Rule No. 424(b)(5)
Registration No. 33-51413
PROSPECTUS SUPPLEMENT Issued October 10, 1995 (Subject to Completion)
(To Prospectus dated January 11, 1994)
2,500,000 Warrants
Morgan Stanley Group Inc.
NASDAQ 100 INDEX * CALL WARRANTS
EXPIRING OCTOBER __, 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 Nasdaq 100 Index published by The Nasdaq Stock Market, Inc., a subsidiary
of the National Association of Securities Dealers, Inc. (the "NASD"). 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 Nasdaq 100
Index for the applicable Valuation Date exceeds the Strike Level divided by
(B) twenty. If the Strike Level is equal to or exceeds the Spot Nasdaq 100
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 earlier of (i) the third Index
Calculation Day immediately preceding the Expiration Date and (ii) any earlier
Delisting Date. The "Strike Level" is , which is the closing level of
the Nasdaq 100 Index on the date of this Prospectus Supplement. The "Spot
Nasdaq 100 Index" means (x) for any date prior to the Index Calculation Day
immediately preceding the Expiration Date, the closing level on such date of
the Nasdaq 100 Index and (y) for any later date, the opening level on such
date of the Nasdaq 100 Index. On the date of this Prospectus Supplement, the
Cash Settlement Value of the Warrants is zero.
(continued on next page)
______________________
THE WARRANTS INVOLVE A HIGH DEGREE OF RISK, INCLUDING THE RISK OF EXPIRING
WORTHLESS IF THE LEVEL OF THE NASDAQ 100 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" HEREIN ON PAGES S-9 TO S-14 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.
______________________
Application has been made to list the Warrants on the Nasdaq National Market.
The Nasdaq National Market symbol for the Warrants is "MSNCW"
______________________
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 maximum price to public less maximum 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 October , 1995 at the
office of Morgan Stanley & Co. Incorporated, New York, N.Y., against payment
therefor in New York funds.
______________________
MORGAN STANLEY & CO.
Incorporated
DONALDSON LUFKIN & JENRETTE
Securities Corporation
OPPENHEIMER & CO. INC.
__________________
* The terms "Nasdaq," "Nasdaq Stock Market," "Nasdaq 100 Index" and "Nasdaq
National Market" are service marks or trademarks of, and are used herein under
license from, The Nasdaq Stock Market, Inc.
October , 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 defined herein) 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 third
Index Calculation Day immediately preceding October , 1997, the Expiration
Date for the Warrants, and (ii) any earlier Delisting Date. Any Warrant not
exercised at or before 3:00 P.M., New York City time, on such third Index
Calculation 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
earlier Delisting Date or following the occurrence of any 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 Nasdaq 100 Index
as of the applicable Valuation Date is twenty (20) or more points lower than
the most recent closing level of the Nasdaq 100 Index prior to exercise. 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-9
Description of the Warrants S-15
The Nasdaq 100 Index S-29
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 NASDAQ STOCK 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 Key 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 Nasdaq 100 Index Call Warrants
Expiring October ___, 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 Nasdaq 100 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 Nasdaq 100 Index for the
applicable Valuation Date exceeds the
Strike Level divided by (B) twenty.
If the Strike Level is equal to or
exceeds the Spot Nasdaq 100 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 level of the Nasdaq 100 Index on
the date of this Prospectus Supplement.
The "Spot Nasdaq 100 Index" means (x)
for any date prior to the Index
Calculation Day immediately preceding
the Expiration Date, the closing level
on such date of the Nasdaq 100 Index and
(y) for any later date, the opening
level on such date of the Nasdaq 100
Index. As of the date hereof, the Spot
Nasdaq 100 Index is and the Cash
Settlement Value of each Warrant is
zero.
Maximum Price U.S.$ per Warrant. The initial
public offering price for the Warrants
will be U.S.$ per Warrant, except
that the price will be U.S.$ 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.
Nasdaq 100 Index The Nasdaq 100 Index is a
capitalization-weighted stock index
calculated, published and disseminated
by The Nasdaq Stock Market, Inc. The
Nasdaq 100 Index is being used by the
Company with the permission of The
Nasdaq Stock Market, Inc., a
wholly-owned subsidiary of the National
Association of Securities Dealers, Inc.
(the "NASD"). The Nasdaq 100 Index
measures the composite price performance
of 100 of the largest non-financial
common stocks of U.S. issuers listed on
the Nasdaq National Market. As of
October 5, 1995, the five largest
business sectors represented in the
Nasdaq 100 Index by market
capitalization are technology (64.2%),
consumer services (9.46%), health care
(8.91%), public utilities (6.90%) and
consumer non-durable (2.65%). Stocks
that constitute the Nasdaq 100 Index may
be deleted or added at the discretion of
The Nasdaq Stock Market, Inc., which is
under no obligation to continue the
calculation and the dissemination of the
Nasdaq 100 Index. See "The Nasdaq 100
Index" herein.
If the original publisher of the Nasdaq
100 Index or any Third Party (as defined
herein) discontinues publication of the
Nasdaq 100 Index or any Successor Index,
the Determination Agent shall determine
the applicable Cash Settlement Value
based on the formula and method used in
calculating the Nasdaq 100 Index or any
Successor Index as in effect on the date
the Nasdaq 100 Index or such Successor
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 third Index Calculation Day
immediately preceding the Expiration
Date and (ii) the last Index Calculation
Day prior to the effective date of their
delisting from, or permanent suspension
from trading (within the meaning of the
Securities Exchange Act of 1934 (the
"Exchange Act") and the rules and
regulations thereunder) on the Nasdaq
National Market 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 have been approved by the
Securities and Exchange Commission (the
"Commission") under the Exchange Act
(such last Index Calculation Day, the
"Delisting Date"). The Warrants will
expire on October , 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.
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 Nasdaq 100 Index, risks
relating to the Nasdaq 100 Index and
general risks applicable to the Nasdaq
National Market (the securities market
on which all the stocks comprising the
Nasdaq 100 Index 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 who are able to understand and
bear the risk of a speculative
investment in the Warrants. In
addition, purchasers of Warrants must
have options approved accounts.
Because the Determination Agent is an
affiliate of the Company, potential
conflicts of interest may exist between
the Determination Agent and the
Warrantholders.
While application has been made to list
the Warrants on the Nasdaq National
Market, 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.
If on the Expiration Date there is a
suspension, halt, material limitation or
absence of trading or quoting on the
Nasdaq National Market of 20% or more in
number of the Underlying Stocks (as
defined herein) that (x) occurs during
the first hour or the last hour of
regular trading on the Nasdaq National
Market or (y) is at least one hour in
duration (an "Extension Event"), the
term of the Warrants will be extended
for a period of 30 days (the "Extended
Expiration Date"), except that if the
Cash Settlement Value or the Intrinsic
Value (as defined herein) 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.
The Warrants share many of the risks of
standardized options but, unlike
standardized options, they are backed
only by the credit of the Company (not
The Options Clearing Corporation). The
Warrants contain their own terms and
conditions, which may differ from those
of other warrants, even other warrants
on the Nasdaq 100 Index or other
warrants issued by the Company.
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 NASD 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 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.
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 must 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 On the Nasdaq National Market.
Warrant Trading Symbol "MSNCW"
Warrant Agent Chemical Bank
Determination Agent Morgan Stanley & Co. Incorporated
Index Quotation Symbol On
Reporting Services Operated
by Bloomberg, L.P. "NDX"
REFERENCES
References herein to "U.S. Dollar," "U.S.$" or "$" are to the lawful
currency of the United States of America. As used herein, "Business Day"
means any day other than a Saturday, Sunday or day on which the Nasdaq
National Market, the American Stock Exchange 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. As used
herein, "Index Calculation Day" means any day on which the Nasdaq 100 Index or
any Successor 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) options contracts listed on the Chicago Board Options
Exchange ("CBOE") linked to the Nasdaq 100 Index, (ii) over-the-counter
options linked to the Nasdaq 100 Index, (iii) some or all of the Underlying
Stocks and/or (iv) 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.
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 Nasdaq 100 Index for the applicable Valuation Date
exceeds the Strike Level divided by (B) twenty. See "Description of the
Warrants -- Cash Settlement Value" herein.
The Strike Level is , which is the closing level of the Nasdaq 100
Index on the date of this Prospectus Supplement (see "Description of the
Warrants -- Cash Settlement Value" herein). The "Spot Nasdaq 100 Index" means
(x) for any date prior to the Index Calculation Day immediately preceding the
Expiration Date, the closing level on such date of the Nasdaq 100 Index and
(y) for any later date, the opening level on such date of the Nasdaq 100
Index. See "Certain Risk Factors Concerning the Warrants -- Other
Considerations" and "The Nasdaq 100 Index" herein.
Except under the circumstances described below, the Valuation Date for an
exercised Warrant will be, in the case of any Warrant exercised on or prior to
the third Index Calculation Day immediately preceding the Expiration Date or
any Warrant automatically exercised on the Expiration Date, the first Index
Calculation Day following the applicable Exercise Date or, in the case of any
Warrant exercised on any other date, the second Index Calculation Day
following the applicable 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 Index Calculation 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 Index Calculation 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 Nasdaq 100 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 Nasdaq 100 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 Nasdaq 100 Index increases so that the Spot Nasdaq
100 Index is above the Strike Level on such day. An increase in the level of
the Spot Nasdaq 100 Index will result in a greater Cash Settlement Value, and
a decrease in the level of the Spot Nasdaq 100 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 Nasdaq National Market or other SRO whose rules have
been approved by 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
Nasdaq 100 Index is less than or equal to the Strike Level), thus resulting in
total loss of the purchase price of the Warrants.
Investment decisions relating to 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. 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.
The Warrants share many of the risks of standardized options but, unlike
standardized options, they are backed only by the credit of the Company (not
The Options Clearing Corporation). The Warrants contain their own terms and
conditions, which may differ from those of other warrants, even other warrants
on the Nasdaq 100 Index or other warrants issued by the Company.
Since its inception, the Nasdaq 100 Index has experienced daily price
fluctuations, some of which have been significant, and it is impossible to
predict its future direction. See "The Nasdaq 100 Index--Historical Data on
Nasdaq 100 Index" herein.
The NASD requires that the Warrants be sold only to investors with
options approved accounts. In addition, the NASD 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 Nasdaq 100 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 Nasdaq 100 Index between
the time a Warrantholder submits an Exercise Notice and the time the Spot
Nasdaq 100 Index is determined with respect to such exercise (which period
will, at a minimum, represent an entire Index Calculation 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 Nasdaq 100
Index most recently reported prior to exercise. The Nasdaq 100 Index is
compiled and published by The Nasdaq Stock Market, Inc. during Nasdaq trading
hours based upon prices of each of the Underlying Stocks as reported by the
Nasdaq National Market. The Nasdaq Stock Market, Inc. calculates the Nasdaq
100 Index every 15 seconds and disseminates the value of the Nasdaq 100 Index
on its on-line services as follows: once every 15 seconds on its Level 2
Service, Level 3 Service and NQDS Service. NQDS Service is a vendor
distributed service consisting of real-time last sale trade prices for
securities quoted in the Nasdaq system and comparable information for
securities quoted in the OTC Bulletin Board Service. Level 2 Service is a
component of Nasdaq Workstation service consisting of real-time access to the
quotations of individual market makers registered in every Nasdaq-listed
security as well as market makers' quotations in OTC Bulletin Board
securities. Level 3 Service, which is restricted to NASD member firms that
function as registered market makers in either Nasdaq, exchange-listed, or OTC
Bulletin Board securities, consists of Level 2 Service plus the ability to
enter quotations, direct/execute orders, and send information.
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 Nasdaq 100 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 Nasdaq 100 Index as of
the applicable Valuation Date is twenty (20) or more points lower than the
closing level of the Nasdaq 100 Index on the Index Calculation Day immediately
preceding the applicable Exercise Date. 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 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 third Index Calculation Day
immediately preceding the Expiration Date or any earlier 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 an Index Calculation 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
Extension Events, Extraordinary Events or Exercise Limitation Events.
Risks Due to Company's Inability to Trade in Underlying Stocks
If on the Expiration Date there is a suspension, halt, material
limitation or absence of trading or quoting on the Nasdaq National Market of
20% or more in number of the Underlying Stocks that (x) occurs during the
first hour or the last hour of regular trading on the Nasdaq National Market
or (y) is at least one hour in duration (an "Extension Event"), the term of
the Warrants will be extended for a period of 30 days (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 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 Index Calculation 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 on any earlier day
specified by Morgan Stanley & Co. Incorporated ("Morgan Stanley") with the
approval of the Company (or if such day is not a Business Day, the next
succeeding Business Day) after the closing of the offering (which closing date
is expected to be October , 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 Index
Calculation 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 Index
Calculation 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.
Certain Relationships and Related Transactions
Potential investors should also be aware that 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's 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.
In addition, Morgan Stanley will determine whether an investor or any
account in which an investor has deposited any of its Delivered Warrants (as
defined herein) has satisfied the holding period requirement described under
"Underwriters" herein.
Other Considerations
The initial offering price of the Warrants will be in excess of the price
that a commercial user of options on the Nasdaq 100 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.
In the event that the Nasdaq 100 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 Nasdaq 100
Index for any date thereafter will be determined based on the closing level
(if such date is prior to the Index Calculation Day immediately preceding the
Expiration Date) or the opening level (if such date is any later date) of the
Nasdaq 100 Index on such date as published by such Third Party. If the
original publisher of the Nasdaq 100 Index or any Third Party discontinues
publication of the Nasdaq 100 Index and publishes a successor or substitute
index that the Company determines, in its sole discretion, to be comparable to
the Nasdaq 100 Index (any such index being a "Successor Index"), then the Spot
Nasdaq 100 Index for any date thereafter will be determined by the
Determination Agent on behalf of the Company based on the closing level (if
such date is prior to the Index Calculation Day immediately preceding the
Expiration Date) or the opening level (if such date is any later date) of the
Successor Index on such date. If the original publisher of the Nasdaq 100
Index or any Third Party makes a material change in the formula for, or the
method of calculating, the Nasdaq 100 Index or any Successor 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 Nasdaq 100 Index or any Successor Index as in effect prior to
such change or modification. If the original publisher of the Nasdaq 100 Index
or any Successor Index and/or any Third Party discontinues publication of the
Nasdaq 100 Index or any Successor Index, the Determination Agent will
determine the applicable Cash Settlement Value based on the formula and method
used in calculating the Nasdaq 100 Index or any Successor Index as in effect
on the date the Nasdaq 100 Index or any Successor Index was last published.
Application has been made to list the Warrants on the Nasdaq National
Market. In the event that the Warrants are delisted from, or permanently
suspended from trading on, the Nasdaq National Market, and not accepted at the
same time for trading pursuant to the rules of another SRO that have been
approved by the Commission under the Exchange Act, Warrants not previously
exercised will be deemed automatically exercised on the last Index Calculation
Day prior to the effective date of such delisting or suspension, and if such
delisting or suspension occurs prior to the third Index Calculation Day
immediately preceding the Expiration Date, the Cash Settlement Value, if any,
will be calculated and settled as provided below under "Description of the
Warrants --Automatic Exercise." 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 Nasdaq National Market 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 NASD, the
parent of The Nasdaq Stock Market, Inc., 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 October , 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 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 Nasdaq
100 Index for the applicable Valuation Date exceeds the Strike Level divided
by (B) twenty. The Cash Settlement Value is described by the following
formula:
Cash Settlement Value =
the greater of (i) $0 and (ii) $1 x (Spot Nasdaq 100 Index -- Strike Level)
______________________________________
20
The "Strike Level" is , which was the closing level of the Nasdaq 100
Index on the date of this Prospectus Supplement. The "Spot Nasdaq 100 Index"
means (x) for any date prior to the Index Calculation Day immediately
preceding the Expiration Date, the closing level on such date of the Nasdaq
100 Index and (y) for any later date, the opening level on such date of the
Nasdaq 100 Index.
Warrant Values on Exercise
Set forth below is an illustrative example demonstrating the Cash
Settlement Values of a hypothetical Warrant at the Strike Level of 570 and at
various hypothetical levels of the Spot Nasdaq 100 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 Nasdaq 100 Index of Warrant
--------------------- -----------------
550 $ 0.00
575 0.25
600 1.50
625 2.75
650 4.00
675 5.25
700 6.50
725 7.75
750 9.00
775 10.25
800 11.50
825 12.75
850 14.00
875 15.25
900 16.50
925 17.75
The hypothetical Cash Settlement Value will be zero for any hypothetical Spot
Nasdaq 100 Index equal to or less than 570, the Strike Level referred to
above.
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 October , 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 third Index Calculation 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 Index Calculation
Day during the period from the date of issuance until 3:00 P.M., New York City
time, on the earlier of (i) the third Index Calculation Day immediately
preceding the Expiration Date and (ii) any earlier 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 Index Calculation 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 or such earlier day
specified by Morgan Stanley with the approval of the Company) until 3:00 P.M.,
New York City time, on the earlier of (i) the third Index Calculation Day
immediately preceding the Expiration Date and (ii) any earlier 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 Index Calculation 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 an Index Calculation Day, then the next succeeding Index Calculation 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 Index Calculation 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 earlier of (i) the third Index
Calculation Day immediately preceding the Expiration Date and (ii) any earlier
Delisting Date.
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 definitive 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 definitive 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 Amounts. 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
Index Calculation 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 Index Calculation Day (notwithstanding the minimum
exercise requirements 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 Index Calculation Day individually or in concert, then
at the Company's election, 250,000 of such Warrants shall be deemed exercised
on such Index Calculation Day and the remainder shall be deemed exercised on
the following Index Calculation Day (notwithstanding the minimum exercise
requirements 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.
In addition, Section 11 of Schedule J of the NASD's By-Laws imposes
exercise limits with respect to index warrants. The exercise limits provide
that no investor or group of investors acting in concert may, within five
consecutive business days, exercise more index warrants on the same index on
the same side of the market than the applicable index warrant position limit.
The position limit applicable to the Warrants is 15 million Warrants. The NASD
also has the authority to mandate the liquidation of index warrant positions
in excess of applicable position limits.
Valuation of Warrants
The "Valuation Date" will be, in the case of any Warrant exercised on or
prior to the third Index Calculation Day immediately preceding the Expiration
Date or any Warrant automatically exercised on the Expiration Date, the first
Index Calculation Day following the applicable Exercise Date or, in the case
of any Warrant exercised on any later date, the second Index Calculation Day
following the applicable Exercise Date, in each case 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 Nasdaq 100 Index is compiled and
published by The Nasdaq Stock Market, Inc. during each Index Calculation Day
based on the most recent official prices of each of the Underlying Stocks as
reported by the Nasdaq National Market. The Nasdaq Stock Market, Inc.
calculates the Nasdaq 100 Index every 15 seconds and disseminates the value of
the Nasdaq 100 Index on its on-line services as follows: once every 15 seconds
on its Level 2 Service, Level 3 Service and NQDS Service. NQDS Service is a
vendor distributed service consisting of real-time last sale trade prices for
securities quoted in the Nasdaq system and comparable information for
securities quoted in the OTC Bulletin Board Service. Level 2 Service is a
component of Nasdaq Workstation service consisting of real-time access to the
quotations of individual market makers registered in every Nasdaq-listed
security as well as market makers' quotations in OTC Bulletin Board
securities. Level 3 Service, which is restricted to NASD member firms that
function as registered market makers in either Nasdaq, exchange-listed, or OTC
Bulletin Board securities, consists of Level 2 Service plus the ability to
enter quotations, direct/execute orders, and send information.
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
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 Nasdaq 100 Index used to determine the Cash Settlement
Value of such Warrants will be the closing level of the Nasdaq 100 Index (or
any Successor Index) on November 16 (i.e., the level at the close of trading
on Nasdaq National Market 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 closing level of the Nasdaq 100 Index on
November 14, which will be available 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, the Spot Nasdaq 100 Index used to
determine the Cash Settlement Value of such Warrants would be the closing
level of the Nasdaq 100 Index on November 17 and the applicable Limit Option
Reference Index would be the closing level of the Nasdaq 100 Index on November
15 (which will not be available prior to the opening of business in New York
on November 15).
If the Expiration Date of the Warrants were Thursday, October 9, 1997,
and 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 Monday, October 6, 1997, the Exercise Date for such Warrants will be
October 6 and the Valuation Date for such Warrants will be Tuesday, October 7.
The Spot Nasdaq 100 Index used to determine the Cash Settlement Value of such
Warrants will be the closing level of the Nasdaq 100 Index (or any Successor
Index) on October 7 (i.e., the level at the closing of the Nasdaq National
Market on October 7). If the Warrantholder elected the Limit Option in
connection with the exercise of such Warrants, the Limit Option Reference
Index would be the closing level of the Nasdaq 100 Index on Friday, October 3
which will be available prior to the opening of business in New York on
Monday, October 6.
If the Expiration Date of the Warrants were Thursday, October 9, 1997,
and 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 October 6 then
because the Warrant Agent will not have received such Warrantholder's Warrants
and the related Exercise Notice by 3:00 P.M., New York City time, on October
6, the Warrants will be automatically exercised on October 9, the Exercise
Date for such Warrants would instead be October 9, 1997, the Valuation Date
would be October 10, and the Spot Nasdaq 100 Index used to determine the Cash
Settlement Value of such Warrants would be the opening level of the Nasdaq 100
Index on October 10.
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 Business Day next succeeding the applicable Valuation Date
determine the Cash Settlement Value of such Warrants based on the Spot Nasdaq
100 Index on such Valuation Date provided by the Determination Agent and (ii)
not later than 12:00 Noon, New York City time, on the 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 Nasdaq 100 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 Business Day following the Valuation Date for
such Warrants (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 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 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 Nasdaq 100 Index that would otherwise be used to determine the Cash
Settlement Value of such Warrants is twenty (20) or more points lower than the
closing level of the Nasdaq 100 Index 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 Nasdaq 100 Index (or any Successor Index) on the day
immediately prior to the applicable Exercise Date (or if such day is not an
Index Calculation Day, on 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 Nasdaq 100 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 Index Calculation Day on which it is submitted. 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 (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 Nasdaq 100 Index on the postponed Valuation Date is not twenty
(20) 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 Nasdaq 100 Index is twenty (20) or more points lower than
the Limit Option Reference Index.
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 the earlier
of (i) the third Index Calculation Day immediately preceding the Expiration
Date and (ii) any earlier Delisting Date, 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 the Expiration 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 if such date is not an Index
Calculation Day, the next succeeding Index Calculation Day. The Warrant Agent
will obtain the Spot Nasdaq 100 Index (determined as of the Index Calculation
Day immediately succeeding 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.
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 any Delisting
Date occurring on or prior to the fourth Index Calculation Day immediately
preceding the Expiration Date 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 Delisting Date. The Exercise Date for such
Warrants will be such Delisting Date, or if such date is not an Index
Calculation Day, the next succeeding Index Calculation Day. The Warrant Agent
will obtain the Spot Nasdaq 100 Index (determined as of the Index Calculation
Day immediately succeeding such Exercise 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
Business Day following the Valuation Date for such Warrants (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
U.S.$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 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 on the Expiration Date there is an event described
in clause (i) of the definition of Exercise Limitation Event below (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 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 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 the second Index Calculation Day following 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 the second Index Calculation Day following 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 Trading Day 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.
"Trading Day" means a day on which the Nasdaq National Market 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 Index Calculation Day with respect to which the Spot Nasdaq 100 Index
on a Valuation Date is to be determined (the "Applicable Index Calculation
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 Index Calculation 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 third Index Calculation Day immediately preceding the Expiration Date or
any earlier 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
such 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, halt, or absence of trading or quoting on the Nasdaq
National Market of all the stocks that then comprise the Nasdaq
100 Index or a Successor Index (the "Underlying Stocks") which (A)
occurs during the first hour or the last hour of regular trading
on the Nasdaq National Market or (B) is at least one hour in
duration;
(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
Nasdaq 100 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 the U.S. or the
trading or quoting of securities generally on the Nasdaq National
Market 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 Nasdaq 100 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 or
quoting will not constitute an Extraordinary Event if it results from an
announced change in the regular business hours of the Nasdaq National Market
and (2) an "absence of trading or quoting" on the Nasdaq National Market will
not include any time when the Nasdaq National Market is closed for trading or
quoting under ordinary circumstances.
Based on information provided by the Nasdaq National Market, the Company
is not aware of any circumstances that have arisen during the past five years
that could have constituted an event described in clause (i) of Extraordinary
Event above except for a delay of approximately two and one-half hours in the
opening of the Nasdaq Stock Market on July 15, 1994 caused by software
replacement problems (the "July 1994 Delay") and an interruption in quoting on
the Nasdaq Stock Market for approximately one hour on October 9, 1995, during
the first hour of trading, caused by a problem with a key component of the new
Nasdaq Workstation II (the "October 1995 Interruption"). Based on public
information, the Company is not aware of any other circumstances that have
arisen during the past ten years that could have constituted an Extraordinary
Event. 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 Nasdaq 100 Index --The Nasdaq National Market" 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, but calculated with a
Spot Nasdaq 100 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 Nasdaq 100
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 Index Calculation 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
Index Calculation 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 third Index Calculation Day immediately preceding
the Expiration Date or any earlier 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 such 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, halt, material limitation or absence of trading or
quoting on Nasdaq National Market of 20% or more in number of the
Underlying Stocks that (A) occurs during the first hour or the
last hour of regular trading on the Nasdaq National Market or (B)
is at least one hour in duration; or
(ii) the suspension or material limitation on the CBOE or any other major
futures, options or securities market (which as of the date of
this Prospectus Supplement includes only the CBOE (on which
options on the Nasdaq 100 Index are traded), but which may change
in the future) of trading in futures or options contracts related
to the Nasdaq 100 Index or a Successor Index that (A) occurs
during the first hour or the last hour of regular trading in the
relevant market or (B) is at least one hour in duration.
For purposes of determining whether an Exercise Limitation Event has
occurred: (1) a limitation on the hours or number of days of trading or
quoting will not constitute an Exercise Limitation Event if it results from an
announced change in the regular business hours of the relevant exchange or
securities market, (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 or quoting in an Underlying
Stock or in a futures or options contract referred to in clause (ii) above, by
reason of (x) a price change violating limits set by any futures, options or
securities market referred to in clause (ii) above or (y) an imbalance of
orders relating to an Underlying Stock or such contracts will constitute a
suspension or material limitation of trading or quoting, (4) an "absence of
trading or quoting" on the Nasdaq National Market will not include any time
when the Nasdaq National Market is closed for trading or quoting 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 Nasdaq National
Market, the Company is not aware of any suspensions, halt, material limitation
or absence of trading or quoting during the past five years on such securities
market under circumstances that could have constituted an event described in
clause (i) of Exercise Limitation Event above, except for the July 1994 Delay
and the October 1995 Interruption. The Company makes no representations
concerning whether any other suspensions, halts, material limitations or
absences of trading or quoting 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 Nasdaq 100 Index --The Nasdaq National
Market" 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 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 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), 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 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 Nasdaq 100 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 Nasdaq 100 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 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 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 on any earlier day
specified by Morgan Stanley with the approval of the Company (or if such day
is not a Business Day, the next succeeding Business Day) after the closing of
the offering (which closing date is expected to be October , 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"). The Company will give
prior notice of any such earlier Conversion Option Period commencement date to
the Warrant Agent by telephone or facsimile transmission and to the
Warrantholders by mail or (at the Company's sole discretion) publication in a
United States newspaper with a national circulation (currently expected to be
The Wall Street Journal).
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 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 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 level of the Spot Nasdaq 100 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
Application has been made to list the Warrants on the Nasdaq National
Market. The Nasdaq National Market symbol for the Warrants is MSNCW. The
Nasdaq National Market expects to cease trading the Warrants on such
securities market 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 Exchange Act and the rules and
regulations thereunder) on the Nasdaq National Market, and not accepted at the
same time for listing on another SRO, Warrants not previously exercised will
be deemed automatically exercised on the last Index Calculation Day prior to
the effective date of such delisting or trading suspension (such Index
Calculation Day, the "Delisting Date"), and if such Delisting Date occurs not
later than the fourth Index Calculation Day prior to the Expiration Date, the
Cash Settlement Value, if any, shall be calculated and settled as provided
herein under " --Automatic Exercise." 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 or quoting 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 or quoting on,
the Nasdaq National Market unless the Company has, at the same time, arranged
for the Warrants to be traded pursuant to the rules of another SRO that have
been approved by the Commission under the Exchange Act.
THE NASDAQ 100 INDEX
Unless otherwise stated, all information herein relating to the Nasdaq
100 Index has been derived from information provided by The Nasdaq Stock
Market, Inc. Such information reflects the policies of The Nasdaq Stock
Market, Inc. and are subject to change at the discretion of The Nasdaq Stock
Market, Inc.
The Nasdaq 100 Index is a stock index calculated, published and
disseminated by The Nasdaq Stock Market, Inc. that measures the composite
price performance of selected U.S. stocks. The Nasdaq 100 Index currently is
based on 100 of the largest non-financial common stocks of U.S. issuers
trading on the Nasdaq National Market representing a cross-section of U.S.
non-financial industries. As of October 5, 1995, the 5 largest business
sectors represented in the Nasdaq 100 Index by market capitalization are
technology (64.2%), consumer services (9.46%), health care (8.91%), public
utilities (6.90%) and consumer non-durable (2.65%). (See Appendix B hereto for
a list of the 100 Underlying Stocks as of October 5, 1995).
The Nasdaq 100 Index is limited to one issue per company. At the time of
inclusion in the Nasdaq 100 Index, each Underlying Stock must have a minimum
market value of public float of U.S.$100 million. In the event a security is
deleted from the Nasdaq 100 Index, the largest non-financial Nasdaq National
Market issue not then in the Nasdaq 100 Index which meets the applicable
eligibility criteria will be substituted. The Nasdaq Stock Market, Inc. has
established procedures for, and controls over, substitutions of securities and
may periodically, at its discretion, make changes in Underlying Stocks so that
the Nasdaq 100 Index will more accurately reflect the overall composition of
the non-financial sector of the Nasdaq National Market.
The Nasdaq 100 Index is a capitalization-weighted index. A company's
market capitalization is calculated by multiplying the number of shares
outstanding by the company's current share price. The Nasdaq 100 Index
measures the average changes in price of the Underlying Stocks, weighted
according to their respective market capitalizations, so that the effect of a
percentage price change in the Underlying Stock will be greater the larger the
Underlying Stock's market capitalization. The Nasdaq 100 Index was established
on February 1, 1985, on which date the Nasdaq 100 Index level was set at 250,
but was reduced by half in October 1993 when options on the Nasdaq 100 Index
began trading on the CBOE. The calculation and public dissemination by the
Nasdaq Stock Market, Inc. and its predecessor of the Nasdaq 100 Index value
commenced on February 1, 1985. The Nasdaq 100 Index is calculated by (i)
adding the market capitalization of each Underlying Stock, (ii) dividing such
sum by an adjusted base market capitalization or divisor and (iii) multiplying
such sum by a multiplier of 125. On February 1, 1985, the market value of the
Underlying Stocks was approximately U.S.$62 billion, the divisor used to
calculate the Nasdaq 100 Index was 62 billion and the multiplier was 250. The
Nasdaq Stock Market, Inc. selected that particular divisor number in order,
among other things, to ensure that the Nasdaq 100 Index was set at a general
price level consistent with other well recognized stock indexes. The divisor
is subject to periodic adjustments as set forth below.
In order to maintain continuity in the level of the Nasdaq 100 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, distributions of assets to stockholders
or other capitalization events (other than normal periodic distributions of
dividends), the divisor used in calculating the Nasdaq 100 Index is adjusted
in a manner designed to prevent any instantaneous change or discontinuity in
the level of the Nasdaq 100 Index and in order that the value of the Nasdaq
100 Index immediately after such change will equal the level of the Nasdaq 100
Index immediately prior to the change. Thereafter, the divisor remains at the
new value until a further adjustment is necessary as the result of another
change. Nevertheless, changes in the identities and characteristics of the
Underlying Stocks may significantly affect the behavior of the Nasdaq 100
Index over time.
The Nasdaq Stock Market, Inc. calculates the Nasdaq 100 Index every 15
seconds and disseminates the value of the Nasdaq 100 Index on its on-line
services as follows: once every 15 seconds on its Level 2 Service, Level 3
Service and NQDS Service. NQDS Service is a vendor distributed service
consisting of real-time last sale trade prices for securities quoted in the
Nasdaq system and comparable information for securities quoted in the OTC
Bulletin Board Service. Level 2 Service is a component of Nasdaq Workstation
service consisting of real-time access to the quotations of individual market
makers registered in every Nasdaq-listed security as well as market makers'
quotations in OTC Bulletin Board securities. Level 3 Service, which is
restricted to NASD member firms that function as registered market makers in
either Nasdaq, exchange-listed, or OTC Bulletin Board securities, consists of
Level 2 Service plus the ability to enter quotations, direct/execute orders,
and send information.
The Nasdaq Stock Market, Inc. is under no obligation to continue the
calculation and dissemination of the Nasdaq 100 Index. The Warrants are not
sponsored, endorsed, sold or promoted by The Nasdaq Stock Market, Inc.
(including its affiliates, the "Corporations"). The Corporations have not
passed on the legality or suitability of, or the accuracy or adequacy of
descriptions and disclosures relating to, the Warrants. The Corporations make
no representation or warranty, express or implied, to the owners of the
Warrants or any member of the public regarding the advisability of investing
in securities generally or in the Warrants particularly or the ability of the
Nasdaq 100 Index to track general stock market performance. The Corporations'
only relationship to Morgan Stanley is in the licensing of certain trademarks,
service marks, and tradenames of the Corporations and the use of the Nasdaq
100 Index which is determined, composed and calculated by The Nasdaq Stock
Market, Inc. without regard to Morgan Stanley or the Warrants. The Nasdaq
Stock Market, Inc. has no obligation to take the needs of Morgan Stanley or
the owners of the Warrants into consideration in determining, composing or
calculating the Nasdaq 100 Index. The Corporations are not responsible for and
have not participated in the determination of the timing, prices or quantities
of the Warrants to be issued or in the determination or calculation of the
Cash Settlement Value or Alternative Settlement Amount, as the case may be.
The Corporations have no liability in connection with the administration,
marketing or trading of the Warrants.
The Corporations do not guarantee the accuracy and/or uninterrupted
calculation of the Nasdaq 100 Index or any data included therein. The
Corporations make no warranty, express or implied, as to results to be
obtained by Morgan Stanley, owners of the Warrants, or any other person or
entity from the use of the Nasdaq 100 Index or any data included therein. The
Corporations make no express or implied warranties, and expressly disclaim all
warranties of merchantability or fitness for a particular purpose or use, with
respect to the Nasdaq 100 Index or any data included therein. Without
limiting any of the foregoing, in no event shall the Corporations have any
liability for any special, punitive, indirect, or consequential damages
(including lost profits), even if notified of the possibility of such damages.
The terms "Nasdaq", "Nasdaq Stock Market", "Nasdaq 100 Index" and "Nasdaq
National Market" are service marks or trademarks of, and are used herein under
license from, The Nasdaq Stock Market, Inc.
None of the Company, the Warrant Agent, the Determination Agent and the
Underwriters accepts any responsibility for the calculation, maintenance or
publication of the Nasdaq 100 Index or any Successor Index. The Nasdaq Stock
Market, Inc. disclaims all responsibility for any errors or omissions in the
calculation and dissemination of the Nasdaq 100 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 Nasdaq 100 Index
The Nasdaq Stock Market, Inc. first calculated and published the Nasdaq
100 Index in February 1985. The following table sets forth the highest and
lowest daily closing level of the Nasdaq 100 Index for each quarter or partial
quarter, as the case may be, in the period from 1990, through October 5, 1995,
as well as the closing level of the Nasdaq 100 Index as of the end of each
such quarter or partial quarter, as the case may be. These historical data on
the Nasdaq 100 Index are not any indication of the future performance of the
Nasdaq 100 Index.
Daily Closing Levels
__________________________
Highest Lowest Closing
Level Level Level
_______ ______ _______
1990:
1st Quarter 227.72 197.66 213.15
2nd Quarter 242.06 203.67 238.46
3rd Quarter 246.18 174.19 177.06
4th Quarter 202.76 165.19 200.53
1991:
1st Quarter 266.56 191.69 264.96
2nd Quarter 283.39 250.89 254.19
3rd Quarter 289.88 251.97 287.54
4th Quarter 330.85 276.51 330.85
1992:
1st Quarter 355.97 322.35 323.05
2nd Quarter 326.07 290.03 301.23
3rd Quarter 324.63 290.71 313.18
4th Quarter 361.83 303.68 360.18
1993:
1st Quarter 381.34 340.35 359.42
2nd Quarter 374.34 327.28 366.13
3rd Quarter 386.89 348.35 382.71
4th Quarter 401.77 373.37 398.28
1994:
1st Quarter 418.45 380.25 382.96
2nd Quarter 390.97 351.76 360.30
3rd Quarter 407.10 353.62 393.85
4th Quarter 413.05 382.71 404.27
1995:
1st Quarter 460.54 398.00 447.15
2nd Quarter 546.06 439.92 538.03
3rd Quarter 609.75 538.97 585.08
4th Quarter (through October 5, 1995) 573.87 558.99 572.75
Since its inception, the Nasdaq 100 Index has experienced daily price
fluctuations, some of which have been significant. Any historical upward or
downward trend in the closing level of the Nasdaq 100 Index during any period
set forth above is not any indication that the Nasdaq 100 Index is more or
less likely to increase or decline at any time during the term of the
Warrants.
The Nasdaq National Market
The Nasdaq National Market is one of two segments of the Nasdaq Stock
Market, the fastest growing stock market in the U.S. and the world's first
electronic stock market. It has more listed companies than any other market in
the world and is one of the world's largest securities markets in terms of
U.S. Dollar volume. The Nasdaq National Market uses computers and
telecommunications to enable securities firms to compete with one another in a
screen-based, floorless market. Regular trading hours are currently from 9:30
A.M. to 4:00 P.M., New York time, Monday through Friday.
In circumstances in which the NASD deems it necessary to protect
investors and the public interest, it may halt trading in the over-the-counter
market (which includes trading on the Nasdaq National Market) of a security
authorized for inclusion in the Nasdaq Stock Market pending the dissemination
of material news. It is also a policy of the Board of Governors of the NASD
that, at times when other major securities markets initiate market-wide
trading halts in response to extraordinary market conditions, the NASD will,
upon request from the Commission, act to halt domestic trading in all
securities quoted in the Nasdaq system and domestic trading in equity or
equity-related securities in the over-the-counter market. In addition,
Section 14 of Schedule J of the NASD's By-Laws provides that the NASD may halt
or suspend trading in index warrants if it concludes that such action is
appropriate in the interests of a fair and orderly market and the protection
of investors. Among the factors that may be considered by the NASD are: (1)
trading has been halted or suspended in underlying stocks whose weighted value
represents 20% or more of the index value, (2) the current calculation of the
index derived from the current market prices of the stocks is not available
and (3) other unusual conditions or circumstances detrimental to the
maintenance of a fair and orderly market are present. Reopening may not
occur until the NASD has determined that trading in underlying stocks whose
weighted value represents more than 50% of the index is occurring. As a
result, variations in the Nasdaq 100 Index may be limited by suspension of
trading of individual stocks which comprise the Nasdaq 100 Index which may, in
turn, lead to suspension of trading in the Warrants or otherwise 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.
All disclosure contained in this Prospectus Supplement regarding the
Nasdaq 100 Index, or its publisher, The Nasdaq Stock Market, Inc., is derived
from public information and information provided by The Nasdaq Stock Market,
Inc. Neither the NASD nor The Nasdaq Stock Market, Inc. has any relationship
with the Company or the Warrants. Neither the NASD nor The Nasdaq Stock
Market, Inc. sponsors, endorses, authorizes, sells or promotes the Warrants.
Neither the NASD nor The Nasdaq Stock Market, Inc. has any 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 their 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 maximum public
offering price set forth on the cover page hereof, except that the price will
be U.S.$ 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 97.5% 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 2.5% 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 U.S.$ . 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 maximum public offering price set forth on the cover page
hereof less maximum underwriting discounts and commissions. 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 Nasdaq National
Market, 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 Nasdaq National Market or a 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.
Each of the Underwriters has complied and will comply with all applicable
provisions of the Financial Services Act 1986 with respect to anything done by
it in relation to the Warrants in, from or otherwise involving the United
Kingdom and has only issued or passed on and will only issue or pass on in the
United Kingdom any document received by such Underwriter in connection with
the issue of the Warrants to a person who is of a kind described in Article
11(3) of the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1995 or is a person to whom the document may otherwise
lawfully be issued or passed on. 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 Nasdaq 100 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
---------------
Alternative Funding Date S-25
Alternative Settlement Amount S-24
Applicable Index Calculation Day S-22
Automatic Funding Date S-21
Business Day S-8
CBOE S-8
Cancellation Date S-23
Cash Settlement Value cover, S-3
Code S-32
Commission S-4
Company cover
Conversion Option S-12
Conversion Option Period S-27
Corporations S-30
Delisting Date S-4, S-28
Delivered Warrants S-34
Determination Agent S-7
DTC S-12
Early Extended Expiration Date S-22
Escrowed Warrants S-34
Exchange Act S-4
Exercise Date S-16
Exercise Limitation Event S-24
Exercise Notice S-16
Expiration Date S-4, S-16
Extended Expiration Date S-12, S21
Extension Event S-11, S-21
Extraordinary Event S-23
Funding Date S-19
Index Calculation Day S-8
Limit Option S-20
Limit Option Reference Index S-20
Measurement Date S-22
Morgan Stanley S-12
NASD S-3
Nasdaq 100 Index cover
Non-U.S. Holder S-32
Remaining Warrants S-17
Settlement Date S-19
Spot Nasdaq 100 Index cover, S-3,
S-9, S-15
SRO S-4
Strike Level cover, S-15
Successor Index S-13
Third Party S-13
Trading Day S-22
United States Holder S-32
Underlying Stocks S-23
Valuation Date S-18
Warrant Agent S-7, S-15
Warrant Agent's Office S-15
Warrant Agent's Window S-16
Warrant Agreement S-15
Warrant Certificate S-26
Warrantholder S-9
APPENDIX B
LIST OF UNDERLYING STOCKS
The following is a list of the 100 companies whose stocks comprised the
Nasdaq 100 Index as of October 5, 1995.
1. Apple Computer, Inc.
2. Autodesk, Inc.
3. Adolph Coors Company
4. Adobe Systems Incorporated
5. ADC Telecommunications, Inc.
6. Adaptec, Inc.
7. The AES Corporation
8. American Greetings Corporation
9. Acclaim Entertainment, Inc.
10. Alexander & Baldwin. Inc.
11. Altera Corporation
12. Applied Materials, Inc.
13. Amgen Inc.
14. Andrew Corporation
15. American Power Conversion
16. Atlantic Southeast Airlines
17. AST Research, Inc.
18. Atmel Corporation
19. Biogen, Inc.
20. BMC Software, Inc.
21. Biomet, Inc.
22. Bay Networks, Inc.
23. Bob Evans Farms, Inc.
24. NEXTEL Communications, Inc.
25. Cracker Barrel Old Country
26. Chiron Corporation
27. Charming Shoppes, Inc.
28. Comcast Corporation
29. Centocor, Inc.
30. 3Com Corporation
31. Compuware Corporation
32. Cirrus Logic, Inc.
33. Cisco Systems, Inc.
34. Cintas Corporation
35. Dell Computer Comporation
36. DSC Communications Corporation
37. Electronic Arts, Inc.
38. Food Lion, Inc.
39. Genzyme Corporation
40. Giddings & Lewis, Inc.
41. Glenayre Technologies, Inc.
42. HBO & Company
43. Healthcare Compare Corp.
44. Hon Industries Inc.
45. Informix Corporation
46. Intelligent Electronics, Inc.
47. Intel Corporation
48. Hunt Transport Services, Inc.
49. Kelly Services, Inc.
50. KLA Instruments Corporation
51. Linear Technology Corporation
52. Lam Research Corporation
53. M-2c+2Cormick & Company
54. MCI Communications Corporation
55. MFS Communications Company, Inc.
56. Herman Miller, Inc.
57. Multimedia, Inc.
58. Molex Incorporated
59. Microsoft Corporation
60. Mobile Telecommunication
61. Nordson Corporation
62. Nordstrom, Inc.
63. Novell, Inc.
64. NWAC Northwest Airlines Corporation
65. Oracle Systems Corporation
66. Outback Steakhouse, Inc.
67. Paging Network, Inc.
68. Paychex
69. PACCAR Inc.
70. Price/Costco Inc.
71. Pacificare Healthsystems, Inc.
72. Pioneer Hi-Bred International
73. Parametric Technology
74. Perrigo Company
75. QUALCOMM Incorporated
76. Quantum Corporation
77. Roadway Services, Inc.
78. RPM Incorporated
79. A. Schuman, Inc.
80. Sigma-Aldrich Corporation
81. Staples, Inc.
82. Stewart & Stephenson Services
83. St. Jude Medical, Inc.
84. Stratacom, Incorporated
85. Stryker Corporation
86. Sun Microsystems, Inc.
87. Sybase, Inc.
88. Tele-Communications, Inc.
89. Tecumseh Products Company
90. Tellabs, Inc.
91. Tyson Foods, Inc.
92. U.S. Healthcare, Inc.
93. U.S. Robotics Corporation
94. Vanguard Cellular Systems
95. Viking Office Products Inc.
96. Worldcom Inc.
97. Willamette Industries, Inc.
98. Worthington Industries, Inc.
99. Xilinx, Inc.
100. Yellow Corporation
PROSPECTUS
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.
