of utilizing a
capitalization-weighted index, and will
be made in a manner intended to preserve
any increases or decreases in the Nikkei
225 Index which have occurred as of the
time a Substitute Index is substituted
for the Nikkei 225 Index. See "Nikkei
225 Index -- Substitution of the Nikkei
225 Index" herein.
If the original publisher of the Nikkei
225 Index or any Substitute Index or any
Third Party (as defined herein)
discontinues publication of the Nikkei
225 Index, any Successor Index or any
Substitute Index, the Determination
Agent shall determine the applicable
Cash Settlement Value based on the
formula and method used in calculating
the Nikkei 225 Index, any Successor
Index or any Substitute Index as in
effect on the date the Nikkei 225 Index,
such Successor Index or such Substitute
Index was last published. See "Certain
Risk Factors Concerning the Warrants"
herein.
Exercise of Warrants................. The Warrants will be exercisable
immediately upon issuance (subject to
postponement as described herein under
"Description of the Warrants --
Extension Events, Extraordinary Events
and Exercise Limitation Events" or as a
result of the exercise of a number of
Warrants exceeding the maximum
permissible amount) and until 3:00 P.M.,
New York City time, on the earlier of
(i) the New York Business Day
immediately preceding the Expiration
Date and (ii) the last New York Business
Day prior to the effective date of their
delisting from, or permanent suspension
from trading on (within the meaning of
the Securities Exchange Act of 1934 (the
"Exchange Act") and the rules and
regulations thereunder) the AMEX and
failure to have the Warrants accepted at
the same time for trading pursuant to
the rules of another self-regulatory
organization (an "SRO") that are filed
with the Securities and Exchange
Commission (the "Commission") under the
Exchange Act (such last New York
Business Day, the "Delisting Date"). The
Warrants will expire on August , 1997
(the "Expiration Date"), subject to an
automatic extension of the term of the
Warrants as described herein under
"Description of the Warrants --
Extension Events, Extraordinary Events
and Exercise Limitation Events." Unless
the term of the Warrants is extended,
all Warrants not previously exercised
will be automatically exercised on the
Expiration Date or on any earlier
Delisting Date, as the case may be. See
"Description of the Warrants -- Exercise
of Warrants" herein.
Exercise Amount...................... A Warrantholder may exercise no fewer
than 500 Warrants at any one time,
except in the case of automatic
exercise. See "Description of the
Warrants -- Exercise of Warrants --
Minimum Exercise Amount" herein. All
exercises of Warrants (other than on the
Expiration Date or any Delisting Date or
upon the cancellation of Warrants or
following the occurrence of an Extension
Event) are subject, at the Company's
option, to the limitation that not more
than 750,000 Warrants in total may be
exercised on any Exercise Date and not
more than 250,000 Warrants may be
exercised by or on behalf of any
beneficial owner, either individually or
in concert with any other beneficial
owner, on any Exercise Date. See
"Description of the Warrants -- Exercise
of Warrants -- Maximum Exercise Amount"
herein.
Extension Events, Extraordinary
Events and Exercise
Limitation Events.................. See "Description of the Warrants --
Extension Events, Extraordinary Events
and Exercise Limitation Events" herein
for a description of such Events and the
consequences of the declaration of such
an Event by the Company.
Certain Risk Factors................. The Warrants are speculative and involve
a high degree of risk, including (but
not limited to) risks arising from
fluctuations in the prices of the stocks
comprising the Nikkei 225 Index, risks
relating to the Nikkei 225 Index and
general risks applicable to the TSE (the
exchange on which all the stocks
underlying the Nikkei 225 are traded).
Investors should recognize that their
Warrants may expire worthless and should
be prepared to sustain a total loss of
the purchase price of their Warrants.
The Warrants are appropriate investments
only for investors with options approved
accounts who are able to understand and
bear the risk of a speculative
investment in the Warrants.
Because the Determination Agent is an
affiliate of the Company, potential
conflicts of interest may exist between
the Determination Agent and the
Warrantholders.
While the Warrants have been approved
for listing on the AMEX, subject to
official notice of issuance, it is not
possible to predict how the Warrants
will trade in the secondary market or
whether such market will be liquid or
illiquid. To the extent Warrants are
exercised, the number of Warrants
outstanding will decrease, resulting in
a decrease in the liquidity of the
Warrants. In addition, the Company or
one or more of its affiliates may from
time to time purchase Warrants resulting
in a decrease in the liquidity of the
Warrants.
In the event that a suspension, material
limitation or absence of trading on the
TSE of 20% or more in number of the
Underlying Stocks (as defined below) is
continuing on the Expiration Date (an
"Extension Event"), the term of the
Warrants will be extended for a period
of one month (the "Extended Expiration
Date"), except that if the Cash
Settlement Value or the Intrinsic Value
used in calculating the Alternative
Settlement Amount, as the case may be,
of the Warrants would have been zero if
the Warrants had been exercised such
that the Valuation Date for such
exercise was the Measurement Date (as
defined herein), then the term of the
Warrants will not be extended and the
Warrants will be deemed to be worthless.
See "Description of the Warrants --
Extension Events, Extraordinary Events
and Exercise Limitation Events" herein.
The Warrants will also be deemed to be
worthless if the Expiration Date of the
Warrants is extended but an Extension
Event is continuing on the Extended
Expiration Date or any earlier Delisting
Date. As a result, investors may suffer
a total loss of their investment in the
Warrants even though the Cash Settlement
Value of the Warrants, if calculated
using the fair value of the Underlying
Stocks at the time the Warrants are
deemed to be worthless, would be greater
than zero.
Under certain circumstances, a
Substitute Index will replace the Nikkei
225 Index for purposes of determining
the Spot Nikkei 225 Index. On any date
following such substitution, the level
of the Substitute Index (and thus the
Spot Nikkei 225 Index) may be higher
than, lower than, or at the same level
as, the Nikkei 225 Index. Therefore, a
Warrantholder who exercises a Warrant
following any such substitution may
realize a Cash Settlement Value that is
greater than, less than, or equal to,
the Cash Settlement Value that might
have been realized had no such
substitution occurred. No assurances
can be given as to the potential level
of any Substitute Index relative to the
level of the Nikkei 225 Index on any
date. However, upon any such
substitution, the Strike Level and the
formula used to determine the Cash
Settlement Value will be adjusted so as
to preserve any increases or decreases
in the Nikkei 225 Index which have
occurred as of the time of such
substitution. See "The Nikkei 225 Index
-- Substitution of the Nikkei 225 Index"
herein.
Investors should consider carefully the
risks and other matters discussed under
"Risk Factors Relating to the Warrants"
in the Prospectus and "Certain Risk
Factors Concerning the Warrants,"
"Description of the Warrants" and
"Certain United States Income Tax
Considerations" herein prior to
purchasing the Warrants.
Who Should Invest.................... The AMEX requires that the Warrants be
sold only to investors with options
approved accounts and requires that its
members and member organizations and
registered employees thereof make
certain suitability determinations
before recommending transactions in
Warrants.
Investment decisions relating to
international stock index warrants
require an investor to predict the
direction of movements in the underlying
index as well as the amount and timing
of those movements. International stock
index warrants may change substantially
in value, or lose all of their value,
with relatively small movements in the
underlying index. Moreover, in the
absence of countervailing factors, such
as an offsetting movement in the level
of the index, the market value of an
index warrant will tend to decrease over
time and the warrant will have no market
value after the time for exercise has
expired. Accordingly, the Warrants
involve a high degree of risk and are
not appropriate for every investor.
Investors who are considering purchasing
the Warrants should have an options
approved account, be able to understand
and bear the risk of an investment in
the Warrants, be experienced with
respect to options and option
transactions and understand the risks of
stock index transactions. Such
investors should reach an investment
decision only after careful
consideration with their advisers of the
suitability of the Warrants in light of
their particular financial circumstances
and the information set forth in this
Prospectus Supplement and the
Prospectus. See "Risk Factors Relating
to the Warrants" in the Prospectus and
"Certain Risk Factors Concerning the
Warrants" herein. As indicated above,
investors should be prepared to sustain
a total loss of the purchase price of
the Warrants.
Listing.............................. The American Stock Exchange.
Warrant Trading Symbol............... "JMS.WS"
Warrant Agent........................ Chemical Bank
Determination Agent.................. Morgan Stanley & Co. Incorporated
Index Quotation Symbol On Reporting
Services Operated by
Bloomberg, L.P. ................... "NKY"
REFERENCES
References herein to "U.S. Dollar," "U.S.$" or "$" are to the lawful
currency of the United States of America. References to "Japanese Yen" or
"Yen" are to the lawful currency of Japan. As used herein, "New York Business
Day" means any day other than a Saturday, Sunday or day on which either the
AMEX or the New York Stock Exchange is not open for securities trading or
commercial banks in New York City are required or authorized by law or
executive order to remain closed, and "Tokyo Business Day" means any day other
than (i) a Saturday, Sunday or day on which banks are not open for a full day
of business in Tokyo or (ii) a day on which the Tokyo Stock Exchange (the
"TSE"), the Singapore International Monetary Exchange Ltd. (the "SIMEX") or
the Osaka Securities Exchange (the "OSE") are not open for business. As used
herein, "Index Calculation Day" means any day on which the Nikkei 225 Index,
any Successor Index or any Substitute Index is calculated and published.
USE OF PROCEEDS AND HEDGING
All or a portion of the net proceeds from the sale of the Warrants will
be used by the Company or one or more of its affiliates in connection with
hedging the obligations represented by the Warrants. Such hedging activities
may include the establishment of positions which entail only potential
payments upon close-out but not up-front acquisition costs. Any remaining net
proceeds will be used for general corporate purposes.
The Company expects that shortly prior to, at or shortly following the
initial offering of the Warrants, the Company, through its affiliates, will
hedge its anticipated exposure in connection with the Warrants by taking
positions in (i) futures or options contracts listed on the SIMEX or the OSE
linked to the Nikkei 225 Index, (ii) options listed on the AMEX linked to the
American Stock Exchange Japan Index (the "Japan Index"), (iii)
over-the-counter options linked to the Nikkei 225 Index, (iv) the component
stocks of the Nikkei 225 Index and/or (v) other available securities and
instruments. Such hedging will be carried out in a manner designed to minimize
any impact on the prices of the Underlying Stocks. Purchase activity could
potentially increase the prices of the Underlying Stocks, and therefore the
Strike Level. Although the Company has no reason to believe that its hedging
activity will have such an impact, there can be no assurance that the Company
will not affect the prices of the Underlying Stocks as a result of its hedging
activities. The Company, through its affiliates, expects to modify its hedge
position throughout the life of the Warrants by purchasing and selling the
securities and instruments listed above and other available securities and
instruments, including, in the event of a substitution of a Substitute Index
for the Nikkei 225 Index, futures or options contracts listed on the SIMEX or
OSE linked to the Nikkei 300 Index (as defined herein), listed options linked
to any Substitute Index, over-the-counter options linked to any Substitute
Index and the component stocks of any Substitute Index. See "Use of Proceeds"
in the Prospectus.
CERTAIN RISK FACTORS CONCERNING THE WARRANTS
General Market and Timing Risks
The owner of a Warrant (a "Warrantholder") will receive a cash payment
upon exercise (including automatic exercise) only if such Warrant has a Cash
Settlement Value (or, if applicable, upon the occurrence of an Extraordinary
Event or an Exercise Limitation Event as described under "Description of the
Warrants -- Extension Events, Extraordinary Events and Exercise Limitation
Events" herein, an Alternative Settlement Amount) greater than zero at such
time. The Cash Settlement Value of a Warrant will be an amount in U.S. Dollars
equal to the quotient (rounded down to the nearest cent) of (A) the amount, if
any, by which the Spot Nikkei 225 Index for the applicable Valuation Date
exceeds the Strike Level divided by (B) the product of 4.0 and the fixed
Japanese Yen/U.S. Dollar exchange rate of Yen per U.S. $1.00. See
"Description of the Warrants -- Cash Settlement Value" herein.
The Strike Level is , which is the closing value (afternoon
session) of the Nikkei 225 Index on the date of this Prospectus Supplement
(see "Description of the Warrants -- Cash Settlement Value" herein). The "Spot
Nikkei 225 Index" for any date means the closing value (afternoon session) on
such date of the Nikkei 225 Index. See "Certain Risk Factors Concerning the
Warrants -- Other Considerations" and "The Nikkei 225 Index" herein. In the
event that a Substitute Index is substituted for the Nikkei 225 Index, the
Strike Level and the formula used to determine the Cash Settlement Value will
be adjusted so as to preserve any increases or decreases in the Nikkei 225
Index which have occurred as of the time of such substitution, and the Spot
Nikkei 225 Index on any date thereafter will be the closing level of the
Substitute Index. See "Nikkei 225 Index -- Substitution of the Nikkei 225
Index" herein.
Except under the circumstances described in the next paragraph, the
Valuation Date for an exercised Warrant will be the first Index Calculation
Day after the related Exercise Date. The Exercise Date for an exercised
Warrant, subject to certain exceptions described under " -- Exercise of
Warrants," " -- Limit Option" and " -- Automatic Exercise" under "Description
of the Warrants" herein, will be the New York Business Day on which such
Warrant and the related Exercise Notice are received in proper form by the
Warrant Agent, if received at or prior to 3:00 P.M., New York City time, on
such day; if the Warrant and related Exercise Notice are received after 3:00
P.M., New York City time, on such day, the Exercise Date will be the next
succeeding New York Business Day. See "Description of the Warrants -- Exercise
of Warrants" herein.
Because the Valuation Date for an exercised Warrant will occur after the
Exercise Date, a Warrantholder will not be able to determine, at the time of
exercise of a Warrant, the Spot Nikkei 225 Index that will be used in
calculating the Cash Settlement Value of such Warrant (and will thus be unable
to determine such Cash Settlement Value). In addition, the Valuation Date for
an exercised Warrant may be postponed upon the occurrence and continuation of
an Extraordinary Event or an Exercise Limitation Event (see "Description of
the Warrants -- Extension Events, Extraordinary Events and Exercise Limitation
Events" herein) or as a result of the exercise of a number of Warrants
exceeding the limits on exercise described herein under "Description of the
Warrants -- Exercise of Warrants -- Maximum Exercise Amount."
The level of the Spot Nikkei 225 Index will determine whether the
Warrants have a Cash Settlement Value greater than zero on any particular day.
The Warrants are "at-the-money" (i.e., their Cash Settlement Value is zero) as
of the date of this Prospectus Supplement and will be "in-the-money" (i.e.,
their Cash Settlement Value will be greater than zero) on any particular day
only if the level of the Nikkei 225 Index increases so that the Spot Nikkei
225 Index is above the Strike Level on such day. An increase in the level of
the Spot Nikkei 225 Index will result in a greater Cash Settlement Value, and
a decrease in the level of the Spot Nikkei 225 Index will result in a lesser
or zero Cash Settlement Value. Potential profit or loss upon exercise
(including automatic exercise) of a Warrant will be a function of the Cash
Settlement Value (or, if applicable, the Alternative Settlement Amount) of
such Warrant, the purchase price of such Warrant and any related transaction
costs.
Each Warrant has a Cash Settlement Value of zero as of the date of this
Prospectus Supplement. The Cash Settlement Value at any time prior to
expiration is expected typically to be less than the Warrants' market value at
that time. The difference between the market value and the Cash Settlement
Value will reflect a number of factors, including the "time value" for the
Warrants, and the supply and demand for the Warrants. The "time value" of the
Warrants will depend upon the length of the period remaining to expiration of
the Warrants. The Expiration Date of the Warrants will be accelerated should
the Warrants be delisted or should there be a permanent suspension of trading
of the Warrants on the AMEX or other SRO whose rules are filed with the
Commission under the Exchange Act. Any such acceleration could result in the
total loss of any otherwise remaining "time value" and could occur when the
Warrants are "out-of-the-money" (i.e., when the Spot Rate is less than or
equal to the Strike Rate), thus resulting in total loss of the purchase price
of the Warrants.
Investment decisions relating to international stock index warrants
require the investor to predict the direction of movements in the underlying
index as well as the amount and timing of those movements. International stock
index warrants may change substantially in value, or lose all of their value,
with relatively small movements in the index. Moreover, an index warrant is a
"wasting asset" in that in the absence of countervailing factors, such as an
offsetting movement in the level of the index, the market value of an index
warrant will tend to decrease over time and the warrant will have no market
value after the time for exercise has expired. Accordingly, the Warrants
involve a high degree of risk and are not appropriate for every investor. As
such, investors who are considering purchasing the Warrants must be able to
understand and bear the risk of a speculative investment in the Warrants and
be experienced with respect to options and option transactions and understand
the risks of stock index transactions. Such investors should reach an
investment decision only after careful consideration, with their advisers, of
the suitability of the Warrants in light of their particular financial
circumstances and the information set forth in this Prospectus Supplement and
in the Prospectus.
Since its inception, the Nikkei 225 Index has experienced significant daily
price fluctuations and it is impossible to predict its future direction. See
"The Nikkei 225 Index--Historical Data on Nikkei 225 Index" herein.
The AMEX requires that the Warrants be sold only to investors with options
approved accounts. In addition, the AMEX requires that its members and member
organizations and registered employees thereof make certain suitability
determinations before recommending transactions in Warrants. Before making any
investment in the Warrants, it is important that a prospective investor become
informed about and understand the nature of the Warrants in general, the
specific terms of the Warrants and the nature of the Nikkei 225 Index. An
investor should understand the consequences of liquidating his investment in a
Warrant by exercising it as opposed to selling it. It is especially important
for an investor to be familiar with the procedures governing the exercise of
the Warrants, since the Cash Settlement Value of the Warrants will fluctuate
over the life of the Warrants and a failure to properly exercise a Warrant
prior to its expiration could result in the loss of the opportunity to realize
a Cash Settlement Value that is higher than the Cash Settlement Value that
might otherwise be realized on the Expiration Date. To properly exercise
Warrants, an investor must know when Warrants are exercisable and how to
exercise them.
Risk Due to Delay or Postponement of Valuation of Warrants
Any downward movement in the level of the Spot Nikkei 225 Index between
the time a Warrantholder submits an Exercise Notice and the time the Spot
Nikkei 225 Index is determined with respect to such exercise (which period
will, at a minimum, represent an entire Tokyo Business Day and, in the case of
a postponed Valuation Date following an Extraordinary Event or an Exercise
Limitation Event or as a result of there being exercised a number of Warrants
exceeding the maximum permissible amount, may be substantially longer) will,
subject to the Limit Option described below and under "Description of the
Warrants -- Limit Option" herein, result in such Warrantholder receiving a
Cash Settlement Value or Alternative Settlement Amount (including a zero
Alternative Settlement Amount) that is less than the Cash Settlement Value
anticipated by such Warrantholder based on the level of the Spot Nikkei 225
Index most recently reported prior to exercise. The Nikkei 225 Index is
compiled and published by NKS once per minute during TSE trading hours based
upon prices of each of the Underlying Stocks as reported by the TSE. Due to
time differences, trading on the TSE occurs when the AMEX is closed for
business.
Except in the case of automatic exercise, a Warrantholder may be able
to limit to some extent the risk associated with any such downward movement
in the Spot Nikkei 225 Index between an Exercise Date and the applicable
Valuation Date if such Warrantholder, in connection with an exercise of
Warrants, elects the Limit Option. Pursuant to the Limit Option, Warrants
tendered for exercise will not be exercised if the Spot Nikkei 225 Index as
of the applicable Valuation Date is five hundred (500) or more points lower
than the Spot Nikkei 225 Index calculated immediately prior to the
applicable Exercise Date (subject to adjustment in the case of any
substitution of a Substitute Index for the Nikkei 225 Index). See
"Description of the Warrants -- Limit Option" herein. However, in the
event of the occurrence of an Extraordinary Event or Exercise Limitation
Event resulting in the payment to Warrantholders of an Alternative
Settlement Amount in lieu of the Cash Settlement Value or in the case of
certain events following the occurrence of an Extension Event, the Limit
Option will not preclude the exercise of Warrants as described under
"Description of the Warrants -- Extension Events, Extraordinary Events and
Exercise Limitation Events" herein.
If the Company determines that an Extraordinary Event or an Exercise
Limitation Event has occurred and is continuing on any day that would
otherwise be a Valuation Date for any exercised Warrant, then the Valuation
Date for such Warrant will be postponed to the next Index Calculation Day
following the Tokyo Business Day on which there is no Extraordinary Event or
Exercise Limitation Event; provided that, subject to an automatic extension of
the term of the Warrants or to a determination that the Warrants are
worthless, as described under "Description of the Warrants -- Extension
Events, Extraordinary Events and Exercise Limitation Events," if the postponed
Valuation Date has not occurred on or prior to the Expiration Date or any
Delisting Date, the Warrantholders will receive the Alternative Settlement
Amount (as described below) in lieu of the Cash Settlement Value; provided,
further, that, in the case of an Extraordinary Event, if the Company
determines that such Extraordinary Event is expected to continue and the
Company notifies the Warrant Agent that it is cancelling the Warrants, then
the date on which such notice is given (whether or not such date is a New York
Business Day) will become the Valuation Date for such Warrant, in which case
such Warrantholder will receive, in lieu of the Cash Settlement Value of such
Warrant, the Alternative Settlement Amount thereof, which is equal to the sum
of the Cash Settlement Value of the Warrants on such Valuation Date and a
ratable portion of the initial offering price of the Warrants, subject to
certain exceptions and adjustments. The Cash Settlement Value or the
Alternative Settlement Amount of a Warrant determined as of any such postponed
Valuation Date may be substantially lower (including zero) than the otherwise
applicable Cash Settlement Value thereof. See "Description of the Warrants --
Extension Events, Extraordinary Events and Exercise Limitation Events" herein,
which includes a description of events, circumstances or causes constituting
Extraordinary Events or an Exercise Limitation Event.
Risks Due to Company's Inability to Trade in Underlying Stocks
In the event that a suspension, material limitation or absence of trading
on the TSE of 20% or more in number of the Underlying Stocks is continuing on
the Expiration Date (an "Extension Event"), the term of the Warrants will be
extended for a period of one month (the "Extended Expiration Date"), except
that if the Cash Settlement Value or the Intrinsic Value used in calculating
the Alternative Settlement Amount, as the case may be, of the Warrants would
have been zero if the Warrants had been exercised such that the Valuation Date
for such exercise was the Measurement Date, then the term of the Warrants will
not be extended and the Warrants will be deemed to be worthless. See
"Description of the Warrants -- Extension Events, Extraordinary Events and
Exercise Limitation Events" herein. The Warrants will also be deemed to be
worthless if the Expiration Date of the Warrants is extended but an Extension
Event is continuing on the Extended Expiration Date or any earlier Delisting
Date. As a result, investors may suffer a total loss of their investment in
the Warrants even though the Cash Settlement Value of the Warrants, if
calculated using the fair value of the Underlying Stocks (as defined below) at
the time the Warrants are deemed to be worthless, would be greater than zero.
Risks and Costs Associated with Conversion and Exercise of Warrants
The Warrants will be issued as certificates in registered form.
Accordingly, a beneficial owner of Warrants holding certificated Warrants
indirectly (for instance, through a broker that holds such Warrants in "street
name") may exercise such Warrants only through his registered holder. In the
case of a beneficial owner holding certificated Warrants through his broker in
"street name," such beneficial owner must direct his broker, who may in turn
need to direct another intermediary, to submit an Exercise Notice and the
related Warrants to the Warrant Agent. To ensure that an Exercise Notice and
the related Warrants will be delivered to the Warrant Agent before 3:00 P.M.,
New York City time, on a given New York Business Day, a beneficial holder of
Warrants must give the appropriate direction to his broker or other
intermediary before such broker's cut-off time for accepting exercise
instructions from customers for that day. Different brokerage firms may have
different cut-off times for accepting and implementing exercise instructions
from their customers. Therefore, Warrantholders should consult with their
brokers, or other intermediaries, as to applicable cut-off times and other
exercise mechanics. See "-- Exercise of Warrants" and "-- Limit Option" under
"Description of the Warrants" herein.
Commencing on the forty-fifth calendar day (or if such day is not a New
York Business Day, the next succeeding New York Business Day) after the
closing of the offering (which closing date is expected to be August ,
1995), each Warrantholder will have the option, for 45 calendar days
thereafter, to convert the form in which such Warrantholder holds his Warrants
from certificated to book-entry form (the "Conversion Option"). Such
conversion will occur through the facilities of The Depository Trust Company,
New York, New York ("DTC", which term, as used herein and in the Prospectus,
includes any successor depository selected by the Company). To exercise
Warrants, a Warrantholder who has utilized the Conversion Option must direct a
broker, who may in turn need to direct a Participant (as defined in the
Prospectus under "Description of the Warrants -- Certain Items Applicable to
all Warrants -- Book-Entry Form"), to transfer Warrants held by DTC on behalf
of such Warrantholder and to submit an Exercise Notice to the Warrant Agent. A
Warrantholder may desire that the New York Business Day on which his Warrants
and an Exercise Notice are delivered on his behalf to the Warrant Agent will
constitute the Exercise Date for the Warrants being exercised (for example, to
utilize the Limit Option most effectively). To achieve such objective, the
Warrantholder must cause such Warrants to be transferred to, and such Exercise
Notice to be received by, the Warrant Agent at or prior to 3:00 P.M., New York
City time, on such New York Business Day. To ensure that such Warrants and
Exercise Notice will be received by the Warrant Agent at or prior to such
time, such Warrantholder must give the appropriate directions to his broker
before such broker's (and, if such broker is not a Participant, the applicable
Participant's) cut-off time for accepting exercise instructions from customers
for that day. Different brokerage firms may have different cut-off times for
accepting and implementing exercise instructions from their customers.
Therefore, Warrantholders holding their Warrants in book-entry form should
consult with their brokers or other intermediaries, if applicable, as to
applicable cut-off times and other exercise mechanics. See " --Exercise of
Warrants," "--Settlement" and " --Limit Option" under "Description of the
Warrants" herein. Forms of Exercise Notice for Warrants held in book-entry
form may be obtained from the Warrant Agent's Office during the Warrant
Agent's normal business hours. See "Description of the Warrants --General"
herein.
A Warrantholder may exercise no fewer than 500 Warrants at any time,
except in the case of automatic exercise. Accordingly, except in the case of
automatic exercise of the Warrants, a Warrantholder with fewer than 500
Warrants will need either to sell his Warrants or to purchase additional
Warrants, thereby incurring transaction costs, in order to realize upon his
investment.
Limitations on Changes in Stock Prices by the Tokyo Stock Exchange
Investors should realize that the TSE places daily price floors and
ceilings upon fluctuations of individual stock prices listed on the TSE. In
general, any stocks listed on the TSE cannot be traded at a price outside of
these limits, which are absolute Japanese Yen, and not percentage, limits,
from the closing price of the stock on the previous day. In addition, when
there is a major order imbalance in a listed stock, the TSE posts a "special
bid quote" or a "special asked quote" for that stock at a slightly higher or
lower price level than the stock's last sale price in order to solicit counter
orders and balance supply and demand for the stock. Investors should also be
aware that the TSE may suspend the trading of individual stocks in certain
limited and extraordinary circumstances, including, for example, unusual
trading activity in that stock. As a result, variations in the Nikkei 225
Index may be limited by price limitations or special quotes, or by suspension
of trading, on individual stocks which comprise the Nikkei 225 Index which
may, in turn, adversely affect the value of the Warrants.
Certain Relationships and Related Transactions
Potential investors should also be aware that Morgan Stanley & Co.
Incorporated ("Morgan Stanley"), in its capacity as Determination Agent, is
under no obligation to take the interests of the Warrantholders into
consideration in the event it determines the Cash Settlement Value. Because
Morgan Stanley is an affiliate of the Company, conflicts of interest may arise
in connection with Morgan Stanley performing its role as Determination Agent.
Morgan Stanley, as a registered broker-dealer, is required to maintain
policies and procedures regarding the handling and use of confidential
proprietary information, and such policies and procedures will be in effect
throughout the term of the Warrants to restrict the use of information
relating to the calculation of the Cash Settlement Value prior to its
dissemination. Morgan Stanley is obligated to carry out its duties and
functions as Determination Agent in good faith and using its reasonable
judgment.
Morgan Stanley and its affiliates may from time to time engage in
transactions involving the Underlying Stocks for their proprietary accounts
and for other accounts under their management, which may influence the value
of such Underlying Stocks and therefore the value of the Warrants. Morgan
Stanley and its affiliates will also be the writers of the hedge of the
Company's obligations under the Warrants and will be obligated to pay to the
Company upon exercise of Warrants an amount equal to the value of the
exercised Warrants. See "Use of Proceeds" in the Prospectus and "Use of
Proceeds and Hedging" herein. Accordingly, under certain circumstances,
conflicts of interest may arise between Morgan Stanley's responsibilities as
Determination Agent with respect to the Warrants and its obligations under its
hedge.
Other Considerations
The initial offering price of the Warrants will be in excess of the price
that a commercial user of options on the Nikkei 225 Index might pay for a
comparable option in a private transaction. It is not possible to predict how
the Warrants will trade in the secondary market or whether such market will be
liquid or illiquid. To the extent Warrants are exercised, the number of
Warrants outstanding will decrease, resulting in a decrease in the liquidity
of the Warrants. In addition, during the life of the Warrants, the Company or
its affiliates may from time to time purchase and exercise the Warrants,
resulting in a decrease in the liquidity of the Warrants.
The Cash Settlement Value or the Alternative Settlement Amount of a
Warrant will be determined using a fixed Japanese Yen/U.S. Dollar exchange
rate, thus, changes in the actual Japanese Yen/U.S. Dollar exchange rate will
not affect the calculation of these amounts. Nevertheless, the Japanese
Yen/U.S. Dollar exchange rate may affect economic and political developments
in Japan and other countries which, in turn, may affect the value of the
Nikkei 225 Index.
Under certain circumstances, a Substitute Index will replace the Nikkei
225 Index for purposes of determining the Spot Nikkei 225 Index. On any date
following such substitution, the level of the Substitute Index (and thus the
Spot Nikkei 225 Index) may be higher than, lower than, or at the same level
as, the Nikkei 225 Index. Therefore, a Warrantholder who exercises a Warrant
following any such substitution may realize a Cash Settlement Value that is
greater than, less than, or equal to the Cash Settlement Value that might have
been realized had no such substitution occurred. No assurances can be given
as to the potential level of any Substitute Index relative to the level of the
Nikkei 225 Index on any date. However, upon any such substitution, the Strike
Level and the formula used to determine the Cash Settlement Value will be
adjusted so as to preserve any increases or decreases in the Nikkei 225 Index
which have occurred as of the time of such substitution. See "The Nikkei 225
Index -- Substitution of the Nikkei 225 Index" herein.
In the event that the Nikkei 225 Index or any Substitute Index is not
published by its original publisher but is published by another person not
affiliated with the Company and acceptable to the Company (the "Third Party"),
then the Spot Nikkei 225 Index for any date thereafter will be determined
based on the closing level of the Nikkei 225 Index or any Substitute Index as
published by such Third Party. If the original publisher of the Nikkei 225
Index or any Substitute Index or any Third Party discontinues publication of
the Nikkei 225 Index or any Substitute Index and publishes a successor or
substitute index that the Company determines, in its sole discretion, to be
comparable to the Nikkei 225 Index (any such index being a "Successor Index"),
then the Spot Nikkei 225 Index for any date thereafter will be determined by
the Determination Agent on behalf of the Company based on the closing level of
the Successor Index on such date. If the original publisher of the Nikkei 225
Index or any Substitute Index or any Third Party makes a material change in
the formula for, or the method of calculating, the Nikkei 225 Index, any
Successor Index or any Substitute Index, the Determination Agent shall make
such calculations as may be required to determine the applicable Cash
Settlement Value using the formula and method of calculating the Nikkei 225
Index, any Successor Index or any Substitute Index as in effect prior to such
change or modification. If the original publisher of the Nikkei 225 Index, any
Successor Index or any Substitute Index and/or any Third Party discontinues
publication of the Nikkei 225 Index, any Successor Index or any Substitute
Index, the Determination Agent will determine the applicable Cash Settlement
Value based on the formula and method used in calculating the Nikkei 225
Index, any Successor Index or any Substitute Index as in effect on the date
the Nikkei 225 Index, any Successor Index or any Substitute Index was last
published.
The Warrants have been approved for listing on the AMEX, subject to
official notice of issuance. In the event that the Warrants are delisted from,
or permanently suspended from trading on, the AMEX, and not accepted at the
same time for trading pursuant to the rules of another SRO that are filed with
the Commission under the Exchange Act, Warrants not previously exercised will
be deemed automatically exercised on the last New York Business Day prior to
the effective date of such delisting or suspension, and if such delisting or
suspension occurs on or prior to the Expiration Date, the Cash Settlement
Value, if any, will be calculated and settled as provided below under
"Description of the Warrants --Automatic Exercise," subject to a determination
that the Warrants are worthless, as described below under "Description of the
Warrants -- Extension Events Extraordinary Events and Exercise Limitation
Events." If such delisting or suspension occurs after the Expiration Date and
prior to any Extended Expiration Date, the Warrants will be deemed to be
worthless. See "Description of the Warrants --Delisting of Warrants" herein.
In the event the Company becomes aware that a delisting or suspension of
trading of the Warrants on the AMEX is likely to occur, the Company will use
its best efforts to list the Warrants on another United States national
securities exchange at or prior to the time such delisting or suspension of
trading occurs.
The Underwriters propose initially to offer the Warrants at a price that
reflects a discount from the maximum price to public referred to on the cover
of this Prospectus Supplement for the purchase of 100,000 or more Warrants in
any single transaction, subject to the 45-day holding period requirement
referred to under "Underwriters" herein. Should investors who are subject to
the holding period requirement sell their Warrants once the holding period is
no longer applicable, the market price of the Warrants may be adversely
affected. See "Underwriters" herein.
Investors considering the purchase of Warrants should be experienced with
respect to options and options transactions, should understand the risks of
stock index transactions and should reach an investment decision only after
careful consideration, with their advisers, of the suitability of the Warrants
in light of their particular financial circumstances and the information set
forth in this Prospectus Supplement and in the Prospectus. The AMEX requires
that the Warrants be sold only to investors with options approved accounts and
requires its members and member organizations and registered employees thereof
to make certain suitability determinations before recommending transactions in
the Warrants.
DESCRIPTION OF THE WARRANTS
General
The Warrants will be issued pursuant to a Warrant Agreement (the "Warrant
Agreement"), to be dated as of August , 1995, among the Company, Chemical
Bank, as Warrant Agent (the "Warrant Agent"), and Morgan Stanley, as
Determination Agent. The following summaries of certain provisions of the
Warrants and the Warrant Agreement do not purport to be complete and are
subject to, and qualified in their entirety by reference to, all of the
provisions of the Warrant Agreement (including the form of Warrant Certificate
attached as an exhibit thereto). The Warrant Agreement will be available from
the Warrant Agent by contacting its office (the "Warrant Agent's Office"),
which is currently located at 450 West 33rd Street, New York, New York 10001,
during the Warrant Agent's normal business hours.
The aggregate number of Warrants to be issued will be 2,500,000, subject
to the over-allotment option granted by the Company to the Underwriters (see
"Underwriters" herein) and to the right of the Company to "reopen" the issue
of Warrants and issue additional Warrants at a later time.
A Warrant will not require or entitle a Warrantholder to purchase or take
delivery from the Company of any shares of any of the Underlying Stocks or any
other securities. Upon exercise of a Warrant, the Company will make only a
U.S. Dollar cash payment in the amount of the Cash Settlement Value or
Alternative Settlement Amount, if any and as applicable, of such Warrant. The
Company is under no obligation to, nor will it, sell or deliver to any
Warrantholder any shares of any of the Underlying Stocks or any other
securities in connection with the exercise of any Warrants. Warrantholders
will not receive any interest on any Cash Settlement Value or Alternative
Settlement Amount, and the Warrants will not entitle the Warrantholders to any
of the rights of holders of any of the Underlying Stocks or any other
securities.
Cash Settlement Value
Each Warrant will entitle the Warrantholder to receive, upon exercise
(including automatic exercise), the Cash Settlement Value of such Warrant,
except that, under the circumstances described under "-- Extension Events,
Extraordinary Events and Exercise Limitation Events" herein, such
Warrantholder may instead receive the Alternative Settlement Amount for such
Warrant or, in certain circumstances following an Extension Event, the
Warrants will be deemed to be worthless. The Cash Settlement Value of a
Warrant will be in an amount in U.S. Dollars equal to the quotient (rounded
down to the nearest cent) of (A) the amount, if any, by which the Spot Nikkei
225 Index for the applicable Valuation Date for such Warrant exceeds the
Strike Level divided by (B) the product of 4.0 and the fixed Japanese Yen/U.S.
Dollar exchange rate of Yen per U.S. $1.00. The Cash Settlement Value is
described by the following formula:
Cash Settlement Value = the greater of (i) $0 and
(ii) $1 x (Spot Nikkei 225 Index -- Strike Level)
-------------------------------------------
4 x ( Yen/U.S. $1.00)
The "Strike Level" is , which was the closing value (afternoon session)
of the Nikkei 225 Index on the date of this Prospectus Supplement. The "Spot
Nikkei 225 Index" for any date means the closing value (afternoon session) on
such date of the Nikkei 225 Index. In the event that a Substitute Index is
substituted for the Nikkei 225 Index, the Strike Level and the formula used to
determine the Cash Settlement Value will be adjusted so as to preserve any
increases or decreases in the Nikkei 225 Index which have occurred as of the
time of such substitution, and the Spot Nikkei 225 Index on any date
thereafter will be the closing level of the Substitute Index. See "Nikkei 225
Index -- Substitution of the Nikkei 225 Index" herein.
Warrant Values on Exercise
Set forth below is an illustrative example demonstrating the Cash
Settlement Values of a hypothetical Warrant at a hypothetical Strike Level of
16,500, a hypothetical fixed Japanese Yen/U.S. Dollar exchange rate of 90.00
Yen/U.S.$1.00 and at various hypothetical levels of the Spot Nikkei 225 Index.
The illustrative hypothetical Cash Settlement Values in the table do not
reflect any "time value" for a Warrant, which may be reflected in trading
value, and are not necessarily indicative of potential profit or loss, which
are also affected by purchase price and transaction costs. The hypothetical
Cash Settlement Values in the table have been rounded to two decimal places.
Hypothetical Cash
Hypothetical Settlement Value
Spot Nikkei 225 Index of Warrant
--------------------- ----------
15,000 $ 0.00
15,500 0.00
16,000 0.00
16,500 0.00
17,000 1.39
17,500 2.78
18,000 4.17
18,500 5.56
19,000 6.94
19,500 8.33
20,000 9.72
20,500 11.11
21,000 12.50
21,500 13.89
22,000 15.28
22,500 16.67
The hypothetical Cash Settlement Value will be zero for any hypothetical Spot
Nikkei 225 Index equal to or less than 16,500, the hypothetical Strike Level
referred to above.
Exercise of Warrants
Exercise of Warrants. The Warrants will be immediately exercisable upon
issuance, subject to postponement as described herein under " -- Extension
Events, Extraordinary Events and Exercise Limitation Events" or as a result of
the exercise of a number of Warrants exceeding the maximum permissible amount,
and will expire on August , 1997 (the "Expiration Date"), subject to an
automatic extension of the term of the Warrants as described under "--
Extension Events, Extraordinary Events and Exercise Limitation Events" below.
Unless the term of the Warrants is extended, all Warrants not exercised
(including by reason of any such postponed exercise) at or before 3:00 P.M.,
New York City time, on the earlier of (i) the New York Business Day
immediately preceding the Expiration Date and (ii) any earlier Delisting Date,
will be automatically exercised as described under "Automatic Exercise" below.
A Warrantholder may exercise Definitive Warrants on any New York Business
Day during the period from the date of issuance until 3:00 P.M., New York City
time, on the earlier of (i) the New York Business Day immediately preceding
the Expiration Date and (ii) any Delisting Date, by delivering or causing to
be delivered to the Warrant Agent at the location designated for such purpose
(the "Warrant Agent's Window"), the Warrant Certificate representing such
Warrants with the irrevocable notice of exercise on the reverse thereof (or a
notice of exercise in substantially identical form delivered therewith) (such
notice, an "Exercise Notice") duly completed and executed. The current address
of the Warrant Agent's Window is: Chemical Bank/Geoserve, Corporate Trust
Securities Window, 55 Water Street, Room 234, North Building, New York, New
York 10041, Attention: Tender Department.
In the case of book-entry Warrants held through the facilities of DTC, a
Warrantholder may exercise such Warrants on any New York Business Day during
the period from the beginning of the Conversion Option Period (which will be
forty-five calendar days from the closing of the offering) until 3:00 P.M.,
New York City time, on the earlier of (i) the New York Business Day
immediately preceding the Expiration Date and (ii) any Delisting Date, by
causing (x) such Warrants to be transferred free to the Warrant Agent on the
records of DTC and (y) a duly completed and executed Exercise Notice to be
received by the Warrant Agent from a Participant acting on behalf of the
Warrantholder. Forms of Exercise Notice for Warrants held through the
facilities of DTC may be obtained from the Warrant Agent at the Warrant
Agent's Office. The Warrant Agent's facsimile transmission number for this
purpose is (212) 946-7682.
Except for Warrants subject to automatic exercise or subject to the Limit
Option and except following an Extension Event, the "Exercise Date" for a
Warrant will be (i) the New York Business Day on which the Warrant Agent
receives at the Warrant Agent's Window the Warrant (or transfer of such
Warrant through DTC in the case of book-entry Warrants) and Exercise Notice
(by facsimile transmission in the case of Exercise Notices for book-entry
Warrants) in proper form with respect to such Warrant, if received at or prior
to 3:00 P.M., New York City time, on such day, or (ii) if the Warrant Agent
receives such Warrant (or transfer of such Warrant through DTC in the case of
book-entry Warrants) and Exercise Notice after 3:00 P.M., New York City time,
on a New York Business Day, then the next succeeding New York Business Day.
To ensure that an Exercise Notice and the related Warrants will be
delivered to the Warrant Agent before 3:00 P.M., New York City time, on a
given New York Business Day, a Warrantholder may need to give exercise
instructions to his broker or other intermediary substantially earlier than
3:00 P.M., New York City time, on such day. Different brokerage firms may have
different cut-off times for accepting and implementing exercise instructions
from their customers. Therefore, Warrantholders should consult with their
brokers and other intermediaries, if applicable, as to applicable cut-off
times and other exercise mechanics.
Except in the case of Warrants subject to automatic exercise and for
Warrants that upon exercise will entitle the holder thereof to receive an
Alternative Settlement Amount in lieu of the Cash Settlement Amount and except
following an Extension Event, if on any Valuation Date the Cash Settlement
Amount for any Warrants would be zero, then the attempted exercise of any such
Warrants will be void and of no effect and, in the case of Definitive
Warrants, the Warrant Certificate evidencing such Warrants will be returned to
the registered holder by first class mail at the Company's expense or, in the
case of book-entry Warrants held through the facilities of DTC, such Warrants
will be transferred back to the Participant that submitted them free on the
records of DTC, and, in any such case, such Warrantholder will be permitted to
re-exercise such Warrants prior to the Expiration Date or any Delisting Date,
as the case may be.
Minimum Exercise Amount. No fewer than 500 Warrants may be exercised by a
Warrantholder at any one time (other than on automatic exercise). Accordingly,
Warrantholders with fewer than 500 Warrants will need either to sell their
Warrants or to purchase additional Warrants, thereby incurring transaction
costs, in order to realize upon their investment. Warrantholders must satisfy
the minimum exercise amount requirement described above separately with
respect to both certificated and book-entry Warrants even if both kinds of
Warrants are to be exercised at the same time. Thus, a Warrantholder seeking
to exercise both certificated and book-entry Warrants at the same time must
still exercise a minimum of 500 of each kind of Warrant in order to satisfy
such requirement. In addition, book-entry Warrants held through one
Participant may not be combined with book-entry Warrants held through another
Participant in order to satisfy the minimum exercise requirement.
Maximum Exercise Amount. All exercises of Warrants (other than on
automatic exercise or following an Extension Event) are subject, at the
Company's option, to the limitation that not more than 750,000 Warrants in
total may be exercised on any Exercise Date and not more than 250,000 Warrants
may be exercised by or on behalf of any beneficial owner, either individually
or in concert with any other beneficial owner, on any Exercise Date. If any
New York Business Day would otherwise, under the terms of the Warrant
Agreement, be the Exercise Date in respect of more than 750,000 Warrants, then
at the Company's election, 750,000 of such Warrants shall be deemed exercised
on such Exercise Date (selected by the Warrant Agent on a pro rata basis, but
if, as a result of such pro rata selection, any registered holders of Warrants
would be deemed to have exercised less than 500 Warrants, then the Warrant
Agent shall first select an additional amount of such holders' Warrants so
that no holder shall be deemed to have exercised less than 500 Warrants), and
the remainder of such Warrants (the "Remaining Warrants") shall be deemed
exercised on the following New York Business Day (notwithstanding the minimum
exercise requirement and subject to successive applications of this
provision); provided that any Remaining Warrants for which an Exercise Notice
was delivered on a given Exercise Date shall be deemed exercised before any
other Warrants for which an Exercise Notice was delivered on a later Exercise
Date. If any beneficial owner of Warrants attempts to exercise more than
250,000 Warrants on any New York Business Day individually or in concert, then
at the Company's election, 250,000 of such Warrants shall be deemed exercised
on such New York Business Day and the remainder shall be deemed exercised on
the following New York Business Day (notwithstanding the minimum exercise
requirement and subject to successive applications of this provision). As a
result of any postponed exercise as described above, Warrantholders will
receive a Cash Settlement Value determined as of a date later than the
otherwise applicable Valuation Date. In any such case, as a result of any such
postponement, the Cash Settlement Value actually received by Warrantholders
may be lower than the otherwise applicable Cash Settlement Value if the
Valuation Date of the Warrants had not been postponed.
Valuation of Warrants
The "Valuation Date" for a Warrant will be the first Index Calculation
Day following the applicable Exercise Date, subject to postponement upon the
occurrence of an Extraordinary Event or Exercise Limitation Event as described
under " -- Extension Events, Extraordinary Events and Exercise Limitation
Events" herein or as a result of the exercise of a number of Warrants
exceeding the limits on exercise described herein under "Exercise of Warrants
--Maximum Exercise Amount." The Nikkei 225 Index is compiled and published by
NKS once each minute during each Index Calculation Day based on the most
recent official prices of each of the Underlying Stocks as reported by the
TSE. Due to time differences, trading on the TSE occurs when the AMEX is
closed for business.
The following is an illustration of the timing of an Exercise Date, the
ensuing Valuation Date and the Limit Option Reference Index (as described
herein under " --Limit Option"), assuming (i) that all relevant dates are New
York Business Days and Index Calculation Days, (ii) the absence of any
intervening Extraordinary Event or Exercise Limitation Event and (iii) the
number of exercised Warrants does not exceed the maximum permissible amount.
If the Warrant Agent receives a Warrantholder's Warrants and the related
Exercise Notice in proper form at or prior to 3:00 P.M., New York City time,
on Wednesday, November 15, 1995, the Exercise Date for such Warrants will be
November 15 and the Valuation Date for such Warrants will be Thursday,
November 16. The Spot Nikkei 225 Index used to determine the Cash Settlement
Value of such Warrants will be the closing level of the Nikkei 225 Index (or
any Successor Index or Substitute Index, as the case may be) on November 16
(i.e., the level at the close of trading on the TSE on November 16 which,
because of the time zone difference, occurs prior to the opening of business
in New York on November 16). If the Warrantholder elected the Limit Option in
connection with the exercise of such Warrants, the Limit Option Reference
Index would be the Spot Nikkei 225 Index on November 15 (which again, because
of the time zone difference, will generally be available in the United States
prior to the opening of business in New York on November 15).
If the Warrant Agent were to receive such Warrantholder's Warrants and
the related Exercise Notice after 3:00 P.M., New York City time, on November
15 then the Exercise Date for such Warrants would instead be November 16, the
Valuation Date would be November 17 and the applicable Limit Option Reference
Index would be the closing level of the Nikkei 225 Index on November 16 (which
will not have occurred at the time such Warrantholder tendered his Warrants
and Exercise Notice on November 15).
Settlement
Following receipt of Warrants and the related Exercise Notice in proper
form, the Warrant Agent will: (i) not later than 10:00 A.M., New York City
time, on the New York Business Day next succeeding the applicable Valuation
Date determine the Cash Settlement Value of such Warrants based on the Spot
Nikkei 225 Index on such Valuation Date provided by the Determination Agent
and (ii) not later than 12:00 Noon, New York City time, on the New York
Business Day next succeeding the applicable Valuation Date, advise the Company
of the aggregate Cash Settlement Value of the exercised Warrants. The
Determination Agent will not be responsible for good faith errors or omissions
in determining or disseminating information regarding the Spot Nikkei 225
Index. Except for Warrants subject to automatic exercise or that upon exercise
entitle the Warrantholder to an Alternative Settlement Amount, the Company
will be required to make available to the Warrant Agent, no later than 3:00
P.M., New York City time, on the fourth New York Business Day following the
Valuation Date for such Warrants (or, if the Valuation Date is not a New York
Business Day, on the fourth New York Business Day following the New York
Business Day following the Valuation Date) (the "Funding Date"), New York
Clearing House or next day funds in an amount sufficient to pay such aggregate
Cash Settlement Value. If the Company has made such funds available by such
time, the Warrant Agent will thereafter be responsible for making payment
available (i) in respect of Definitive Warrants to each registered holder of
an exercised Definitive Warrant prior to the close of business on the New York
Business Day following the Funding Date (the "Settlement Date") in the form of
a cashier's check or official bank check or (in the case of payments of at
least U.S. $100,000) by wire transfer to a U.S. Dollar bank account maintained
by such holder in the United States (at such holder's election as specified in
the applicable Exercise Notice), in an amount equal to the aggregate Cash
Settlement Value of such holder's exercised Warrants or (ii) in respect of
book-entry Warrants held through the facilities of DTC, prior to the close of
business on the Settlement Date to each appropriate Participant in the form of
a cashier's check or an official bank check or (in the case of payments of at
least U.S.$100,000) by wire transfer to a U.S. Dollar account maintained by
such Participant in the United States (at the Participant's election as
specified in the Exercise Notice) in an amount equal to the aggregate Cash
Settlement Value of the exercised Warrants held through such Participant. Each
Participant will be responsible for disbursing payments to the Warrantholders
it represents), and such Participant will be responsible for disbursing such
payments to the Warrantholders it represents and to each brokerage firm for
which it acts as agent. Each such brokerage firm will be responsible for
disbursing funds to the Warrantholders it represents.
Limit Option
Except for Warrants subject to automatic exercise and as described below
with respect to payments of any Alternative Settlement Amount and except
following an Extension Event, each Warrantholder, in connection with any
exercise of Warrants (including a postponed exercise following an
Extraordinary Event or an Exercise Limitation Event), will have the option
(the "Limit Option") to specify that such Warrants are not to be exercised if
the Spot Nikkei 225 Index that would otherwise be used to determine the Cash
Settlement Value of such Warrants is five hundred (500) or more points lower
than the closing value (afternoon session) of the Nikkei 225 Index (or, in the
event that the Cash Settlement Value is to be determined with respect to any
Substitute Index, a number of points below the closing level of such index
that will be determined by the Determination Agent in the manner described
under "Substitution of the Nikkei 225 Index" herein) for the day specified
below (such closing level, the "Limit Option Reference Index"). A
Warrantholder's election of the Limit Option must be specified in the
applicable Exercise Notice delivered to the Warrant Agent. The Limit Option
Reference Index will be the closing level of the Nikkei 225 Index (or any
Successor Index or any Substitute Index, as the case may be) on the relevant
Exercise Date (or if such day is not an Index Calculation Day, on the
immediately preceding Index Calculation Day). If an Exercise Notice and the
related Warrants are received after 3:00 P.M., New York City time, on a given
day, the applicable Limit Option Reference Index will be determined as of the
next day that is also a New York Business Day (or, if such day is not an Index
Calculation Day, as of the immediately preceding Index Calculation Day).
To ensure that the Limit Option will have its intended effect of limiting
the risk of any downward movement in the level of the Nikkei 225 Index between
the date on which a Warrantholder submits an Exercise Notice and the related
Valuation Date, such Exercise Notice and the related Warrants generally must
be received by the Warrant Agent not later than 3:00 P.M., New York City time,
on the New York Business Day on which it is submitted and the Exercise Date
must also be an Index Calculation Day. See the illustration under "Exercise of
Warrants" and "Certain Risk Factors Concerning the Warrants" herein.
Following receipt of an Exercise Notice and the related Warrants subject
to the Limit Option, the Warrant Agent will obtain the applicable Limit Option
Reference Index from the Determination Agent and will determine whether such
Warrants will not be exercised because of the Limit Option. Warrants that are
not exercised will be treated as not having been tendered for exercise and
either the Warrant Certificate evidencing such Warrants will be returned to
the registered holder by first class mail at the Company's expense or, in the
case of Warrants held through the facilities of DTC, such Warrants will be
transferred to the account at DTC from which they were transferred to the
Warrant Agent. To exercise such Warrants, a Warrantholder will be required to
cause an Exercise Notice and the related Warrants to be submitted again to the
Warrant Agent.
In the case of a postponed Valuation Date, the Limit Option will continue
to apply once elected by a Warrantholder in connection with an exercise of
Warrants on the basis of the Limit Option Reference Index as initially
determined for such Warrants, except when such Valuation Date is postponed
until the Expiration Date, any Delisting Date or the Cancellation Date (each
as defined herein) or following an Extension Event, all as described under "
-- Extension Events, Extraordinary Events and Exercise Limitation Events"
herein. Such Warrants will either (i) be exercised on a delayed basis if the
applicable Spot Nikkei 225 Index on the postponed Valuation Date is not five
hundred (500) or more points lower than the Limit Option Reference Index or
(ii) be excluded from being exercised if, on any applicable postponed
Valuation Date, the applicable Spot Nikkei 225 Index is five hundred (500) or
more points lower than the Limit Option Reference Index, in each case such
number of points being subject to adjustment in the event of any substitution
of a Substitute Index for the Nikkei 225 Index. See "Substitution of the
Nikkei 225 Index" herein.
In connection with any exercise of 1,000 or more Warrants, a
Warrantholder may elect to subject the exercise of only a portion of such
Warrants to the Limit Option, provided that the number of Warrants subject to
the Limit Option and the number of Warrants not subject to the Limit Option
shall in each case not be less than 500. A Warrantholder may not combine
Definitive Warrants and book-entry Warrants in order to meet the 500-Warrant
minimum requirements. See "Exercise of Warrants --Minimum Exercise Amount"
herein.
Automatic Exercise
All Warrants for which the Warrant Agent has not received a valid
Exercise Notice at or prior to 3:00 P.M., New York City time, on (i) the New
York Business Day immediately preceding the Expiration Date or (ii) any
Delisting Date, as the case may be, or for which the Warrant Agent has
received a valid Exercise Notice but with respect to which timely delivery of
the relevant Warrants has not been made, together with any Warrants the
Valuation Date for which has at such time been postponed as described under "
-- Extension Events, Extraordinary Events and Exercise Limitation Events"
herein, will be automatically exercised on such date, subject to an automatic
extension of the term of the Warrants or to a determination that the Warrants
are worthless, as described below. The Exercise Date for such Warrants will be
the Expiration Date or any Delisting Date, as the case may be, or, if such
date is not a New York Business Day, the next succeeding New York Business
Day. The Warrant Agent will obtain the Spot Nikkei 225 Index (determined as of
the first Index Calculation Day following such date, which will be the
Valuation Date for such Warrants except in the case of an exercise following
the occurrence of an Extraordinary Event or an Exercise Limitation Event as
described under " -- Extension Events, Extraordinary Events and Exercise
Limitation Events" herein) and will determine the Cash Settlement Value, if
any, of such Warrants.
In the case of Definitive Warrants subject to automatic exercise, except
in the case of an exercise following the occurrence of an Extraordinary Event
or an Exercise Limitation Event as described under " -- Extension Events,
Extraordinary Events and Exercise Limitation Events" herein, the Company will
be required to make New York Clearing House or next day funds available to the
Warrant Agent, no later than 3:00 P.M., New York City time, on the fourth New
York Business Day following the Valuation Date for such Warrants (or, if such
Valuation Date is not a New York Business Day, on the fourth New York Business
Day following the New York Business Day next succeeding such Valuation Date)
(the "Automatic Funding Date"). If the Company has made such funds available
by such time, the Warrant Agent will thereafter be responsible for making a
payment available to each registered holder of a Definitive Warrant in the
form of a cashier's check or official bank check, or (in the case of payments
of at least $100,000) by wire transfer to a U.S. Dollar account maintained by
such holder in the United States (at such holder's election) prior to the
close of business on the Automatic Funding Date (or, in the case of payments
made by wire transfer, prior to the close of business on the New York Business
Day next succeeding the Automatic Funding Date) against receipt by the Warrant
Agent at the Warrant Agent's Window of such holder's Warrant Certificates.
Such payment will be in an amount equal to the aggregate Cash Settlement Value
of the Warrants evidenced by such Warrant Certificates.
In the case of book-entry Warrants held through DTC subject to automatic
exercise, except in the case of an exercise following the occurrence of an
Extraordinary Event or an Exercise Limitation Event as described under " --
Extension Events, Extraordinary Events and Exercise Limitation Events" herein,
the Company will be required to make available to the Warrant Agent, no later
than 3:00 P.M., New York City time, on the Automatic Funding Date, New York
Clearing House or next day funds in an amount sufficient to pay such aggregate
Cash Settlement Value. If the Company has made such funds available by such
time, the Warrant Agent will thereafter be responsible for making funds
available to DTC prior to the close of business on the Automatic Funding Date
in an amount sufficient to pay the aggregate Cash Settlement Value of the
Warrants. DTC will be responsible for disbursing such funds to each
appropriate Participant and such Participant will be responsible for
disbursing such payments to the Warrantholders it represents and to each
brokerage firm for which it acts as agent. Each such brokerage firm will be
responsible for disbursing funds to the Warrantholders it represents.
Extension Events, Extraordinary Events and Exercise Limitation Events
Extension Events. If an event described in clause (i) of the definition
of Exercise Limitation Event below is continuing on the Expiration Date (an
"Extension Event") the term of any outstanding Warrants will be extended for a
period of 30 days (the thirtieth day following the Expiration Date being the
"Extended Expiration Date"), except that if the Cash Settlement Value or the
Intrinsic Value used in calculating the Alternative Settlement Amount, as the
case may be, of the Warrants would have been zero if the Warrants had been
exercised such that the Valuation Date for such exercise was the Measurement
Date (as defined below), then the term of the Warrants will not be extended
and the Warrants will be deemed to be worthless. Any such automatic extension
shall be deemed to have been revoked and the Warrants shall expire on the
earlier of (i) the next Index Calculation Day following a Tokyo Trading Day
(as defined below) on which there is no Extension Event (such Index
Calculation Day, the "Early Extended Expiration Date") and (ii) any Delisting
Date occurring on or after the Expiration Date. The Company will give the
Warrant Agent prompt notice by telephone or facsimile transmission and will
give prompt notice to the Warrantholders by publication in a United States
newspaper with a national circulation (currently expected to be The Wall
Street Journal) of the the occurrence of an Extension Event, any Extended
Expiration Date, any Index Calculation Day referred to in clause (i) above and
any Delisting Date referred to in clause (ii) above.
Any Warrants that expire as described in clause (i) of the preceding
paragraph will be deemed to be exercised on the Early Extended Expiration Date
(even if such Warrants would not otherwise be exercisable on such date because
of the Limit Option) on the basis that the Valuation Date for such exercise
shall be such Early Extended Expiration Date, and the holder of each such
Warrant will receive the Alternative Settlement Amount, calculated using the
value of the Underlying Stocks on such Early Extended Expiration Date, whether
or not an Extraordinary Event or an Exercise Limitation Event is then
continuing.
If the term of the Warrants has been extended but an Extension Event is
continuing (A) when the Warrants expire on the Extended Expiration Date or (B)
on any Delisting Date occurring on or after the Expiration Date, the Warrants
will be deemed to be worthless and the Company shall not be required to make
any payments in respect thereof. The Company will give prompt notice of any
such determination to the Warrant Agent by telephone or facsimile transmission
and to the Warrantholders by publication in a United States newspaper with a
national circulation (currently expected to be The Wall Street Journal). In
such a case, the holders of such Warrants will lose their entire investment,
even though the Cash Settlement Value of the Warrants, if calculated using the
fair value of the Underlying Stocks at the time the Warrants are deemed to be
worthless, would be greater than zero.
"Measurement Date" means the Tokyo Trading Day (as defined below)
occurring most recently prior to the Expiration Date on which none of the
events described in clause (i) of the definition of Exercise Limitation Event
below had occurred or was continuing. "Tokyo Trading Day" means a day on
which the TSE is open for business.
Extraordinary Events. The Warrant Agreement will provide that if the
Company determines that an Extraordinary Event has occurred and is continuing
on the Tokyo Business Day with respect to which the Spot Nikkei 225 Index on a
Valuation Date is to be determined (the "Applicable Tokyo Business Day"), then
the Cash Settlement Value with respect to an exercise of Warrants shall be
calculated on the basis that the Valuation Date shall be the next Index
Calculation Day following an Applicable Tokyo Business Day on which there is
no Extraordinary Event or Exercise Limitation Event; provided that, subject to
an automatic extension of the term of the Warrants or to a determination that
the Warrants are worthless, as described under "-- Extension Events" above, if
the Valuation Date has not occurred on or prior to the Expiration Date or any
Delisting Date, the Warrantholders will receive the Alternative Settlement
Amount in lieu of the Cash Settlement Value which shall be calculated as if
the Warrants had been cancelled on the Expiration Date or any Delisting Date,
as the case may be. The Company shall promptly give notice to Warrantholders,
by publication in a United States newspaper with a national circulation
(currently expected to be The Wall Street Journal), if an Extraordinary Event
shall have occurred.
"Extraordinary Event" means any of the following events:
(i) a suspension or absence of trading on the TSE of all the Underlying
Stocks which then comprise the Nikkei 225 Index, any Substitute
Index or a Successor Index (the "Underlying Stocks");
(ii) the enactment, publication, decree or other promulgation of any
statute, regulation, rule or order of any court of any
jurisdiction, any administrative agency or any other U.S. or
non-U.S. governmental authority that would make it unlawful for
the Company to perform any of its obligations under the Warrant
Agreement or the Warrants or that has had or is reasonably
expected to have a material adverse effect on the ability of (A)
the Company to perform its obligations under the Warrants or to
hedge or modify the hedge of its position with respect to the
Nikkei 225 Index, any Substitute Index or a Successor Index or (B)
any affiliate of the Company to hedge or modify the hedge of its
position with respect to any hedging transaction entered into with
the Company in connection with the Company's obligations under the
Warrants; or
(iii) any outbreak or escalation of hostilities or other national or
international calamity or crisis (including, without limitation,
natural calamities that in the opinion of the Company may
materially and adversely affect the economy of Japan or the
trading of securities generally on the TSE) that has had or is
reasonably expected to have a material adverse effect on the
ability of (A) the Company to perform its obligations under the
Warrants or to modify the hedge of its position with respect to
the Nikkei 225 Index, any Substitute Index or a Successor Index or
(B) any affiliate of the Company to hedge or modify the hedge of
its position with respect to any hedging transaction entered into
with the Company in connection with the Company's obligations
under the Warrants.
For the purpose of determining whether an Extraordinary Event has
occurred: (1) a limitation on the hours or number of days of trading will not
constitute an Extraordinary Event if it results from an announced change in
the regular business hours of the TSE and (2) an "absence of trading" on the
TSE will not include any time when the TSE is closed for trading under
ordinary circumstances.
Based on information provided by the TSE, the Company is not aware of any
circumstances that have arisen since 1980 that could have constituted an
Extraordinary Event, except that on January 7, 1989 trading was suspended due
to the death of the Emperor of Japan (the "1989 Suspension"). The existence of
such circumstances, however, is not necessarily indicative of the likelihood
of such circumstances arising or not arising in the future. See "The Nikkei
225 Index --The Tokyo Stock Exchange" herein.
If the Company determines that an Extraordinary Event has occurred and is
continuing, and if the Extraordinary Event is expected by the Company to
continue, the Company, prior to the Expiration Date, may immediately cancel
the Warrants by notifying the Warrant Agent of such cancellation (the date
such notice is given being the "Cancellation Date"), and each Warrantholder's
rights under the Warrants and the Warrant Agreement shall thereupon cease;
provided that each Warrant shall be exercised (even if such Warrant would not
otherwise be exercisable on such date because of the Limit Option) on the
basis that the Valuation Date for such Warrant shall be the Cancellation Date
and the holder of each such Warrant will receive, in lieu of the Cash
Settlement Value of such Warrant, the Alternative Settlement Amount,
determined by the Determination Agent.
The "Alternative Settlement Amount" is equal to the amount calculated
using the formula set forth below:
Alternative Settlement Amount = Intrinsic Value + ( T x A )
- -
2 B
where
Intrinsic Value = the Cash Settlement Value of the Warrants determined
as described under " --Cash Settlement Value" herein (or, in the event of a
substitution of a Substitute Index for the Nikkei 225 Index, as described
under "The Nikkei 225 Index-- Substitution of the Nikkei 225 Index" herein),
but calculated with a Spot Nikkei 225 Index determined by the Determination
Agent which, subject to approval by the Company (such approval not to be
unreasonably withheld), in the reasonable opinion of the Determination Agent,
fairly reflects the value of the Underlying Stocks on the Cancellation Date,
Expiration Date, Delisting Date or Early Extended Expiration Date, whichever
has given rise to the payment of the Alternative Settlement Amount;
T = U.S.$ , the maximum initial offering price per Warrant;
A = the total number of days from but excluding the Cancellation Date,
Expiration Date or Delisting Date, whichever has given rise to the payment of
the Alternative Settlement Amount for such Warrants, to and including the
Expiration Date; and
B = the total number of days from, but excluding the date on which sales
of the Warrants were initially confirmed, to and including the Expiration
Date.
For the purposes of determining "Intrinsic Value" in the above formula,
in the event that the Determination Agent and the Company are required, but
have not, after good faith consultation with each other and within five days
following the first day upon which such Alternative Settlement Amount may be
calculated in accordance with the above formula, agreed upon a Spot Nikkei 225
Index which fairly reflects the value of the Underlying Stocks on the
Cancellation Date, Expiration Date, Delisting Date or Early Extended
Expiration Date, whichever gives rise to the payment of the Alternative
Settlement Amount, then the Determination Agent shall promptly nominate a
third party, subject to approval by the Company (such approval not to be
unreasonably withheld), to determine such figure and calculate the Alternative
Settlement Amount in accordance with the above formula. Such party shall act
as an independent expert and not as an agent of the Company or the
Determination Agent, and its calculation and determination of the Alternative
Settlement Amount shall, absent manifest error, be final and binding on the
Company, the Warrant Agent, the Determination Agent and the Warrantholders.
Any such calculations will be made available to a Warrantholder for inspection
at the Warrant Agent's Office. Neither the Company nor such third party shall
have any responsibility for good faith errors or omissions in calculating the
Alternative Settlement Amount.
Exercise Limitation Events. The Warrant Agreement will provide that if
the Company determines that on an Applicable Tokyo Business Day an Exercise
Limitation Event has occurred and is continuing, then the Cash Settlement
Value in respect of an exercise shall be calculated on the basis that the
Valuation Date shall be the next Index Calculation Day following an Applicable
Tokyo Business Day on which there is no Exercise Limitation Event or
Extraordinary Event; provided that, subject to an automatic extension of the
term of the Warrants or to a determination that the Warrants are worthless, as
described under "-- Extension Events" above, if the Valuation Date has not
occurred on or prior to the Expiration Date or any Delisting Date, the
Warrantholders will receive the Alternative Settlement Amount in lieu of the
Cash Settlement Value, which shall be calculated as if the Warrants had been
cancelled on the Expiration Date or any Delisting Date, as the case may be.
The Company shall promptly give notice to Warrantholders, by publication in a
United States newspaper with a national circulation (currently expected to be
The Wall Street Journal), if an Exercise Limitation Event shall have occurred.
"Exercise Limitation Event" means any of the following events:
(i) a suspension, material limitation or absence of trading on the TSE of
20% or more in number of the Underlying Stocks; or
(ii) the suspension or material limitation on the SIMEX, OSE or AMEX or
any other major futures, options or securities market (which as of
the date of this Prospectus Supplement includes only the SIMEX,
OSE or AMEX, but which in the Company's judgment may change in the
future) of trading in futures or options contracts related to the
Nikkei 225 Index (or, in the event of a substitution of a
Substitute Index for the Nikkei 225 Index, the Nikkei 300 Index)
or a Successor Index.
For purposes of determining whether an Exercise Limitation Event has
occurred: (1) a limitation on the hours or number of days of trading will not
constitute an Exercise Limitation Event if it results from an announced change
in the regular business hours of the relevant exchange, (2) a decision to
permanently discontinue trading in the relevant futures or options contract
will not constitute an Exercise Limitation Event, (3) a suspension of trading
in an Underlying Stock or in a futures or options contract referred to in
clauses (i) and (ii) above, by reason of (x) a price change violating limits
set by the TSE, SIMEX, OSE or AMEX or other futures or securities market on
which futures or options contracts related to the Nikkei 225 Index (or, in the
event of a substitution of a Substitute Index for the Nikkei 225 Index, the
Nikkei 300 Index), the Japan Index, any New Japan Index or a Successor Index
are traded or such other futures or securities market or (y) an imbalance of
orders relating to an Underlying Stock or such contracts will constitute a
suspension or material limitation of trading, (4) an "absence of trading" on
the TSE will not include any time when the TSE is closed for trading under
ordinary circumstances and (5) the occurrence of an Extraordinary Event
described in clause (i) of the definition of Extraordinary Event will not
constitute, and will supersede the occurrence of, an Exercise Limitation
Event.
Based on information provided to the Company by the TSE, the Company is
not aware of any suspensions of trading during the past ten years on such
exchange under circumstances that could have constituted an Exercise
Limitation Event, except for the 1989 Suspension and a suspension of trading
on the OSE of futures and options on January 17, 1995 as a result of the Kobe
earthquake. The Company has not, however, verified with the TSE, SIMEX, OSE or
AMEX, and makes no representations concerning, whether any suspensions of
trading by reason of a price change violating limits set by the TSE, SIMEX,
OSE or AMEX or any absences of trading during such period could have
constituted an Exercise Limitation Event. The lack or occurrence of such
suspensions over the period indicated is not necessarily indicative of the
number or frequency of any future suspensions. See "The Nikkei 225 Index --The
Tokyo Stock Exchange" herein.
In the case of Warrants as to which there has been a postponed Valuation
Date resulting from an Extraordinary Event or an Exercise Limitation Event
(including an Extension Event) or as a result of a number of Warrants
exceeding the maximum permissible amounts (as described herein), the Company
will be required to make available to the Warrant Agent no later than 3:00
P.M., New York City time, on the third New York Business Day following the
date on which the Cash Settlement Value or Alternative Settlement Amount, as
the case may be, has been calculated (the "Alternative Funding Date") New York
Clearing House or next day funds in an amount equal to, and for the payment
of, the aggregate Cash Settlement Value or Alternative Settlement Amount, as
applicable, of such Warrants. The Warrant Agent will thereafter be responsible
for making payment available to each registered holder who holds Warrants in
certificated form in the form of a cashier's check or official bank check, or
(in the case of payments of at least $100,000) by wire transfer to a U.S.
Dollar bank account maintained by such holder in the United States (at such
holder's election), in an amount equal to the aggregate Cash Settlement Value
or Alternative Settlement Amount, as applicable, of such holder's exercised
Warrants prior to the close of business on the Alternative Funding Date (or,
in the case of payments made by wire transfer, prior to the close of business
on the New York Business Day next succeeding the Alternative Funding Date). In
the case of Warrants held through the facilities of DTC, if the Company has
made such funds available by such time as noted above, the Warrant Agent will
thereafter be responsible for making funds available to DTC in an amount
sufficient to pay the Cash Settlement Value or Alternative Settlement Amount
of the Warrants, if applicable, prior to the close of business on the
Alternative Funding Date. DTC will be responsible for disbursing such funds to
each appropriate Participant and such Participant will be responsible for
disbursing such payments to the Warrantholders it represents and to each
brokerage firm for which it acts as agent. Each such brokerage firm will be
responsible for disbursing funds to the Warrantholders it represents.
Certain of the Extraordinary Events and Exercise Limitation Events may be
events that would tend to decrease the level of the Nikkei 225 Index, any
Substitute Index and any Successor Index and accordingly decrease the Cash
Settlement Value for the Warrants following the occurrence of any such
Extraordinary Event or Exercise Limitation Event. However, as a result of any
postponed exercise as described above, Warrantholders would not receive such
Cash Settlement Value, but would receive instead a Cash Settlement Value (or,
if applicable, an Alternative Settlement Amount) determined as of a later
date. In any such case, any immediate impact of the related Extraordinary
Event or Exercise Limitation Event on the Nikkei 225 Index may have been
negated by interim market and other developments and, as a result of any such
postponement, the Cash Settlement Value (or Alternative Settlement Amount)
actually received by Warrantholders may be substantially different than the
otherwise applicable Cash Settlement Value if the valuation of the Warrants
had not been postponed.
Warrant Certificates
The Warrants will originally be issued as certificates in registered form
(each, a "Warrant Certificate"). The Warrant Agent will from time to time
register the transfer of any outstanding Warrant Certificate upon surrender
thereof at the Warrant Agent's Window duly endorsed by, or accompanied by a
written instrument or instruments of transfer in form satisfactory to the
Warrant Agent and the Company duly executed by, the registered holder thereof,
a duly appointed legal representative or a duly authorized attorney. Such
signature must be guaranteed by a bank or trust company having a correspondent
office in New York City or by a broker or dealer which is a member of the
National Association of Securities Dealers, Inc. (the "NASD") or by a member
of a national securities exchange. A new Warrant Certificate will be issued to
the transferee upon any such registration of transfer.
At the option of a Warrantholder, unexercised Warrant Certificates may be
exchanged for other Warrant Certificates representing a like number of
Warrants, upon surrender to the Warrant Agent at the Warrant Agent's Window,
of the Warrant Certificates to be exchanged. The Company will thereupon
execute, and the Warrant Agent will countersign and deliver, one or more new
Warrant Certificates representing such like number of unexercised Warrants.
In the event that upon any exercise of Warrants evidenced by a Warrant
Certificate, the number of Warrants exercised is fewer than the total number
of Warrants evidenced by such Certificate, a new Warrant Certificate
evidencing the number of Warrants not exercised will be issued to the
registered holder or his assignee. See " --Exercise of Warrants --Minimum
Exercise Amount" herein.
If any Warrant Certificate is mutilated, lost, stolen or destroyed, the
Company may in its discretion execute, and the Warrant Agent may countersign
and deliver, in exchange and substitution for such mutilated Warrant
Certificate or in replacement for such lost, stolen or destroyed Warrant
Certificate, a new Warrant Certificate representing a like number of Warrants,
but only (in the case of loss, theft or destruction) upon receipt of evidence
satisfactory to the Company and the Warrant Agent of loss, theft or
destruction of such Warrant Certificate and security or indemnity, if
requested, satisfactory to them. Warrantholders requesting replacement Warrant
Certificates must also comply with such other reasonable regulations and pay
such reasonable charges as the Company or the Warrant Agent may prescribe. In
case all of the Warrants represented by any such mutilated, lost, stolen or
destroyed Warrant Certificate have been or are about to be exercised
(including upon automatic exercise), the Company in its discretion may,
instead of issuing a new Warrant Certificate, direct the Warrant Agent to
treat such Warrant Certificate the same as if the Warrant Agent had received
an Exercise Notice in proper form in respect thereof or as being subject to
automatic exercise, as the case may be.
No service charge will be made for any registration of transfer or
exchange of Warrant Certificates, but the Company may require the payment of a
sum sufficient to cover any tax or governmental charge that may be imposed in
connection thereto, other than exchanges not involving any transfer. In the
case of the replacement of mutilated, lost, stolen or destroyed Warrant
Certificates, the Company may require the payment of a sum sufficient to cover
any tax or other governmental charge that may be imposed in relation thereto
and any other expenses (including the fees and expenses of the Warrant Agent)
connected therewith.
Book-Entry Conversion
Commencing on the forty-fifth calendar day (or if such day is not a New
York Business Day, the next succeeding New York Business Day) after the
closing of the offering (which closing date is expected to be August ,
1995), each Warrantholder will have the option to convert the form in which
such Warrantholder holds his Warrants from definitive to book-entry form by
utilizing the Conversion Option. The Conversion Option will be available for
45 calendar days (the "Conversion Option Period").
In order to be exchanged for a Warrant in book-entry form, a Warrant
Certificate must be delivered to DTC, in proper form for deposit, by a
Participant. Accordingly, unless Warrants are purchased in book-entry form, a
Warrantholder who is not a Participant must deliver his Warrant Certificate,
in proper form for deposit, to a Participant, either directly or through an
indirect participant (such as a bank, brokerage firm, dealer or trust company
that clears through, or maintains a custodial relationship with, a
Participant) or brokerage firm which maintains an account with a Participant,
in order to have its Warrant Certificate exchanged for a Warrant in book-entry
form. Such Warrantholders who desire to exchange their Warrant Certificates
for Warrants in book-entry form should contact their brokers or other
Participants or indirect participants to obtain information on procedures for
submitting their Warrant Certificates to DTC, including the proper form for
submission and (during the Conversion Option Period) the cut-off times for
same day and next day exchange. Warrant Certificates which are held by the
Warrantholder in nominee or "street name" may be automatically exchanged into
book-entry form by the broker or other entity in whose name such Warrant
Certificates are registered, without action of, or consent by, the beneficial
owner of the related Warrant.
Warrant Certificates received by DTC for exchange during the Conversion
Option Period will be exchanged for Warrants in book-entry form by the close
of business on the New York Business Day that such Certificates are received
by DTC (if received by DTC by its then applicable cut-off time for same day
credit) or on the following New York Business Day (if received by DTC by its
then applicable cut-off time for next day credit). After the last day of the
Conversion Option Period, DTC will not be required to accept delivery of
Warrant Certificates in exchange for book-entry Warrants, but may permit
Warrant Certificates to be so exchanged on a case-by-case basis. However,
there can be no assurance that such Warrant Certificates will be accepted for
exchange. Warrants surrendered at any time for exchange for book-entry
Warrants may not be exercised or delivered for settlement or transfer until
such exchange has been effected. Accordingly, if an increase in the value of
the Spot Nikkei 225 Index were to occur after a Warrant Certificate had been
surrendered for exchange into book-entry form, a Warrantholder would not be
able to take advantage of the increase by exercising his Warrant until such
exchange had been effected. Since Warrant Certificates are not required to be
exchanged for Warrants in book-entry form, it is likely that not all Warrant
Certificates will be so exchanged. Accordingly, Warrantholders purchasing
Warrants in secondary market trading after commencement of the Conversion
Option Period may wish to make specific arrangements with brokers or other
Participants or indirect participants if they wish to purchase only Warrants
in book-entry form and not Warrant Certificates.
Once a Warrantholder has elected the Conversion Option, such
Warrantholder may hold his Warrants only in book-entry form and will not be
able to change his election or withdraw from the book-entry system during the
Conversion Option Period or thereafter. Accordingly, except in certain limited
circumstances described in the Prospectus under "Description of Warrants
--Book-Entry Procedures and Settlement," ownership of the Warrants in
certificated form will no longer be available to investors who have elected
the Conversion Option.
Listing
The Warrants have been approved for listing on the AMEX, subject to
official notice of issuance. The AMEX symbol for the Warrants is JMS.WS. The
AMEX expects to cease trading the Warrants on such Exchange as of the close of
business on the later of the Expiration Date or any Early Extended Expiration
Date or Extended Expiration Date. See "Certain Risk Factors Concerning the
Warrants --Other Considerations" herein.
Delisting of Warrants
In the event that the Warrants are delisted from, or permanently
suspended from trading (within the meaning of the Securities Exchange Act of
1934 and the rules and regulations thereunder) on the AMEX, and not accepted
at the same time for listing on another SRO, Warrants not previously exercised
will be deemed automatically exercised on the last New York Business Day prior
to the effective date of such delisting or trading suspension (such New York
Business Day, the "Delisting Date"), and if such Delisting Date occurs prior
to the Expiration Date, the Cash Settlement Value, if any, shall be calculated
and settled as provided herein under " --Automatic Exercise," subject to a
determination that the Warrants are worthless, as described above. If such
Delisting Date occurs on or after the Expiration Date and prior to any
Extended Expiration Date, the Warrants will be deemed to be worthless. See
"Description of the Warrants -- Extension Events, Extraordinary Events and
Exercise Limitation Events" above. The Company will notify Warrantholders as
soon as practicable of such delisting or trading suspension. However, if the
Company first receives notice of the delisting or suspension on the same day
on which the Warrants are delisted or suspended, such day will be deemed the
Delisting Date. The Company will covenant in the Warrant Agreement that it
will not seek delisting of the Warrants from, or suspension of their trading
on, the AMEX unless the Company has, at the same time, arranged for the
Warrants to be traded pursuant to the rules of another SRO that are filed with
the Commission under the Exchange Act.
THE NIKKEI 225 INDEX
Unless otherwise stated, all information herein relating to the Nikkei
225 Index has been derived from the Stock Market Indices Data Bank published
by NKS and other publicly-available sources. Such information reflects the
policies of NKS and are subject to change at the discretion of NKS.
The Nikkei 225 Index is a stock index calculated, published and
disseminated by NKS that measures the composite price performance of selected
Japanese stocks. The Nikkei 225 Index currently is based on 225 highly
capitalized Underlying Stocks trading on the TSE representing a broad
cross-section of Japanese industries. (See Appendix B hereto for a list of the
225 Underlying Stocks as of August 4, 1995). All 225 Underlying Stocks are
stocks listed in the First Section of the TSE. Stocks listed in the First
Section are among the most actively traded stocks on the TSE.
The Nikkei 225 Index is a modified, price-weighted index (i.e., an
Underlying Stock's weight in the index is based on its price per share rather
than the total market capitalization of the issuer) which is calculated by (i)
multiplying the per share price of each Underlying Stock by the corresponding
weighting factor for such Underlying Stock (a "Weight Factor"), (ii)
calculating the sum of all these products and (iii) dividing such sum by a
divisor (the "Divisor"). The Divisor, initially set in 1949 at 225, was 9.973
as of August 3, 1995 and is subject to periodic adjustments as set forth
below. Each Weight Factor is computed by dividing Yen50 by the par value of
the relevant Underlying Stock, so that the share price of each Underlying
Stock when multiplied by its Weight Factor corresponds to a share price based
on a uniform par value of Yen50. The stock prices used in the calculation of
the Nikkei 225 Index are those reported by a primary market for the Underlying
Stocks (currently the TSE). The level of the Nikkei 225 Index is calculated
once per minute during TSE trading hours.
In order to maintain continuity in the level of the Nikkei 225 Index in
the event of certain changes due to non-market factors affecting the
Underlying Stocks, such as the addition or deletion of stocks, substitution of
stocks, stock dividends, stock splits or distributions of assets to
stockholders, the Divisor used in calculating the Nikkei 225 Index is adjusted
in a manner designed to prevent any instantaneous change or discontinuity in
the level of the Nikkei 225 Index. Thereafter, the Divisor remains at the new
value until a further adjustment is necessary as the result of another change.
As a result of such change affecting any Underlying Stock, the Divisor is
adjusted in such a way that the sum of all share prices immediately after such
change multiplied by the applicable Weight Factor and divided by the new
Divisor (i.e., the level of the Nikkei 225 Index immediately after such
change) will equal the level of the Nikkei 225 Index immediately prior to the
change.
Underlying Stocks may be deleted or added by NKS. Any stock becoming
ineligible for listing in the First Section of the TSE due to any of the
following reasons will be deleted from the Underlying Stocks: (i) bankruptcy
of the issuer, (ii) merger of the issuer with, or acquisition of the issuer
by, another company, (iii) delisting of such stock, (iv) transfer of such
stock to the "Seiri-Post" because of excess debt of the issuer or because of
any other reason or (v) transfer of such stock to the Second Section. Upon
deletion of a stock from the Underlying Stocks, NKS will select a suitable
replacement for such deleted Underlying Stock in accordance with certain
criteria. In an exceptional case, a newly listed stock in the First Section of
the TSE that is recognized by NKS to be representative of a market may be
added to the Underlying Stocks. In such a case, an existing Underlying Stock
with low trading volume and not representative of a market will be deleted by
NKS.
NKS is under no obligation to continue the calculation and dissemination
of the Nikkei 225 Index. The Warrants are not sponsored, endorsed, sold or
promoted by NKS. No inference should be drawn from the information contained
in this Prospectus Supplement that NKS makes any representation or warranty,
implied or express, to the Company, the Warrantholders or any member of the
public regarding the advisability of investing in securities generally or in
the Warrants in particular or the ability of the Nikkei 225 Index to track
general stock market performance. NKS has no obligation to take the needs of
the Company or the Warrantholders into consideration in determining, composing
or calculating the Nikkei 225 Index. NKS is not responsible for, and has not
participated in the determination of, the timing of, prices for, or quantities
of, the Warrants to be issued or in the determination or calculation of the
equation by which the Warrants are to be settled in cash. NKS has no
obligation or liability in connection with the administration, marketing or
trading of the Warrants.
The use of and references to the Nikkei 225 Index in connection with the
Warrants has been consented to by NKS, the publisher of the Nikkei 225 Index.
None of the Company, the Warrant Agent, the Determination Agent and the
Underwriters accepts any responsibility for the calculation, maintenance or
publication of the Nikkei 225 Index or any Successor Index or Substitute
Index. NKS disclaims all responsibility for any errors or omissions in the
calculation and dissemination of the Nikkei 225 Index or the manner in which
such index is applied in determining any Cash Settlement Value or Alternative
Settlement Amount upon exercise of the Warrants.
Historical Data on Nikkei 225 Index
NKS first calculated and published the Nikkei 225 Index in 1970. The
following table sets forth the highest and lowest daily closing level of the
Nikkei 225 Index for each quarter or partial quarter, as the case may be, in
the period from 1990, through July 31, 1995, as well as the closing level of
the Nikkei 225 Index as of the end of each such quarter or partial quarter, as
the case may be. These historical data on the Nikkei 225 Index are not any
indication of the future performance of the Nikkei 225 Index.
Daily Closing Levels
-----------------------------
Highest Lowest Closing
Level Level Level
--------- --------- ---------
1990:
1st Quarter 38,712.88 29,843.34 29,980.45
2nd Quarter 33,192.50 28,002.07 31,940.24
3rd Quarter 33,172.28 20,983.50 20,983.50
4th Quarter 25,352.63 20,221.86 23,848.71
1991:
1st Quarter 27,146.91 22,442.70 26,292.04
2nd Quarter 26,980.37 23,290.96 23,290.96
3rd Quarter 24,120.75 21,456.76 23,916.44
4th Quarter 25,222.28 21,502.90 22,983.77
1992:
1st Quarter 23,801.18 19,345.95 19,345.95
2nd Quarter 18,804.60 15,741.27 15,951.73
3rd Quarter 18,908.47 14,309.41 17,399.08
4th Quarter 17,690.67 15,993.48 16,924.95
1993:
1st Quarter 19,048.38 16,287.45 18,591.45
2nd Quarter 21,076.00 19,099.09 19,590.00
3rd Quarter 21,148.11 19,621.46 20,105.71
4th Quarter 20,500.25 16,078.71 17,417.24
1994:
1st Quarter 20,677.77 17,369.74 19,111.92
2nd Quarter 21,552.81 19,122.22 20,643.93
3rd Quarter 20,862.77 19,468.89 19,563.81
4th Quarter 20,148.83 18,666.93 19,723.06
1995:
1st Quarter 19,684.04 15,749.77 16,139.95
2nd Quarter 17,103.69 14,507.17 14,517.40
3rd Quarter (through July 31, 1995) 16,842.47 14,485.41 16,677.53
Since its inception, the Nikkei 225 Index has experienced significant
daily price fluctuations. Any historical upward or downward trend in the
closing level of the Nikkei 225 Index during any period set forth above is not
any indication that the Nikkei 225 Index is more or less likely to increase or
decline at any time during the term of the Warrants.
The Tokyo Stock Exchange
The Tokyo Stock Exchange is one of the world's largest securities
exchanges in terms of market capitalization. The TSE is a two-way, continuous
pure auction market. Trading hours are currently from 9:00 A.M. to 11:00 A.M.
and from 12:30 P.M. to 3:00 P.M., Tokyo time, Monday through Friday.
Due to the time zone difference, on any normal trading day the TSE will
close prior to the opening of business in New York City on the same calendar
day. Therefore, the closing level of the Nikkei 225 Index on such trading day
will generally be available in the United States by the opening of business on
the same calendar day.
The TSE has adopted certain measures intended to prevent any extreme
short-term price fluctuations resulting from order imbalances. These include
daily price floors and ceilings intended to prevent extreme fluctuations in
individual stock prices. In general, any stocks listed on the TSE cannot be
traded at a price outside of these limits which are stated in absolute
Japanese Yen, and not percentage, limits from the closing price of the stock
on the previous day. In addition, when there is a major order imbalance in a
listed stock, the TSE posts a "special bid quote" or a "special asked quote"
for that stock at a specified higher or lower price level than the stock's
last sale price in order to solicit counter orders and balance supply and
demand for the stock. Investors should also be aware that the TSE may suspend
the trading of individual stocks in certain limited and extraordinary
circumstances including, for example, unusual trading activity in that stock.
As a result, variations in the Nikkei 225 Index may be limited by price
limitations, or by suspension of trading, on individual stocks which comprise
the Nikkei 225 Index which may, in turn, adversely affect the value of the
Warrants or result in an Exercise Limitation Event or Extraordinary Event. See
"Description of the Warrants -- Extension Events, Extraordinary Events and
Exercise Limitation Events" herein.
Substitution of the Nikkei 225 Index
The Nikkei 225 Index, published by NKS, is currently the most widely
utilized index relating to Japanese equity securities, as measured by the
market value of: (i) the average daily trading volume of futures contracts on
such index and (ii) the average daily open interest in such contracts, in each
case market value being calculated by reference to the daily closing prices of
such contracts. In October of 1993, NKS commenced the calculation and
publication of a new broad-based, capitalization-weighted index referred to as
the Nikkei 300 Index (the "Nikkei 300 Index"). Unlike the Nikkei 225 Index,
which is a price-weighted index of 225 Japanese stocks listed in the First
Section of the TSE, the Nikkei 300 Index is a capitalization-weighted index of
300 Japanese stocks listed in the First Section of the TSE. See "-- Nikkei 300
Index" for a description of the Nikkei 300 Index. In addition, on February 14,
1994, trading on the OSE of new futures contracts on the Nikkei 300 Index (the
"Nikkei 300 Futures Contracts") was inaugurated. If the Nikkei 300 Futures
Contracts develop Adjusted Trading Volume and Adjusted Open Interest (in each
case, as defined below) with a market value exceeding that of the futures
contracts on the Nikkei 225 Index (the "Nikkei 225 Futures Contracts"), the
Company believes this would indicate that the Nikkei 300 Futures Contracts
will have become more widely utilized than the Nikkei 225 Futures Contracts.
On any Substitution Date (as defined herein), a Substitute Index will be
substituted for the Nikkei 225 Index, and, thereafter, the index used to
determine the Spot Nikkei 225 Index will be such Substitute Index. The
"Substitution Date" shall be the thirtieth calendar day (or, if such day is
not a New York Business Day, the next succeeding New York Business Day)
following the giving of notice (as described below) of a Substitution Event
(as defined herein). Upon the occurrence of a Substitution Event, the Company
shall promptly give notice to the Warrantholders, by publication in a United
States newspaper with a national circulation (currently expected to be the
Wall Street Journal), of: the Substitution Event, the Substitute Index, the
Substitution Date and the Strike Level and the divisor used to determine the
Cash Settlement Value, both as adjusted in the manner described below.
Upon the substitution of a Substitute Index for the Nikkei 225 Index, the
Strike Level will be adjusted as follows:
Strike Level x Current Value of Substitute Index
---------------------------------
Current Value of Nikkei 225 Index
and the Cash Settlement Value of a Warrant will be calculated as the amount in
U.S. Dollars equal to the quotient (rounded down to the nearest cent) of the
amount, if any, by which the Spot Nikkei 225 Index (i.e., the closing level of
the Substitute Index) for the applicable Valuation Date for such Warrant
exceeds the Strike Level (adjusted in the manner described above), divided by
the Adjusted Divisor. The "Adjusted Divisor" shall be an amount equal to 4
multiplied by the fixed Japanese Yen/U.S. Dollar exchange rate of Yen__/U.S.
$1.00 multiplied by a fraction, the numerator of which will be the Current
Value of the Substitute Index and the denominator of which will be the Current
Value of the Nikkei 225 Index. In addition, upon the substitution of a
Substitute Index for the Nikkei 225 Index, the Limit Option will be adjusted
so that the Limit Option Reference Index will be the number of points lower
than the closing level of such Substitute Index determined as follows:
500 x Current Value of Substitute Index
---------------------------------
Current Value of Nikkei 225 Index
For purposes of the above calculations, the "Current Value" of the
Nikkei 225 Index and of the Substitute Index will equal their respective
levels reported by the relevant exchange at the close of business on the day
that the Determination Agent substitutes the Substitute Index for the Nikkei
225 Index or, if such day is not a Tokyo Business Day, the Tokyo Business Day
immediately preceding such day.
A "Substitution Event" will occur if, as determined by the Determination
Agent (whose opinion shall be conclusive and binding on the Company and on the
Warrantholders), the following conditions are fulfilled:
(a) Either of the following has occurred:
(i) The AMEX or another United States securities exchange publishes
(on a basis not less regularly than each day on which such
exchange and the TSE are open for trading) an index (the "New
Japan Index") which for a period of 90 days immediately
preceding the date of the Substitution Event has a correlation
based on daily, closing value to closing value, percentage
changes, of not less than 90% with the Nikkei 300 Index; and
warrants with payments determined by reference to the New Japan
Index have been approved to be listed on the AMEX or such other
exchange by the Commission; or
(ii) Warrants with payments determined by reference to the Nikkei 300
Index have been approved to be listed on the AMEX or such other
exchange by the Commission; and
(b) Either of the following has occurred:
(i) The Nikkei 225 Index is no longer published and/or the Nikkei 225
Futures Contracts have been delisted from trading on the OSE; or
(ii) The Adjusted Trading Volume and the Adjusted Open Interest (in
each case, as defined herein) for the two Nikkei 300 Futures
Contracts with expiration dates closest in time to the
Substitution Event exceed the Adjusted Trading Volume and the
Adjusted Open Interest, respectively, for the two Nikkei 225
Futures Contracts with expiration dates closest in time to the
Substitution Event, each for any three-month period prior to the
date of any Substitution Event; and
(c) To the extent required, the Company, the AMEX and/or such other
exchange shall have obtained any licenses necessary to use the New
Japan Index or the Nikkei 300 Index. The Company will agree in the
Warrant Agreement to use its reasonable efforts to obtain any such
license.
Notwithstanding the above, unless the Nikkei 225 Index is no longer
published and/or the Nikkei 225 Futures Contracts shall have been delisted
from trading on the OSE, a Substitution Event will not be deemed to have
occurred on any of the 60 days immediately preceding the expiration date of
the Warrants.
A "Substitute Index" means, in the event that the circumstances described
in (a)(i) above have occurred, the New Japan Index or, in the event that the
circumstances described in (a)(ii) above have occurred, the Nikkei 300 Index.
"Adjusted Trading Volume" for the Nikkei 300 Futures Contracts or the
Nikkei 225 Futures Contracts means the arithmetic mean, for any period, of the
amounts on each trading day equal to the product of: (x) the number of such
futures contracts traded on such day and (y) the closing level on such day of
the index to which such futures contracts relate, multiplied by Yen 10,000, in
the case of the Nikkei 300 Futures Contracts, or Yen 1,000, in the case of the
Nikkei 225 Futures Contracts (the "Contract Multiplier"). "Adjusted Open
Interest" for the Nikkei 300 Futures Contracts or the Nikkei 225 Futures
Contracts means the arithmetic mean, for any period, of the amounts on each
trading day equal to the product of: (x) the open interest in such futures
contracts on such day and (y) the closing level on such day of the index to
which such futures contracts relate, multiplied by the Contract Multiplier.
For the period from June 9, 1995 to July 31, 1995 (when both Nikkei 300
Futures Contracts and Nikkei 225 Futures Contracts with September 1995 and
December 1995 expirations were traded), the Adjusted Trading Volume for the
Nikkei 300 Futures Contracts and the Nikkei 225 Futures Contracts expiring
September 1995 and December 1995 were Yen 11,337 million and Yen 407,566
million, respectively, and the Adjusted Open Interest for the Nikkei 300
Futures Contracts and for the Nikkei 225 Futures Contracts expiring September
1995 and December 1995 were Yen 261,054 million and Yen 1,751,500 million,
respectively.
Nikkei 300 Index
The Nikkei 300 Index is an index calculated, published and disseminated
by Nihon Keizai Shimbun, Inc., that measures the composite price performance
of stocks of 300 Japanese companies. All 300 stocks are listed in the First
Section of the TSE. Stocks listed in the First Section are among the most
actively traded stocks on the TSE. Publication of the Nikkei 300 Index began
on October 8, 1993.
The Nikkei 300 Index is a market capitalization-weighted index which is
calculated by (i) multiplying the per share price of each stock included in
the Nikkei 300 Index by the number of outstanding shares (excluding shares
held by the Japanese Government), (ii) calculating the sum of all these
products (such sum being hereinafter referred to as the "Aggregate Market
Price"), (iii) dividing the Aggregate Market Price by the Base Aggregate
Market Price (i.e, the Aggregate Market Price as of October 1, 1982) and (iv)
multiplying the result by 100. Because of such capitalization-weighting,
movements in share prices of companies with relatively larger market
capitalization will have a greater effect on the level of the entire index
than will movements in share prices of companies with relatively smaller
market capitalization.
The stocks included in the Nikkei 300 Index (such stocks being referred
to herein as the "Nikkei 300 Stocks") were selected from a reference group of
stocks which were selected by excluding stocks listed in the First Section of
the TSE that met certain stated criteria, including: conspicuously low trading
volume or low share prices as compared to other stocks in the First Section of
the TSE, a failure of the issuer to pay a dividend for a considerable period
of time, or the posting of excessive losses by the issuer for a considerable
period of time. The Nikkei 300 Stocks were selected from this reference group
by (i) selecting from the remaining stocks in this reference group the stocks
with the largest aggregate market value in each of 36 industrial sectors and
(ii) selecting additional stocks (with priority within each industrial sector
given to the stock with the largest aggregate market value) so that the
selection ratios (i.e., the ratio of the aggregate market value of the
included stocks to that of the stocks in the reference group) with respect to
all 36 industry sectors will be as nearly equal as possible and the total
number of companies with stocks included in the Nikkei 300 Index will be 300.
In order to maintain continuity in the level of the Nikkei 300 Index, the
Nikkei 300 Index will be reviewed annually by Nihon Keizai Shimbun, Inc. and
the Nikkei 300 Stocks may be replaced, if necessary, in accordance with a
deletion/addition rule. The deletion/addition rule, as announced and applied
by Nihon Keizai Shimbun, Inc., provides generally for the deletion of a stock
from the Nikkei 300 Index if such stock is no longer included in the reference
group or if the aggregate market value of such stock is low relative to other
stocks in the relevant industry sector. Stocks deleted pursuant to the
deletion/addition rule will be replaced by stocks included in the reference
group which have relatively high aggregate market values. In addition, stocks
may be added or deleted from time to time for extraordinary reasons.
During the period from its initial publication on October 8, 1993 at a
level of 298.89 to July 31, 1995, the highest and lowest daily closing levels
of the Nikkei 300 Index were 311.71 and 222.26, respectively. On July 31,
1995, the daily closing level was 249.30. However, historical performance of
the Nikkei 300 Index is not indicative of potential future levels of such
index.
All disclosure contained in this Prospectus Supplement regarding the
Nikkei 225 Index, Nikkei 225 Futures Contracts, Nikkei 300 Index, Nikkei 300
Futures Contracts, or their publisher, Nihon Keizai Shimbun, Inc., is derived
from publicly available information. Nihon Keizai Shimbun, Inc. has no
relationship with the Company or the Warrants; it does not sponsor, endorse,
authorize, sell or promote the Warrants, and has no obligation or liability in
connection with the administration, marketing or trading of the Warrants.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Davis Polk & Wardwell, special tax counsel for the
Company, the following summary accurately describes the principal anticipated
United States federal income tax consequences of ownership and disposition of
the Warrants to the initial holders of the Warrants. The summary is based on
tax laws in effect as of the date of this Prospectus Supplement, which are
subject to change by executive, legislative, judicial or regulatory action
that in some cases may have retroactive effect. This summary does not discuss
all of the tax consequences that may be relevant to a holder in light of his
particular circumstances. In particular, this summary addresses only persons
who hold Warrants as capital assets within the meaning of Section 1221 of the
Internal Revenue Code of 1986 (the "Code"), and does not deal with persons
subject to special rules, such as dealers in options or currencies or
purchasers holding Warrants as a part of a hedging transaction or straddle.
Prospective purchasers of Warrants should consult their tax advisors with
regard to the application of the United States federal income tax laws to
their particular situations as well as any tax consequences arising under the
laws of any state, local or foreign taxing jurisdiction.
As used herein, the term "United States Holder" means a holder of a
Warrant that is (i) a United States citizen or a resident of the United States
for United States federal income tax purposes, (ii) a corporation, partnership
or other entity created or organized in or under the laws of the United States
or of any political subdivision thereof, (iii) an estate or trust the income
of which is subject to United States federal income taxation regardless of its
source, or (iv) a person otherwise subject to United States federal income
taxation on a net income basis in respect of such holder's ownership of the
Warrants.
As used herein, the term "Non-U.S. Holder" means a holder of a Warrant
that is not a United States Holder.
Tax Consequences to United States Holders
Taxation of Warrants. Each Warrant will be treated as a "Section 1256
contract" subject to the "mark-to-market" rules of Section 1256 of the Code.
Accordingly, a United States Holder of a Warrant will recognize taxable gain
or loss on an annual basis as if the Warrant were sold at its fair market
value on the last day of each taxable year. Thus, a United States Holder of a
Warrant might incur income tax liability on an annual basis in respect of an
increase in value of the Warrant without a corresponding receipt of cash.
Sale, Exchange and Exercise of Warrants. Upon sale, exchange or exercise
of a Warrant, a United States Holder will recognize taxable gain or loss equal
to the difference between the amount realized, if any, and the United States
Holder's tax basis in the Warrants.
Tax Basis of the Warrants. In determining the amount of the taxable gain
or loss recognized by a United States Holder under the mark-to-market rules or
upon the sale, transfer or exercise of a Warrant, the United States Holder's
tax basis in the Warrant will equal the Holder's initial tax basis in the
Warrant (generally equal to the cost of each Warrant), plus or minus the net
gain or loss recognized by the United States Holder under the mark-to-market
rules described above in respect of the Warrant in prior taxable years.
Character of Gain or Loss. Section 1256 requires that any gain or loss on
Warrants (including any gain or loss recognized under the mark-to-market
rules) will be 60% long-term and 40% short-term capital gain or loss. With
respect to a corporate United States Holder, capital losses for a taxable year
are allowed only to the extent of the holder's capital gains for such year,
but may be carried back for three taxable years and carried forward for five
taxable years. With respect to an individual, capital losses for the taxable
year are allowed only to the extent of the holder's other capital gains for
the taxable year plus $3,000, but may be carried forward against net capital
gains. An individual may elect, however, to carry back his net capital losses
from Section 1256 contracts for three years and apply them against his net
capital gain from Section 1256 contracts. Net capital gains of individuals
are, under certain circumstances, taxed at lower rates than items of ordinary
income.
Tax Consequences to Non-U.S. Holders
In general, a Non-U.S. Holder of a Warrant will not be subject to U.S.
federal income or withholding tax with respect to any gain recognized or any
amounts received with respect to a Warrant.
Under current law, Warrants held by an individual Non-U.S. Holder upon
his death will be included in such person's gross estate for United States
federal estate tax purposes unless an applicable estate tax treaty provides
otherwise.
Backup Withholding
The proceeds received from a sale, transfer or exercise of a Warrant may
be subject to a U.S. "backup" withholding tax at the rate of 31% if the holder
thereof fails to supply an accurate taxpayer identification number or
otherwise to comply with applicable U.S. information reporting or
certification requirements. Any amounts so withheld would be refundable or
allowed as a credit against each holder's U.S. federal income tax, provided
the holder furnishes the required information to the Internal Revenue Service.
UNDERWRITERS
Under the terms and subject to the conditions contained in an
Underwriting Agreement dated the date hereof, the Underwriters have severally
agreed to purchase the respective number of Warrants set forth opposite their
respective names below:
Number of
Name Warrants
---- ---------
Morgan Stanley & Co. Incorporated......................
Donaldson, Lufkin & Jenrette Securities Corporation....
Oppenheimer & Co., Inc. ...............................
---------
Total......................................... 2,500,000
=========
The Underwriting Agreement provides that the obligations of the
Underwriters to pay for and accept delivery of the Warrants are subject to the
approval of certain legal matters by its counsel and to certain other
conditions. The Underwriters are committed to take and pay for all of the
Warrants (other than those covered by the over-allotment option described
below) if any such Warrants are taken.
The Underwriters propose initially to offer the Warrants both inside and
outside the United States directly to the public at the applicable public
offering price set forth on the cover page hereof, except that the price will
be $ per Warrant for the purchase of 100,000 or more Warrants in any
single transaction, subject to the holding period requirements described
below. In addition, the Underwriters propose to offer the Warrants to certain
dealers at a price that represents a concession not in excess of U.S.$
per Warrant. After the initial offering of the Warrants, the offering price
and other selling terms may from time to time be varied by the Underwriters.
Generally, delivery of approximately % of the Warrants (the
"Delivered Warrants") purchased by an investor at the reduced price will be
made on the date of delivery of the Warrants referred to on the cover of this
Prospectus Supplement. The balance of approximately % of the Warrants (the
"Escrowed Warrants") purchased by each such investor will be held in escrow
and delivered to such investor if the investor and any accounts in which the
investor may have deposited any of its Delivered Warrants have held all of the
Delivered Warrants for 45 days following the date of this Prospectus
Supplement or any shorter period deemed appropriate by Morgan Stanley. If an
investor or any account in which the investor has deposited any of its
Delivered Warrants fails to satisfy the holding period requirement, as
determined by Morgan Stanley, all of the investor's Escrowed Warrants will be
forfeited by the investor and not delivered to it. The Escrowed Warrants will
instead be delivered to the Underwriters for sale to investors. This
forfeiture will have the effect of increasing the purchase price per Warrant
for such investors to $ . Should investors who are subject to the holding
period requirement sell their Warrants once the holding period is no longer
applicable, the market price of the Warrants may be adversely affected.
Pursuant to the Underwriting Agreement, the Company has granted to the
Underwriters an option, exercisable for 30 days from the date of this
Prospectus Supplement, to purchase up to an aggregate of 375,000 additional
Warrants at the public offering price set forth on the cover page hereof less
underwriting discounts and commissions, in each case subject to reduction as
described above. The Underwriters may exercise such option to purchase
Warrants solely for the purpose of covering over-allotments, if any, incurred
in connection with the sale of the Warrants offered hereby. To the extent such
option is exercised, each Underwriter will become obligated, subject to
certain conditions, to purchase approximately the same percentage of such
additional Warrants as the number set forth next to such Underwriter's name in
the preceding table bears to the total number of Warrants in such table.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended, or to contribute to payments the Underwriters may be required to make
in respect thereof.
The Warrants have been approved for listing on the American Stock
Exchange, subject to official notice of issuance. The Company will covenant in
the Warrant Agreement to use its best efforts to maintain the listing of the
Warrants on the AMEX or another national securities exchange. Nevertheless, no
assurances can be given as to the liquidity of the market for the Warrants.
See "Risk Factors Relating to the Warrants --Possible Illiquidity of the
Secondary Market" in the Prospectus and "Certain Risk Factors Concerning the
Warrants" herein.
This Prospectus Supplement and the accompanying Prospectus may be used by
Morgan Stanley in connection with offers and sales of the Warrants in
market-making transactions at negotiated prices related to prevailing market
prices at the time of sale or otherwise. Morgan Stanley may act as principal
or agent in such transactions.
Morgan Stanley is a wholly owned subsidiary of the Company. The
participation of Morgan Stanley in the offer and sale of the Warrants will
comply with the requirements of Schedule E of the By-Laws of the NASD
regarding underwriting securities of an affiliate. Under the provisions of
Schedule E, when a NASD member such as Morgan Stanley distributes warrants of
an affiliate, the price of the warrants can be no higher than that recommended
by a "qualified independent underwriter," as such term is defined in Schedule
E, meeting certain standards. In accordance with such requirements, Donaldson,
Lufkin & Jenrette Securities Corporation has agreed to serve as a "qualified
independent underwriter" and has conducted due diligence and has recommended a
maximum price for the Warrants in compliance with the requirements of Schedule
E.
Each Underwriter has represented and agreed that it has complied and will
comply with all applicable provisions of the laws of each jurisdiction in
which the Warrants are being offered with respect to anything done by it in
relation to the Warrants in, from or otherwise involving such jurisdictions.
The Underwriters do not intend to confirm sales to accounts over which they
exercise discretionary authority.
Morgan Stanley, as Determination Agent, is expected to make certain
determinations in connection with the Warrants, including the determination of
the Spot Nikkei 225 Index to be used in calculating the Cash Settlement Value
or Alternative Settlement Amount of the Warrants and the Limit Option
Reference Index and any determination of the Alternative Settlement Amount.
See "Certain Risk Factors Concerning the Warrants --Other Considerations"
herein.
APPENDIX A
INDEX OF KEY TERMS
Page on which
Term is Defined
---------------
Adjusted Divisor S-30
Adjusted Open Interest S-31
Adjusted Trading Volume S-31
Alternative Funding Date S-24
Alternative Settlement Amount S-22
AMEX cover
Applicable Tokyo Business Day S-21
Automatic Funding Date S-20
Cancellation Date S-22
Cash Settlement Value cover, S-3
Code S-32
Commission S-4
Company cover
Contract Multiplier S-31
Conversion Option S-12
Conversion Option Period S-25
Current Value S-30
Delisting Date S-4, S-26
Delivered Warrants S-34
Determination Agent S-7
DTC S-12
Early Extended Expiration Date S-20
Escrowed Warrants S-34
Exchange Act S-4
Exercise Date S-16
Exercise Limitation Event S-23
Exercise Notice S-16
Expiration Date S-4, S-16
Extended Expiration Date S-20
Extension Event S-20
Extraordinary Event S-21
Funding Date S-18
Index Calculation Day S-8
Japan Index S-8
Limit Option S-18
Limit Option Reference Index S-19
Measurement Date S-21
Morgan Stanley S-12
NASD S-24
New Japan Index S-30
New York Business Day S-8
Nikkei 225 Futures Contracts S-29
Nikkei 225 Index cover
Nikkei 300 Futures Contracts S-29
Nikkei 300 Index S-29
Nikkei 300 Stocks S-31
Non-U.S. Holder S-32
OSE S-8
Remaining Warrants S-17
Settlement Date S-18
SIMEX S-8
Spot Nikkei 225 Index cover, S-3,
S-9, S-15
SRO S-4
Strike Level cover, S-15
Substitute Index S-31
Substitution Date S-29
Substitution Event S-30
Successor Index S-13
Third Party S-13
TSE S-4, S-8
Tokyo Business Day S-8
Tokyo Trading Day S-21
United States Holder S-32
Underlying Stocks S-21
Valuation Date S-17
Warrant Agent S-7, S-14
Warrant Agent's Office S-14
Warrant Agent's Window S-16
Warrant Agreement S-14
Warrant Certificate S-24
Warrantholder S-8
1989 Suspension S-22
APPENDIX B
LIST OF UNDERLYING STOCKS
The following is a list of the 225 companies whose stocks comprised the
Nikkei 225 Index as of August 4, 1995.
1. KYOKUYO CO. LTD.
2. NICHIRO CORPORATION
3. NIPPON SUISAN KAISHA LTD.
4. MITSUI MINING CO. LTD.
5. SUMITOMO COAL MINING CO. LTD.
6. TEIKOKU OIL
7. TAISEI CORPORATION
8. OBAYASHI CORPORATION
9. SHIMIZU CORPORATION
10. SATO KOGYO CO. LTD.
11. TOBISHIMA CORPORATION
12. FUJITA CORPORATION
13. KAJIMA CORPORATION
14. TEKKEN CONSTRUCTION
15. HAZAMA CORPORATION
16. KUMAGAI GUMI CO. LTD.
17. TOA CORPORATION
18. AOKI CORPORATION
19. DAIWA HOUSE INDUSTRY CO. LTD.
20. NIPPON FLOUR MILLS CO. LTD.
21. NISSHIN FLOUR MILLING CO. LTD.
22. NIPPON BEET SUGAR MANUFACTURING CO.
23. MORINAGA AND CO. LTD.
24. MEIJI SEIKA KAISHA LTD.
25. MEIJI MILK PRODUCTS CO. LTD.
26. SAPPORO BREWERIES LTD.
27. ASAHI BREWERIES LTD.
28. KIRIN BREWERY CO. LTD.
29. TAKARA SHUZO
30. NISSHIN OIL MILLS LTD.
31. KIKKOMAN CORPORATION
32. AJINOMOTO CO. INC.
33. NICHIREI CORPORATION
34. TOYOBO CO. LTD.
35. KANEBO LTD.
36. FUJI SPINNING CO. LTD.
37. NISSHINBO INDUSTRIES INC.
38. NITTO BOSEKI CO. LTD.
39. JAPAN WOOL TEXTILE CO. LTD.
40. TORAY INDUSTRIES
41. TOHO RAYON
42. KURARAY CO. LTD.
43. ASAHI CHEMICAL INDUSTRY CO. LTD.
44. NEW OJI PAPER CO.
45. HONSHU PAPER CO. LTD.
46. MITSUBISHI PAPER MILLS LTD.
47. HOKUETSU PAPER MILLS LTD.
48. MITSUI TOATSU CHEMICALS INC.
49. SHOWA DENKO K.K.
50. SUMITOMO CHEMICAL CO. LTD.
51. MITSUBISHI KASEI CORPORATION
52. NISSAN CHEMICAL INDUSTRIES LTD.
53. RASA INDUSTRIES LTD.
54. NIPPON SODA CO. LTD.
55. TOSOH CORPORATION
56. TOAGOSEI CHEMICAL INDUSTRY
57. DENKI KAGAKU KOGYO K.K.
58. SHIN ETSU CHEMICAL CO. LTD.
59. NIPPON CARBIDE INDUSTRIES CO. INC.
60. NIPPON CHEMICAL INDUSTRIAL CO. LTD.
61. MERCIAN CORPORATION
62. KYOWA HAKKO KOGYO CO. LTD.
63. NIPPON SYNTHETIC CHEMICAL INDUSTRY
64. NIPPON KAYAKU CO. LTD.
65. ASAHI DENKA KOGYO K.K.
66. NOF CORPORATION
67. SANKYO CO. LTD.
68. TAKEDA CHEMICAL INDUSTRIES
69. YAMANOUCHI PHARMACEUTICAL
70. DAINIPPON PHARMACEUTICAL CO. LTD.
71. SHIONOGI AND CO. LTD.
72. FUJI PHOTO FILM CO. LTD.
73. KONICA CORPORATION
74. NIPPON OIL CO. LTD.
75. SHOWA SHELL SEKIYU K.K.
76. MITSUBISHI OIL CO. LTD.
77. TONEN CORPORATION
78. JAPAN ENERGY CORPORATION
79. YOKOHAMA RUBBER
80. BRIDGESTONE CORPORATION
81. ASAHI GLASS CO. LTD.
82. NIPPON SHEET GLASS CO. LTD.
83. NIHON CEMENT CO. LTD.
84. SUMITOMO CEMENT CO. LTD.
85. ONODA CEMENT CO. LTD.
86. TOKAI CARBON CO. LTD.
87. NIPPON CARBON CO. LTD.
88. NORITAKE CO. LTD.
89. TOTO LTD.
90. NGK INSULATORS LTD.
91. SHINAGAWA REFRACTORIES CO. LTD.
92. SUMITOMO METAL INDUSTRIES LTD.
93. NIPPON METAL INDUSTRY CO. LTD.
94. NIPPON YAKIN KOGYO
95. NIPPON DENKO CO. LTD.
96. JAPAN STEEL WORKS LTD.
97. MITSUBISHI STEEL MANUFACTURING CO.
98. NIPPON LIGHT METAL CO. LTD.
99. MITSUI MINING AND SMELTING LTD.
100. TOHO ZINC CO. LTD.
101. MITSUBISHI MATERIALS CORPORATION
102. SUMITOMO METAL MINING CO. LTD.
103. DOWA MINING CO. LTD.
104. FURUKAWA CO. LTD.
105. FURUKAWA ELECTRIC CO. LTD.
106. SUMITOMO ELECTRIC IND. LTD.
107. FUJIKURA LTD.
108. SHOWA ELECTRIC WIRE AND CABLE CO. LTD.
109. NIPPON STEEL CORPORATION
110. TOYO SEIKAN KAISHA
111. TOKYO ROPE MFG.
112. NIIGATA ENGINEERING CO. LTD.
113. OKUMA CORPORATION
114. KOMATSU LTD.
115. SUMITUMO HEAVY INDUSTRIES LTD.
116. KUBOTA CORPORATION
117. EBARA CORPORATION
118. CHIYODA CORPORATION
119. NSK LTD.
120. NTN CORPORATION
121. NACHI FUJIKOSHI CORPORATION
122. MINEBEA CO. LTD.
123. HITACHI LTD.
124. TOSHIBA CORPORATION
125. MITSUBISHI ELECTRIC CORPORATION
126. FUJI ELECTRIC CO. LTD.
127. MEIDENSHA CORPORATION
128. NEC CORPORATION
129. FUJITSU LTD.
130. OKI ELECTRIC INDUSTRY CO. LTD.
131. MATSUSHITA ELECTRIC INDUSTRIAL
132. SHARP CORPORATION
133. SONY CORPORATION
134. SANYO ELECTRIC CO. LTD.
135. PIONEER ELECTRONIC CORPORATION
136. YOKOGAWA ELECTRIC
137. NIPPONDENSO CO. LTD.
138. YAUSA CORPORATION
139. MITSUI ENG. AND SHIPBUILDING
140. HITACHI ZOSEN CORPORATION
141. MITSUBISHI HEAVY INDUSTRIES
142. ISHIKAWAJIMA HARIMA HEAVY IND.
143. NIPPON SHARYO LTD.
144. NISSAN MOTOR CO. LTD.
145. ISUZU MOTORS LTD.
146. TOYOTA MOTOR CORPORATION
147. HINO MOTORS LTD.
148. MAZDA MOTOR CORPORATION
149. HONDA MOTOR CO. LTD.
150. SUZUKI MOTOR CORPORATION
151. HONEN CORPORATION
152. NIKON CORPORATION
153. CANON INC.
154. RICOH COMPANY LTD.
155. CITIZEN WATCH CO. LTD.
156. TOPPAN PRINTING CO. LTD.
157. DAI NIPPON PRINTING CO. LTD.
158. YAMAHA CORPORATION
159. ITOCHU CORPORATION
160. MARUBENI CORPORATION
161. MITSUI AND CO. LTD.
162. SUMITOMO CORPORATION
163. MITSUBISHI CORPORATION
164. SEIKA CORPORATION
165. IWATANI INTERNATIONAL CORPORATION
166. MITSUKOSHI LTD.
167. TOKYU DEPARTMENT STORE
168. UNITIKA LTD.
169. MARUZEN CO. LTD.
170. DAI ICHI KANGYO BANK LTD.
171. BANK OF TOKYO LTD.
172. SAKURA BANK LTD.
173. MITSUBISHI BANK LTD.
174. FUJI BANK LTD.
175. SUMITOMO BANK LTD.
176. MITSUI TRUST AND BANKING CO. LTD.
177. MITSUBISHI TRUST AND BANKING CORP.
178. JAPAN SECURITIES FINANCE CO. LTD.
179. NIPPON SHINPAN CO. LTD.
180. TEIJIN LTD.
181. NIKKO SECURITIES CO. LTD.
182. NOMURA SECURITIES CO. LTD.
183. TOKIO MARINE AND FIRE INSUR. CO.
184. MITSUI MARINE AND FIRE INSUR. CO.
185. YASUDA FIRE AND MARINE INSURANCE CO.
186. MITSUI FUDDSAN CO. LTD.
187. MITSUBISHI ESTATE CO. LTD.
188. HEIWA REAL ESTATE CO. LTD.
189. TOBU RAILWAY
190. TOKYU CORPORATION
191. KEIHIN ELECTRIC EXPRESS RAILWAY CO.
192. ODAKYU ELECTRIC RAILWAY
193. KEIO TEITO ELECTRIC RAILWAY CO. LTD
194. KEISEI ELECTRIC RAILWAY CO. LTD.
195. MITSUBISHI RAYON CO. LTD.
196. NIPPON EXPRESS CO. LTD.
197. SANKYU INC.
198. NIPPON YUSEN K.K.
199. MITSUI O.S.K. LINES LTD.
200. KAWASAKI KISEN KAISHA LTD.
201. SHOWA LINE LTD.
202. ALL NIPPON AIRWAYS CO. LTD.
203. MITSUBISHI WAREHOUSE AND TRANSPORT.
204. MITSUI SOKO CO. LTD.
205. NIPPON TELEGRAPH AND TELEPHONE NTT
206. TOKYO ELECTRIC POWER CO. INC.
207. KANSAI ELECTRIC POWER CO. INC.
208. TOKYO GAS CO. LTD.
209. TOEI CO.
210. TOKYO DOME CORPORATION
211. NIPPON PAPER IND. CO. LTD.
212. UBE INDUSTRIES
213. KAWASAKI STEEL CORPORATION
214. NKK CORPORATION
215. KOBE STEEL LTD.
216. FURUKAWA CO. LTD.
217. ISAKI AND CO. LTD.
218. NIPPON PISTON RING CO. LTD.
219. KOYO SEIKO CO. LTD.
220. KAWASAKI HEAVY IND. LTD.
221. TOPY INDUSTRIES
222. TOMEN CORPORATION
223. NISSHO IWAI CORPORATION
224. NAVIX LINE LTD.
225. OSAKA GAS CO. LTD.
PROSPECTUS
Issued January 7, 1994
Morgan Stanley Group Inc.
CURRENCY WARRANTS
INDEX WARRANTS
INTEREST RATE WARRANTS
Morgan Stanley Group Inc. (the "Company") may offer and issue from time
to time (i) warrants entitling the holders thereof to receive from the
Company, upon exercise, an amount in cash determined by reference to the right
to purchase ("Currency Call Warrants") or the right to sell ("Currency Put
Warrants" and, together with the Currency Call Warrants, the "Currency
Warrants") a specified amount or specified amounts of one or more currencies
or currency units or any combination thereof for a specified amount or
specified amounts of one or more different currencies or currency units or any
combination thereof, (ii) warrants entitling the holders thereof to receive
from the Company, upon exercise, an amount in cash determined by reference to
decreases ("Index Put Warrants") or increases ("Index Call Warrants" and,
together with the Index Put Warrants, the "Index Warrants") in the level of a
specified index (an "Index") or in the levels (or relative levels) of two or
more Indices or combinations of Indices, which Index or Indices may be based
on one or more stocks, bonds or other securities, one or more interest rates,
one or more currencies or currency units, or any combination of the foregoing,
and (iii) warrants entitling the holders thereof to receive from the Company,
upon exercise, an amount in cash determined by reference to decreases
("Interest Rate Put Warrants") or increases ("Increase Rate Call Warrants"
and, together with the Interest Rate Put Warrants, the "Interest Rate
Warrants") in the yield or closing price of one or more specified debt
instruments issued either by the United States government or by a foreign
government (the "Debt Instrument"), in the interest rate, interest rate swap
rate or other rate established from time to time by one or more specified
financial institutions (the "Rate") or in any combination of Debt Instruments
and/or Rates. This Prospectus relates to the issuance of Currency Warrants,
Index Warrants and Interest Rate Warrants (collectively, the "Warrants")
having an aggregate initial offering price of up to U.S. $150,000,000 or the
equivalent thereof if the offering price of the Warrants is denominated in a
foreign currency or currency unit and additional Index Warrants having an
aggregate initial offering price of up to U.S. $118,500,000 or the equivalent
thereof. The Warrants will be offered on terms to be determined at the time
of the offering. A Warrant will not entitle the holder of a Warrant (a
"Warrantholder") to take delivery of or to make delivery of any currency,
currency unit or security. The Warrants involve a high degree of risk. See
"Risk Factors Relating to the Warrants."
The accompanying Prospectus Supplement will set forth the specific terms
of the Warrants offered thereby, including whether such Warrants are Currency
Warrants, Index Warrants or Interest Rate Warrants, the specific designation,
aggregate number of Warrants, the currency or currency unit for which the
Warrants may be purchased, the currency or currency unit in which the cash
settlement value or the exercise price (if applicable) is payable, the method
of calculation of the cash settlement value, the first and last dates on which
such Warrants may be exercised, provisions, if any, for the automatic exercise
and/or cancellation prior to the expiration date, the manner in which such
Warrants may be exercised, the securities exchange on which such Warrants will
be listed, the initial public offering price, a discussion of certain United
States federal income tax or other special considerations applicable thereto
and any other terms in connection with such Warrants.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Warrants may be offered through dealers, underwriters or agents
designated from time to time, as set forth in the accompanying Prospectus
Supplement. Net proceeds to the Company will be the purchase price in the
case of sales to a dealer, the public offering price less discount in the case
of sales to an underwriter or the purchase price less commission in the case
of sales through an agent -- in each case, less other expenses attributable to
issuance and distribution. See "Plan of Distribution" for possible
indemnification arrangements for dealers, underwriters and agents.
Following the initial distribution of an issue of Warrants, Morgan
Stanley & Co. Incorporated ("MS & Co."), Morgan Stanley International ("MSI")
and other affiliates of the Company may offer and sell previously issued
Warrants in the course of their businesses as broker-dealers (subject to
obtaining any necessary approval of The New York Stock Exchange for any such
offers and sales by MS & Co.). MS & Co., MSI and such other affiliates may
act as a principal or agent in such transactions. This Prospectus and the
accompanying Prospectus Supplement may be used by MS & Co., MSI and such other
affiliates in connection with such transactions. Such sales, if any, will be
made at varying prices related to prevailing market prices at the time of
sale.
MORGAN STANLEY & CO.
Incorporated
January 11, 1994
No dealer, salesman or any other person has been authorized to give any
information or to make any representations other than those contained or
incorporated by reference in this Prospectus or in the Prospectus Supplement
and, if given or made, such information or representations must not be relied
upon as having been authorized by the Company or any underwriter, dealer or
agent. Neither this Prospectus nor the Prospectus Supplement constitute an
offer to sell or a solicitation of an offer to buy Warrants by anyone in any
jurisdiction in which such offer or solicitation is not authorized or in which
the person making such offer or solicitation is not qualified to do so or to
any person to whom it is unlawful to make such offer or solicitation.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports and other information with the Securities
and Exchange Commission (the "Commission"). Reports, proxy statements and
other information filed by the Company with the Commission can be inspected
and copied at the public reference facilities maintained by the Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 or at its Regional
Offices located at Suite 1400, Northwestern Atrium Center, 500 West Madison
Street, Chicago, Illinois 60661 and at Seven World Trade Center, 13th Floor,
New York, New York 10048, and copies of such material can be obtained from the
Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Company's Common Stock, par
value $1.00 per share (the "Common Stock"), is listed on the New York Stock
Exchange, Inc. (the "NYSE"), the Boston Stock Exchange, the Chicago Stock
Exchange and the Pacific Stock Exchange, Inc. Reports, proxy statements and
other information concerning the Company can be inspected at the offices of
the NYSE, 20 Broad Street, New York, New York 10005; the Boston Stock
Exchange, One Boston Place, Boston, Massachusetts 02108; the Chicago Stock
Exchange, 440 South LaSalle Street, Chicago, Illinois 60605; and the Pacific
Stock Exchange, Inc., 301 Pine Street, San Francisco, California 94104 or 618
South Spring Street, Los Angeles, California 90014.
This Prospectus constitutes a part of a Registration Statement filed by
the Company with the Commission under the Securities Act of 1933, as amended
(the "Securities Act"). This Prospectus omits certain of the information
contained in the Registration Statement in accordance with the rules and
regulations of the Commission. Reference is hereby made to the Registration
Statement and related exhibits for further information with respect to the
Company and the Warrants. Statements contained herein concerning the
provisions of any document are not necessarily complete and, in each instance,
reference is made to the copy of such document filed as an exhibit to the
Registration Statement or otherwise filed with the Commission. Each such
statement is qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Annual Report on Form 10-K of the Company for the fiscal year ended
January 31, 1993, Quarterly Reports on Form 10-Q of the Company for the fiscal
quarters ended April 30, 1993, July 31, 1993 and October 31, 1993, and Current
Reports on Form 8-K of the Company dated February 23, 1993, May 27, 1993, July
1, 1993, August 23, 1993, as amended, September 2, 1993, October 8, 1993,
November 10, 1993, November 16, 1993, December 1, 1993 and December 16, 1993
have been filed with the Commission and are incorporated herein by reference.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the later of (i) the termination of the offering of the Warrants and
(ii) the date on which MS & Co., MSI and other affiliates of the Company cease
offering and selling previously issued Warrants shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such documents.
Any statement contained herein or in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any subsequently filed document that also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
Copies of the above documents (excluding exhibits) may be obtained upon
request without charge from the Company, 1251 Avenue of the Americas, New
York, New York 10020, Attention: Mailroom Manager (telephone number (212)
703-6010).
IN CONNECTION WITH THE OFFERING OF CERTAIN WARRANTS, THE UNDERWRITERS
MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET
PRICES OF SUCH WARRANTS OR OTHER SECURITIES OF THE COMPANY AT LEVELS ABOVE
THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY
BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, THE AMERICAN STOCK EXCHANGE, IN
THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY
BE DISCONTINUED AT ANY TIME.
THE COMPANY
Morgan Stanley Group Inc. is a holding company that, through its
subsidiaries, provides a wide range of financial services on a global basis.
Its businesses include securities underwriting, distribution and trading;
merger, acquisition, restructuring, real estate, project finance and other
corporate finance advisory activities; merchant banking and other principal
investment activities; brokerage and research services; asset management; the
trading of foreign exchange and commodities as well as derivatives on a broad
range of asset categories; and global custody, securities clearance services
and securities lending. These services are provided to corporations,
governments, financial institutions and individual investors. The Company,
which was formed in 1935, conducts business from its head office in New York
City, its international offices in London, Tokyo, Frankfurt, Hong Kong,
Luxembourg, Madrid, Melbourne, Milan, Paris, Seoul, Singapore, Taipei, Toronto
and Zurich, and its United States regional offices in Chicago, Los Angeles and
San Francisco.
Morgan Stanley & Company, Incorporated was incorporated under the laws of
the State of New York in 1935 and was liquidated and reconstituted as Morgan
Stanley & Co., a partnership, in 1941. MS & Co. was incorporated under the
laws of Delaware in 1969 and over a number of years assumed all of the
business of the partnership. Morgan Stanley Holdings Incorporated was
incorporated under the laws of Delaware in 1975 to own all of the stock of MS
& Co. and other related entities, and changed its name to Morgan Stanley Inc.
in 1978 and to Morgan Stanley Group Inc. in 1985. The Company's principal
executive offices are at 1251 Avenue of the Americas, New York, New York
10020, and its telephone number is (212) 703-4000. Unless the context
otherwise requires, the term "Company" means Morgan Stanley Group Inc. and its
consolidated subsidiaries.
USE OF PROCEEDS
Substantially all of the net proceeds from the issue of the Warrants
will be used to hedge the obligations represented by the Warrants. Any
remaining net proceeds will be used for general corporate purposes.
RISK FACTORS RELATING TO THE WARRANTS
The Warrants are speculative and involve a high degree of risk,
including the risk that the Warrants will expire worthless except for the
minimum expiration value, if any, of such Warrants. Investors should
therefore be prepared to sustain a total loss of the purchase price of the
Warrants. Investors who consider purchasing Warrants should be experienced
with respect to interest rate, currency and option transactions and reach an
investment decision only after carefully considering, with their advisors, the
suitability of the Warrants in the light of their particular circumstances and
the information set forth below and under "Description of the Warrants" as
well as additional information contained in the Prospectus Supplement.
The Warrants are not standardized options of the type issued by The
Options Clearing Corporation (the "OCC"), a clearing agency regulated by the
Commission. Unlike purchasers of OCC standardized options, who have the
credit benefits of guarantees and margin and collateral deposits by OCC
clearing members to protect the OCC from a clearing member's failure,
purchasers of Warrants must look solely to the Company for performance of its
obligations to pay the Cash Settlement Value, Minimum Expiration Value or
Cancellation Amount (as each such term may be defined in the applicable
Prospectus Supplement), as applicable, upon exercise, expiration or
cancellation of the Warrants, as the case may be. The Warrants are unsecured
contractual obligations of the Company and will rank pari passu with the
Company's other unsecured contractual obligations and with the Company's
unsecured and unsubordinated debt. Further, the market for the Warrants is
not expected to be generally as liquid as the market for some OCC standardized
options.
Options and warrants pose risks to investors as a result of fluctuations
in the value of the underlying investment interests. In general, certain of
the risks associated with the Warrants are similar to those generally
applicable to other options or warrants of private corporate or sovereign
issuers. However, unlike options or warrants on equity or debt securities,
which are priced primarily on the basis of the value of a single underlying
security, the trading value of a Warrant is likely to reflect, in part, the
present and expected values of the applicable currency, index, interest rate
or security.
The purchaser of a Warrant, other than a Warrant having a Minimum
Expiration Value, may lose its entire investment. This risk reflects the
nature of a Warrant as an asset which tends to decline in value over time and
which may, depending on the level of the applicable currency, index, interest
rate or security, become worthless when it expires or is canceled except to
the extent of the Minimum Expiration Value, if any, of such Warrant. Assuming
all other factors are held constant, the more a Warrant is out-of-the-money
and the shorter its remaining term to expiration or cancellation, the greater
the risk that a purchaser of the Warrant will lose all (except to the extent
of any Minimum Expiration Value) or part of its investment. This means that
the purchaser of a Warrant who does not sell it in the secondary market or
exercise it prior to expiration or cancellation could lose its entire
investment (except to the extent of any Minimum Expiration Value) in the
Warrant upon expiration or cancellation if, in the case of a put Warrant, the
value of the applicable currency, index, interest rate or security at
expiration or cancellation is greater than or equal to the exercise price,
and, in the case of a call Warrant, such value is less than or equal to the
exercise price.
The fact that Warrants may become significantly less valuable upon
expiration or cancellation means that a purchaser of a Warrant must generally
be correct about both the direction and magnitude of any anticipated change in
the applicable currency, index, interest rate or security and also correct
about when that change will occur. If the value of the applicable currency,
index, interest rate or security does not decline in the case of a put
Warrant, or increase in the case of a call Warrant, before such Warrant
expires or is canceled to an extent sufficient (after giving effect to any
relevant currency exchange rate movements in the case of a Warrant whose Cash
Settlement Value depends on currency exchange rates) to cover an investor's
cost of purchasing the Warrant (i.e., the purchase price plus transaction
costs, if any), the investor may lose all (except to the extent of any Minimum
Expiration Value) or a part of its investment in the Warrant upon expiration
or cancellation.
DESCRIPTION OF THE WARRANTS
The following description sets forth certain general terms and
provisions of the Warrants to which any Prospectus Supplement may relate. The
particular terms of each issue of Warrants will be described in the Prospectus
Supplement relating to such Warrants. Accordingly, for a description of the
terms of a particular issue of Warrants, reference must be made to the
Prospectus Supplement relating thereto and to the descriptions set forth
below. The Company will have the right to "reopen" a previous issue of
Warrants and to issue additional Warrants of such issue.
The Currency Warrants, Index Warrants and Interest Rate Warrants are to
be issued under separate warrant agreements (each a "Warrant Agreement" and
respectively a "Currency Warrant Agreement", an "Index Warrant Agreement" and
an "Interest Rate Warrant Agreement") to be entered into among the Company, MS
& Co., as determination agent, and one or more banks or trust companies, as
warrant agent (each a "Warrant Agent" and respectively a "Currency Warrant
Agent", an "Index Warrant Agent" and an "Interest Rate Warrant Agent"), all as
shall be set forth in the Prospectus Supplement relating to the Warrants being
offered thereby. MS & Co. is a wholly-owned subsidiary of the Company.
Currency Warrants
The Company may issue Currency Warrants (a) in the form of Currency Put
Warrants, entitling the Warrantholder to receive from the Company in cash upon
exercise the Currency Warrant Cash Settlement Value (as shall be defined in
the Prospectus Supplement), which amount shall be determined by reference to
the right to sell a specified amount or amounts of one or more currencies or
currency units or any combination thereof (a "Base Currency" or the "Base
Currencies") for a specified amount or amounts of one or more different
currencies or currency units or any combination thereof (a "Reference
Currency" or the "Reference Currencies"), (b) in the form of Currency Call
Warrants, entitling the Warrantholder to receive from the Company in cash upon
exercise the Currency Warrant Cash Settlement Value, which amount shall be
determined by reference to the right to purchase a specified amount or amounts
of a Base Currency or Base Currencies for a specified amount or amounts of a
Reference Currency or Reference Currencies, or (c) in such other form as shall
be specified in the applicable Prospectus Supplement. The Prospectus
Supplement for an issue of Currency Warrants will set forth the formula
pursuant to which the Currency Warrant Cash Settlement Value will be
determined, including any multipliers, if applicable.
The Prospectus Supplement will describe the terms of the Currency
Warrants offered thereby and the Currency Warrant Agreement relating to such
Currency Warrants, including the following: (1) the title or designation of
such Currency Warrants; (2) the aggregate amount of such Currency Warrants;
(3) the initial offering price of such Currency Warrants; (4) the exercise
price, if any; (5) the currency or currency unit in which the initial
offering price, the exercise price, if any, and the Currency Warrant Cash
Settlement Value of such Currency Warrants is payable; (6) the Base Currency
and the Reference Currency for such Currency Warrants; (7) whether such
Currency Warrants shall be Currency Put Warrants, Currency Call Warrants or
otherwise; (8) the formula for determining the Currency Warrant Cash
Settlement Value of each Currency Warrant; (9) whether and under what
circumstances a Minimum and/or Maximum Expiration Value (each as shall be
defined in the Prospectus Supplement) is applicable upon the expiration of
such Currency Warrants; (10) the effect or effects, if any, of the occurrence
of an Exercise Limitation Event or Extraordinary Event (each as shall be
defined in the Prospectus Supplement) and the circumstances that constitute
such events; (11) the date on which the right to exercise such Currency
Warrants shall commence and the date (the "Currency Warrant Expiration Date")
on which such right shall expire; (12) any minimum number of Currency Warrants
which must be exercised at any one time, other than upon automatic exercise;
(13) the maximum number, if any, of such Currency Warrants that may, subject
to election by the Company, be exercised by all Warrantholders on any day;
(14) any provisions for the automatic exercise of such Currency Warrants other
than at expiration; (15) whether and under what circumstances such Currency
Warrants may be canceled by the Company prior to the Currency Warrant
Expiration Date; (16) any other procedures and conditions relating to the
exercise of such Currency Warrants; (17) the identity of the Currency Warrant
Agent; (18) any national securities exchange on which such Currency Warrants
will be listed; (19) whether such Currency Warrants will be issued in
certificated or book-entry form and, to the extent they differ from or add to
the provisions set forth in this Prospectus, provisions relating to issuing
such Currency Warrants in certificated or book-entry form; (20) if such
Currency Warrants are not issued in book-entry form, the place or places and
time or times at which payments in respect of such Currency Warrants are to be
made by the Company; (21) if applicable, a discussion of certain United
States federal income tax or other special considerations applicable thereto;
and (22) any other terms of such Currency Warrants.
Other important information concerning Currency Warrants is set forth
below under "Certain Items Applicable to All Warrants".
Index Warrants
The Company may issue Index Warrants (a) in the form of Index Put
Warrants, entitling the Warrantholder to receive from the Company in cash upon
exercise the Index Warrant Cash Settlement Value (as shall be defined in the
Prospectus Supplement), which amount will be determined by reference to the
amount, if any, by which the Strike Level or Base Value (as the applicable
term shall be defined in the Prospectus Supplement) on the applicable
valuation date following exercise exceeds the Spot Value (as shall be defined
in the Prospectus Supplement), (b) in the form of Index Call Warrants,
entitling the Warrantholder to receive from the Company in cash upon exercise
the Index Warrant Cash Settlement Value, which amount will be determined by
reference to the amount, if any, by which the Spot Value on the applicable
valuation date following exercise exceeds the Strike Level or Base Value, as
applicable, or (c) in such other form as shall be specified in the applicable
Prospectus Supplement. The Prospectus Supplement for an issue of Index
Warrants will set forth the formula pursuant to which the Index Warrant Cash
Settlement Value will be determined, including any multipliers, if applicable.
The Prospectus Supplement will describe the terms of the Index Warrants
offered thereby and the Index Warrant Agreement relating to such Index
Warrants, including the following: (1) the title or designation of such Index
Warrants; (2) the aggregate amount of such Index Warrants; (3) the initial
offering price of such Index Warrants; (4) the exercise price, if any; (5)
the currency or currency unit in which the initial offering price, the
exercise price, if any, and the Index Warrant Cash Settlement Value of such
Index Warrants is payable; (6) the Index or Indices for such Index Warrants,
which Index or Indices may be based on one or more U.S. or foreign stocks,
bonds, or other securities, one or more U.S. or foreign interest rates, one or
more currencies or currency units, or any combination of the foregoing, and
may be a preexisting U.S. or foreign Index or an Index based on one or more
securities, interest rates or currencies selected by the Company solely in
connection with the issuance of such Index Warrants, and certain information
regarding such Index or Indices and the underlying securities, interest rates
or currencies (including, to the extent possible, the policies of the
publisher of the Index with respect to additions, deletions and substitutions
of such securities, interest rates or currencies); (7) whether such Index
Warrants shall be Index Put Warrants, Index Call Warrants or otherwise; (8)
the method of providing for a substitute Index or Indices or otherwise
determining the amount payable in connection with the exercise of such Index
Warrants if the Index changes or ceases to be made available by the publisher
of the Index; (9) the formula for determining the Index Warrant Cash
Settlement Value of each Index Warrant (including the definition of the Spot
Value and the Strike Level or Base Value for such Index Warrants); (10) the
circumstances, if any, under which a Minimum and/or Maximum Expiration Value
is applicable upon the expiration of such Index Warrants; (11) the effect or
effects, if any, of the occurrence of an Exercise Limitation Event or
Extraordinary Event and the circumstances that constitute such events; (12)
the date (the "Index Warrant Exercise Date") on which the right to exercise
such Index Warrants shall commence and the date (the "Index Warrant Expiration
Date") on which such right shall expire; (13) any minimum number of Index
Warrants which must be exercised at any one time, other than upon automatic
exercise; (14) the maximum number, if any, of such Index Warrants that may,
subject to election by the Company, be exercised by all Warrantholders on any
day; (15) any provisions for the automatic exercise of such Index Warrants
other than at expiration; (16) whether and under what circumstances such
Index Warrants may be canceled by the Company prior to the Index Warrant
Expiration Date; (17) any provisions permitting a Warrantholder to condition
any exercise notice on the absence of certain specified changes in the Spot
Value or the Base Value after the Index Warrant Exercise Date; (18) any other
procedures and conditions relating to the exercise of such Index Warrants;
(19) the identity of the Index Warrant Agent; (20) any national securities
exchange on which such Index Warrants will be listed; (21) whether such Index
Warrants will be issued in certificated or book- entry form and, to the extent
they differ from or add to the provisions set forth in this Prospectus,
provisions relating to issuing such Index Warrants in certificated or
book-entry form; (22) if such Index Warrants are not issued in book-entry
form, the place or places and time or times at which payments in respect of
such Index Warrants are to be made by the Company; (23) if applicable, a
discussion of certain United States federal income tax or other special
considerations applicable thereto; and (24) any other terms of such Index
Warrants.
Other important information concerning Index Warrants is set forth below
under "Certain Items Applicable to All Warrants".
Interest Rate Warrants
The Company may issue Interest Rate Warrants (a) in the form of Interest
Rate Put Warrants, entitling the Warrantholder to receive from the Company in
cash upon exercise the Interest Rate Cash Settlement Value (as shall be
defined in the Prospectus Supplement), which amount will be determined by
reference to the amount, if any, by which the Spot Amount (as shall be defined
in the Prospectus Supplement) is less than the Strike Amount or Base Amount
(as the applicable term shall be defined in the Prospectus Supplement) on the
applicable valuation date following exercise, (b) in the form of Interest Rate
Call Warrants, entitling the Warrantholder to receive from the Company in cash
upon exercise the Interest Rate Cash Settlement Value, which amount will be
determined by reference to the amount, if any, by which the Spot Amount on the
applicable valuation date following exercise exceeds the Strike Amount or Base
Amount, as applicable, or (c) in such other form as shall be specified in the
applicable Prospectus Supplement. The Prospectus Supplement for an issue of
Interest Rate Warrants will set forth the formula pursuant to which the
Interest Rate Cash Settlement Value will be determined, including any
multipliers, if applicable. The Strike Amount will be a fixed yield or price
of a Debt Instrument, a Rate or any combination of prices and/or yields and/or
Rates. The Base Amount will be a yield, price or Rate that varies during the
term of the Interest Rate Warrants in accordance with a schedule or formula.
The Debt Instrument will be one or more instruments specified in the
applicable Prospectus Supplement issued either by the United States government
or by a foreign government. The applicable Rate will be one or more interest
rates or interest rate swap rates or other rates established from time to time
by one or more financial institutions specified in the applicable Prospectus
Supplement.
The Prospectus Supplement will describe the terms of the Interest Rate
Warrants offered thereby and the Interest Rate Warrant Agreement relating to
such Interest Rate Warrants, including the following: (1) the title or
designation of such Interest Rate Warrants; (2) the aggregate amount of such
Interest Rate Warrants; (3) the initial offering price of such Interest Rate
Warrants; (4) the exercise price, if any; (5) the currency or currency unit
in which the initial offering price, the exercise price, if any, and the
Interest Rate Cash Settlement Value of such Interest Rate Warrants is payable;
(6) the Debt Instrument (which may be one or more debt instruments issued
either by the United States government or by a foreign government), the Rate
(which may be one or more interest rates or interest rate swap rates
established from time to time by one or more specified financial institutions)
or the other yield, price or rate utilized for such Interest Rate Warrants,
and certain information regarding such Debt Instrument or Rate; (7) whether
such Interest Rate Warrants shall be Interest Rate Put Warrants, Interest Rate
Call Warrants or otherwise; (8) the Strike Amount, the method of determining
the Spot Amount and the method of expressing movements in the yield or closing
price of the Debt Instrument or in the level of the Rate as a cash amount in
the currency in which the Interest Rate Cash Settlement Value of such Interest
Rate Warrants is payable; (9) the formula for determining the Interest Rate
Cash Settlement Value of each Interest Rate Warrant; (10) whether and under
what circumstances a Minimum and/or Maximum Expiration Value is applicable
upon the expiration of such Interest Rate Warrants; (11) the effect or
effects, if any, of the occurrence of an Exercise Limitation Event or
Extraordinary Event and the circumstances that constitute such events; (12)
the date (the "Interest Rate Warrant Exercise Date") on which the right to
exercise such Interest Rate Warrants shall commence and the date (the
"Interest Rate Warrant Expiration Date") on which such right shall expire;
(13) any minimum number of Interest Rate Warrants which must be exercised at
any one time, other than upon automatic exercise; (14) the maximum number, if
any, of such Interest Rate Warrants that may, subject to election by the
Company, be exercised by all Warrantholders on any day; (15) any provisions
for the automatic exercise of such Interest Rate Warrants other than at
expiration; (16) whether and under what circumstances such Interest Rate
Warrants may be canceled by the Company prior to the Interest Rate Warrant
Expiration Date; (17) any provisions permitting a Warrantholder to condition
any exercise on the absence of certain specified changes in the Spot Amount
after the Interest Rate Warrant Exercise Date; (18) any other procedures and
conditions relating to the exercise of such Interest Rate Warrants; (19) the
identity of the Interest Rate Warrant Agent; (20) any national securities
exchange on which such Interest Rate Warrants will be listed; (21) whether
such Interest Rate Warrants will be issued in certificated or book-entry form
and, to the extent they differ from or add to the provisions set forth in this
Prospectus, provisions relating to issuing such Interest Rate Warrants in
certificated or book-entry form; (22) if such Interest Rate Warrants are not
issued in book-entry form, the place or places and time or times at which
payments in respect of such Interest Rate Warrants are to be made by the
Company; (23) if applicable, a discussion of certain United States federal
income tax or other special considerations applicable thereto; and (24) any
other terms of such Interest Rate Warrants.
Other important information concerning Interest Rate Warrants is set
forth below under "Certain Items Applicable to All Warrants".
Certain Items Applicable to all Warrants
Modifications
Each Warrant Agreement and the terms of each issue of Warrants may be
amended by the Company, the Determination Agent and the applicable Warrant
Agent, without the consent of the holders, for the purpose of curing any
ambiguity, or of curing, correcting or supplementing any defective or
inconsistent provision contained therein, or in any other manner which the
Company may deem necessary or desirable and which will not adversely affect
the interests of the owners of the then outstanding unexercised Warrants in
any material respect.
The Company, the Determination Agent and the applicable Warrant Agent may
also modify or amend the applicable Warrant Agreement and the terms of the
related Warrants, with the consent of the owners of not less than a majority
in number of the then outstanding unexercised Warrants affected, provided that
no such modification or amendment that reduces the amount receivable upon
exercise, cancellation or expiration, shortens the period of time during which
the Warrants may be exercised or otherwise materially and adversely affects
the exercise rights of the owners of the Warrants or reduces the percentage of
outstanding Warrants, the consent of whose owners is required for modification
or amendment of the applicable Warrant Agreement or the terms of the Warrants,
may be made without the consent of the owners affected thereby.
Merger, Consolidation, Sale or Other Dispositions
If at any time there is a merger, consolidation, sale, transfer,
conveyance or other disposition of all or substantially all of the assets of
the Company, then in any such event the successor or assuming corporation
shall succeed to and be substituted for the Company, with the same effect as
if it had been named in the applicable Warrant Agreement and in the applicable
Warrants as the Company. The Company shall thereupon be relieved of any
further obligation under such Warrant Agreement and such Warrants. The
Company shall notify the Warrantholders of the occurrence of any such event.
Enforceability of Rights; Governing Law
Each Warrant Agent will act solely as an agent of the Company in
connection with the issuance and exercise of the applicable Warrants and will
not assume any obligation or relationship of agency or trust for or with any
owner of a beneficial interest in any Warrant or with the registered holder
thereof. A Warrant Agent shall have no duty or responsibility in case of any
default by the Company in the performance of its obligations under the
applicable Warrant Agreement including, without limitation, any duty or
responsibility to initiate any proceedings at law or otherwise or to make any
demand upon the Company. Warrantholders may, without the consent of the
applicable Warrant Agent, enforce by appropriate legal action, on their own
behalf, their right to exercise their Warrants, and to receive payment, if
any, for their Warrants. Except as may otherwise be provided in the
Prospectus Supplement relating thereto, each issue of Warrants and the
applicable Warrant Agreement will be governed by and construed in accordance
with the law of the State of New York.
Unsecured Obligations of the Company
The Warrants are unsecured contractual obligations of the Company and
will rank pari passu with the Company's other unsecured contractual
obligations and with the Company's unsecured and unsubordinated debt. Most of
the assets of the Company are owned by its subsidiaries. Therefore, the
Company's rights and the rights of its creditors, including Warrantholders, to
participate in the distribution of assets of any subsidiary upon such
subsidiary's liquidation or recapitalization will be subject to the prior
claims of such subsidiary's creditors, except to the extent that the Company
may itself be a creditor with recognized claims against the subsidiary. In
addition, dividends, loans and advances from certain of the Company's
subsidiaries, including MS & Co., to the Company are restricted by net capital
requirements under the Exchange Act and under rules of certain exchanges and
various domestic and foreign regulatory bodies.
Exercise of Warrants
Except as may otherwise be provided in the applicable Prospectus
Supplement relating thereto, (a) each Warrant will entitle the owner, upon
payment of the exercise price, if any, to receive the applicable Cash
Settlement Value of such Warrant, on the applicable Exercise Date and (b) if
not exercised prior to expiration, the Warrants will be deemed automatically
exercised at expiration. As described below, Warrants may also be deemed to
be automatically exercised if they are delisted. Procedures for exercise of
the Warrants will be set out in the applicable Prospectus Supplement.
Exercise Limitation Events and Extraordinary Events
If so specified in the applicable Prospectus Supplement, following the
occurrence of an Exercise Limitation Event or Extraordinary Event (as each
term shall be defined therein), the Cash Settlement Value of a Warrant may be
determined on a different basis than upon normal exercise of a Warrant. In
addition, if so specified in the applicable Prospectus Supplement, Warrants
may, in certain circumstances, be canceled by the Company prior to the
Expiration Date and the holders thereof will be entitled to receive only the
applicable Cancellation Amount (as such term shall be defined therein). The
Cancellation Amount may be either a fixed amount or an amount that varies
during the term of the Warrants in accordance with a schedule or formula.
Settlement Currency
Warrants will be settled only in U.S. dollars (unless settlement in a
foreign currency is specified in the applicable Prospectus Supplement and is
permissible under applicable law) and accordingly will not require or entitle
an owner to sell, deliver, purchase or take delivery of the currency, security
or other instrument underlying such Warrants. Warrantholders will not receive
any interest on any payments made with respect to the Warrants and the
Warrants will not entitle the Warrantholders to any rights of holders of
currencies, securities or other instruments underlying the Warrants. If any
of the Warrants are sold for, or if the exercise price, if any, is payable in,
foreign currencies or foreign currency units or if the amount payable by the
Company in respect of any issue of Warrants is payable in foreign currencies
or foreign currency units, the restrictions, elections, tax consequences,
specific terms and other information with respect to such issue of Warrants
and such currencies or currency units will be set forth in the applicable
Prospectus Supplement relating thereto.
Listing
Unless otherwise provided in the Prospectus Supplement, each issue of
Warrants will be listed on a national securities exchange, as specified in the
applicable Prospectus Supplement, subject only to official notice of issuance.
In the event that such Warrants are delisted from, or permanently suspended
from trading on, such exchange, and, at or prior to such delisting or
suspension, such Warrants shall not have been listed on another national
securities exchange, any such Warrants not previously exercised will be deemed
automatically exercised on the date such delisting or permanent trading
suspension becomes effective. The Cash Settlement Value to be paid in such
event will be as set forth in the applicable Prospectus Supplement. The
Company will notify holders of such Warrants as soon as practicable of such
delisting or permanent trading suspension. The applicable Warrant Agreement
will contain a covenant of the Company not to seek delisting of such Warrants
from, or permanent suspension of their trading on, the exchange on which they
are listed.
Form of Warrants
The Company intends to issue Warrants in registered, certificated form
("Definitive Warrants") or in book-entry form. In the event the Company
originally issues Definitive Warrants, it may provide that Warrantholders may
convert Definitive Warrants into Warrants in book-entry form. The Prospectus
Supplement will indicate and further describe the form in which the Company
will issue the Warrants and whether and on what terms the option to convert
Warrants from definitive to book-entry form will be available.
Book-entry Form
In the event any Warrants are issued in book-entry form, such Warrants
will be represented by a single global warrant certificate (the "Global
Warrant Certificate"). Each Global Warrant Certificate will be registered in
the name of the nominee of the depository for the Warrants. Initially, the
depository (the "Depository") will be The Depository Trust Company ("DTC").
The Company has been informed by DTC that initially its nominee will be CEDE &
Co. ("CEDE"). Accordingly, CEDE is expected to be the registered holder of
such Warrants. No Warrantholder will be entitled to receive a certificate
representing such holder's interest in such Warrants except as set forth
herein or in the Prospectus Supplement.
DTC is a limited purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code, and a "clearing
agency" registered pursuant to Section 17A of the Exchange Act. DTC was
created to hold securities for its participating organizations
("Participants") and to facilitate the clearance and settlement of securities
transactions between Participants through electronic book entry, thereby
eliminating the need for physical movement of certificates. Participants
include securities brokers and dealers, banks, trust companies and clearing
corporations, and may include certain other organizations. Indirect access to
the DTC system is also available to others such as banks, brokers, dealers and
trust companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly ("Indirect Participants").
Warrantholders that are not Participants or Indirect Participants but
desire to purchase, sell or otherwise transfer ownership of, or other
interests in, Warrants may do so only through Participants and Indirect
Participants. In addition, Warrantholders will receive the Cash Settlement
Value and, if applicable, the Cancellation Amount or Minimum and/or Maximum
Expiration Value payable in respect of any Warrant from the Warrant Agent
through Participants. Warrantholders may experience a delay of a few business
days in their receipt of payments, since such payments will be forwarded by
the Warrant Agent to DTC, and DTC will forward such payments to Participants.
Such Participants will then forward such payments to Indirect Participants or
Warrantholders. In the case of automatic exercise or cancellation of the
Warrants, a delay of a few business days may also occur since such payments
will be forwarded by the Warrant Agent to DTC, and DTC will then forward such
payments to Participants for delivery to Indirect Participants or
Warrantholders. Warrantholders will not be recognized by the Warrant Agent as
registered holders of Warrants. Warrantholders that are not Participants will
be permitted to exercise their rights as beneficial owners of the Warrants
only indirectly through Participants.
Under the rules, regulations and procedures creating and affecting DTC
and its operations, DTC will be required to (a) make book entry transfers of
Warrants among Participants and (b) receive and transmit payments of the Cash
Settlement Value and, if applicable, the Cancellation Amount or Minimum and/or
Maximum Expiration Value payable in respect of any Warrant. Participants and
Indirect Participants with which Warrantholders have accounts with respect to
the Warrants similarly will be required to direct that book entry transfers be
made and receive and transmit such payments on behalf of their respective
Warrantholders.
If Warrants are in book-entry form, Warrantholders may experience a delay
of a few business days in receipt of payments, since, in the case of exercise
by Warrantholders, such payments will be forwarded by the Warrant Agent to
DTC, and DTC will then forward such payment to its Participants. Participants
will then forward such payments to Indirect Participants or Warrantholders.
In the case of automatic exercise or cancellation of the Warrants, a delay of
a few business days may also occur since such payments will be forwarded by
the Warrant Agent to DTC, and DTC will then forward such payments to
Participants for delivery to Indirect Participants or Warrantholders. Because
DTC can only act on behalf of Participants, who in turn may act on behalf of
Indirect Participants, and on behalf of certain banks, trust companies and
other approved persons, the ability of a Warrantholder to pledge Warrants in
book-entry form to persons or entities that do not participate in the DTC
system, or to otherwise act with respect to such Warrants, may be limited due
to the absence of physical certificates for such Warrants.
DTC has advised the Company that it will take any action permitted to be
taken by a Warrantholder under the Warrant Agreement only at the direction of
one or more Participants to whose accounts with DTC the Warrants are credited.
Unless otherwise specified in the Prospectus Supplement, Warrants in
book- entry form will be converted into Definitive Warrants only (i) if the
Company advises the Warrant Agent in writing that DTC is no longer willing or
able to discharge properly its responsibilities as depository with respect to
the Warrants and a successor depository is not appointed by the Company within
90 days, (ii) the Company, at its option, elects not to have the Warrants
represented by Global Warrant Certificates, or (iii) in the event the Company
is adjudged bankrupt or insolvent or certain other bankruptcy or insolvency
events occur.
Upon the occurrence of any event described in the immediately preceding
paragraph, DTC is required to notify all Participants of the availability
through DTC of Definitive Warrants. Upon surrender by DTC of the Global
Warrant Certificate representing the affected Warrants and instructions for
re-registration, the Warrant Agent will reissue such Warrants as Definitive
Warrants, and thereafter the Warrant Agent will recognize the holders of such
Definitive Warrants as registered holders of Warrants entitled to the benefits
of the applicable Warrant Agreement.
Definitive Warrants
In the event Definitive Warrants are issued, the Warrant Agent will from
time to time register the transfer of any outstanding Definitive Warrant
certificate upon surrender thereof at the Warrant Agent's office duly endorsed
by, or accompanied by a written instrument or instruments of transfer in form
satisfactory to the Warrant Agent duly executed by, the registered holder
thereof, a duly appointed legal representative or a duly authorized attorney.
Such signature must be guaranteed by a bank or trust company having a
correspondent office in New York City or by a broker or dealer which is a
member of the National Association of Securities Dealers, Inc. (the "NASD")
or by a member of a national securities exchange. A new Definitive Warrant
certificate will be issued to the transferee upon any such registration of
transfer.
At the option of a Warrantholder, Definitive Warrant certificates may be
exchanged for other Definitive Warrant certificates representing a like number
of Definitive Warrants, upon surrender to the Warrant Agent at the Warrant
Agent's office of the Definitive Warrant certificates to be exchanged. The
Company will thereupon execute, and the Warrant Agent will countersign and
deliver, one or more new Definitive Warrant certificates representing such
like number of Definitive Warrants.
In the event that, after any exercise of Definitive Warrants evidenced by
a Definitive Warrant certificate, the number of Definitive Warrants exercised
is fewer than the total number of Definitive Warrants evidenced by such
certificate, a new Definitive Warrant certificate evidencing the number of
Definitive Warrants not exercised will be issued to the registered holder or
his assignee.
If any Definitive Warrant certificate is mutilated, lost, stolen or
destroyed, the Company may in its discretion execute, and the Warrant Agent
may countersign and deliver, in exchange and substitution for such mutilated
Definitive Warrant certificate or in replacement for such lost, stolen or
destroyed Definitive Warrant certificate, a new Definitive Warrant certificate
representing a like number of Definitive Warrants, but only (in the case of
loss, theft or destruction) upon receipt of evidence satisfactory to the
Company and the Warrant Agent of loss, theft or destruction of such Definitive
Warrant certificate and security or indemnity, if requested, satisfactory to
them. Warrantholders requesting replacement Definitive Warrant certificates
must also comply with such other reasonable regulations and pay such
reasonable charges as the Company or the Warrant Agent may prescribe. In case
all of the Definitive Warrants represented by any such mutilated, lost, stolen
or destroyed Definitive Warrant certificate have been or are about to be
exercised (including upon automatic exercise), the Company in its discretion
may, instead of issuing a new Definitive Warrant certificate, direct the
Warrant Agent to treat such Definitive Warrant certificate the same as if the
Warrant Agent had received an exercise notice in proper form in respect
thereof or as being subject to automatic exercise, as the case may be.
No service charge will be made for any registration of transfer or
exchange of Definitive Warrant certificates, but the Company may require the
payment of a sum sufficient to cover any tax or governmental charge that may
be imposed in relation thereto, other than exchanges not involving any
transfer. In the case of the replacement of mutilated, lost, stolen or
destroyed Definitive Warrant certificates, the Company may require the payment
of a sum sufficient to cover any tax or other governmental charge that may be
imposed in relation thereto and any other expenses (including the fees and
expenses of the Warrant Agent) connected therewith.
ERISA MATTERS FOR PENSION PLANS AND INSURANCE COMPANIES
The Company and certain affiliates of the Company, including MS& Co. and
MSI, may each be considered a "party in interest" within the meaning of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or a
"disqualified person" within the meaning of the Code with respect to many
employee benefit plans. Prohibited transactions within the meaning of ERISA or
the Code may arise, for example, if the Warrants are acquired by or with the
assets of a pension or other employee benefit plan with respect to which MS&
Co. or any of its affiliates is a service provider, unless such Warrants are
acquired pursuant to an exemption for transactions effected on behalf of such
plan by a "qualified professional asset manager" or pursuant to any other
available exemption. The assets of a pension or other employee benefit plan
may include assets held in the general account of an insurance company that
are deemed to be "plan assets" under ERISA. Any insurance company or pension
or employee benefit plan proposing to invest in the Warrants should consult
with its legal counsel.
PLAN OF DISTRIBUTION
The Company may sell the Warrants being offered hereby in three ways:
(i) through agents, (ii) through underwriters and (iii) through dealers.
Offers to purchase Warrants may be solicited by agents designated by the
Company from time to time. Any such agent, who may be deemed to be an
underwriter as that term is defined in the Securities Act, involved in the
offer or sale of the Warrants in respect of which this Prospectus is delivered
will be named, and any commissions payable by the Company to such agent will
be set forth, in the Prospectus Supplement. Unless otherwise indicated in the
Prospectus Supplement, any such agent will be acting on a reasonable efforts
basis for the period of its appointment. Agents may be entitled under
agreements which may be entered into with the Company to indemnification by
the Company against certain civil liabilities, including liabilities under the
Securities Act, and may be customers of, engage in transactions with or
perform services for the Company in the ordinary course of business.
If any underwriters are utilized in the sale of the Warrants in respect
of which this Prospectus is delivered, the Company will enter into an
underwriting agreement with such underwriters at the time of sale to them and
the names of the underwriters and the terms of the transaction will be set
forth in the Prospectus Supplement, which will be used by the underwriters to
make resales of the Warrants in respect of which this Prospectus is delivered
to the public. The underwriters may be entitled, under the relevant
underwriting agreement, to indemnification by the Company against certain
liabilities, including liabilities under the Securities Act and may be
customers of, engage in transactions with or perform services for the Company
in the ordinary course of business.
If a dealer is utilized in the sale of the Warrants in respect of which
this Prospectus is delivered, the Company will sell such Warrants to the
dealer, as principal. The dealer may then resell such Warrants to the public
at varying prices to be determined by such dealer at the time of resale.
Dealers may be entitled to indemnification by the Company against certain
liabilities, including liabilities under the Securities Act and may be
customers of, engage in transactions with or perform services for the Company
in the ordinary course of business.
If so indicated in the Prospectus Supplement, the Company will authorize
agents and underwriters or dealers to solicit offers by certain purchasers to
purchase Warrants from the Company at the public offering price set forth in
the Prospectus Supplement pursuant to delayed delivery contracts providing for
payment and delivery on a specified date in the future. Such contracts will
be subject to only those conditions set forth in the Prospectus Supplement,
and the Prospectus Supplement will set forth the commission payable for
solicitation of such offers.
Any underwriters, agents or dealers utilized in the sale of Warrants will
not confirm sales to accounts over which they exercise discretionary
authority.
MS & Co. and MSI are wholly owned subsidiaries of the Company. Each
offering of Warrants and any market-making activities by MS & Co. with respect
to Warrants will be conducted in compliance with the requirements of Schedule
E of the By-Laws of the NASD. Under the provisions of Schedule E, when a NASD
member such as MS & Co. distributes securities of an affiliate, the price of
the securities can be no higher than that recommended by a "Qualified
Independent Underwriter" meeting certain standards. Unless otherwise
specified in the Prospectus Supplement, Donaldson, Lufkin & Jenrette
Securities Corporation will act as the Qualified Independent Underwriter for
the Warrants in respect of which this Prospectus is delivered and will receive
a fee for such services specified in the applicable Prospectus Supplement.
Under guidelines adopted by the NASD, the underwriting compensation payable in
connection with any issue of Warrants under this Prospectus may not exceed 8%.
Following the initial distribution of any Warrants, MS & Co., MSI and other
affiliates of the Company may offer to sell such Warrants in the course of
their business as broker-dealers (subject to obtaining any necessary approval
of the NYSE for any such offers and sales by MS & Co.). MS & Co., MSI and
such other affiliates may act as principals or agents in such transactions.
This Prospectus may be used by MS & Co., MSI and such other affiliates in
connection with such transactions. Such sales, if any, will be made at
varying prices related to prevailing market prices at the time of sale or
otherwise. Neither MS & Co., MSI nor such other affiliates are obligated to
make a market in any Warrants and may discontinue any market-making activities
at any time without notice.
LEGAL MATTERS
The validity of the Warrants will be passed upon for the Company by
Jonathan M. Clark, Esq., General Counsel and Secretary of the Company and a
Managing Director of MS & Co., or other counsel who is satisfactory to MS &
Co. or MSI, as the case may be, and an officer of the Company. Mr. Clark and
such other counsel beneficially own, or have rights to acquire under an
employee benefit plan of the Company, an aggregate of less than 1% of the
common stock of the Company. Certain legal matters relating to the Warrants
will be passed upon for the underwriters by Davis Polk & Wardwell. Davis Polk
& Wardwell has in the past represented and continues to represent the Company
on a regular basis and in a variety of matters, including in connection with
its merchant banking and leveraged capital activities. In this regard,
certain partners of Davis Polk & Wardwell, acting through a separate
partnership, acquired less than 1% of the common stock of a company of which
the Company and a fund managed by the Company own a controlling interest.
EXPERTS
The consolidated financial statements and financial statement schedules
of the Company included in and incorporated by reference in the Company's
Annual Report on Form 10-K for the fiscal year ended January 31, 1993, have
been audited by Ernst & Young, independent auditors, as set forth in their
report thereon included therein and incorporated herein by reference. Such
consolidated financial statements and financial statement schedules are, and
audited consolidated financial statements and financial statement schedules to
be included in subsequently filed documents will be, incorporated herein in
reliance upon the reports of Ernst & Young pertaining to such consolidated
financial statements and financial statement schedules (to the extent covered
by consents filed with the Commission) given upon the authority of such firm
as experts in accounting and auditing.
MORGAN STANLEY GROUP INC.
