Rule 424(b)(3)
Registration No. 33-58611
INFORMATION CONTAINED IN THIS PRELIMINARY PROSPECTUS SUPPLEMENT IS SUBJECT TO
COMPLETION OR AMENDMENT. 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.
PROSPECTUS SUPPLEMENT (Subject to Completion, Issued December 10, 1996)
(To Prospectus dated July 19, 1995)
$134,000,000
Morgan Stanley Group Inc.
Morgan Stanley Finance plc
% CAPITAL UNITS
---------------------------
Each Capital Unit (a "Capital Unit") will consist of (i) a %
Subordinated Debenture (a "Debenture") due February 28, 2017 of Morgan Stanley
Finance plc ("MS plc") in the principal amount of $1,000, (ii) a full and
unconditional subordinated guarantee (the "Guarantee") by Morgan Stanley Group
Inc. (the "Company") of payments of principal, interest and any Additional
Amounts (as defined in the accompanying Prospectus) on the Debenture and (iii) a
related contract (a "Purchase Contract") issued by the Company and requiring the
purchase by the holder thereof of one depositary share (a "Depositary Share")
representing ownership of 5 shares of the Company's % Cumulative Preferred
Stock, without par value, stated value $200 per share (the "Cumulative Preferred
Stock"), at a purchase price of $1,000 per Depositary Share. Prior to the
settlement or redemption of the related Purchase Contracts, the Debentures, the
Guarantees and the Purchase Contracts may be purchased and transferred only as
Capital Units.
The Debentures will bear interest at the rate of % per annum, payable
quarterly on February 28, May 30, August 30 and November 30 of each year (each,
an "Interest Payment Date"), commencing February 28, 1997. The Debentures will
be subordinated to Senior Indebtedness of MS plc and the Guarantees will be
subordinated to Senior Indebtedness of the Company.
Each Purchase Contract will obligate the holder to purchase on August
30, 2016 (or earlier if accelerated as described below) one Depositary Share
representing 5 shares of Cumulative Preferred Stock at a purchase price of
$1,000 per Depositary Share. The Company may, at its option, accelerate to any
Interest Payment Date that is on or after February 28, 1998 the settlement of
all or a portion of the Purchase Contracts; provided that no partial
acceleration may result in fewer than 50,000 Purchase Contracts remaining
outstanding after such acceleration. A holder may elect to settle a Purchase
Contract in cash or by having the related Debenture prepaid and the proceeds of
such prepayment used to purchase the related Depositary Share.
Dividends on the Cumulative Preferred Stock will be, if issued,
cumulative from the date of issue and will be payable quarterly on February 28,
May 30, August 30 and November 30 of each year, at the rate of % per annum. The
amount of dividends payable on the Cumulative Preferred Stock will be adjusted
in the event of certain amendments to the Internal Revenue Code of 1986, as
amended (the "Code"), in respect of the dividends received deduction.
Each of the Debentures and the Purchase Contracts may be redeemed (i)
on any Interest Payment Date on or after February 28, 2007 or (ii) at any time
within 90 days of the occurrence of a Tax Event (as defined herein); provided
that MS plc may not redeem a Debenture if the related Purchase Contract would
remain outstanding after such redemption. In addition, no partial redemption of
Purchase Contracts may result in fewer than 50,000 Purchase Contracts remaining
outstanding after such redemption.
The Cumulative Preferred Stock may be redeemed (i) on or after February
28, 2007 or (ii) in the event of certain amendments to the Code in respect of
the dividends received deduction.
Capital Units may be issued as Definitive Capital Units or Book-Entry
Capital Units. Beneficial interests in Book-Entry Capital Units will be shown
on, and transfers thereof will be effected only through, records maintained by
The Depository Trust Company or its nominee ("DTC") (with respect to
participants' interests) and its participants. Unless a holder requests that
such holder's Capital Units be issued as Definitive Capital Units, such Capital
Units will be issued as Book-Entry Capital Units.
---------------------------
SEE "RISK FACTORS RELATING TO THE CAPITAL UNITS" BEGINNING ON PAGE S-8 HEREIN
FOR CERTAIN CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE
CAPITAL UNITS.
---------------------------
Application will be made to list the Capital Units and the Depositary Shares
issuable pursuant to the Purchase Contracts on the New York Stock
Exchange. Trading of the Capital Units on the New York Stock
Exchange is expected to commence within a 30-day period
after the initial delivery of the Capital Units.
---------------------------
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.
---------------------------
PRICE $1,000 PER CAPITAL UNIT
---------------------------
Underwriting
Price to Discounts and Proceeds to
Public(1) Commissions(2) MS plc(1)(3)
--------- -------------- ------------
Per Capital Unit.......... $1,000.00 $ $
Total..................... $134,000,000 $ $
- ----------
(1) Plus accrued interest, if any, on the Debentures from the date of issue.
(2) The Company and MS plc have agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933. See
"Underwriters".
(3) Before deducting expenses payable by MS plc and the Company
estimated to be $ .
---------------------------
The Capital Units 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. It is
expected that delivery of the Capital Units will be made on or about December ,
1996 at the office of Morgan Stanley & Co. Incorporated, New York, New York,
against payment therefor in immediately available funds.
---------------------------
MORGAN STANLEY & CO.
Incorporated
CHASE SECURITIES INC.
CITICORP SECURITIES, INC.
DEAN WITTER REYNOLDS INC.
DONALDSON, LUFKIN & JENRETTE
Securities Corporation
NATIONSBANC CAPITAL MARKETS, INC.
SMITH BARNEY INC.
December , 1996
<PAGE>
TABLE OF CONTENTS
Prospectus Supplement
Page
Prospectus Summary........................................................ S-3
Risk Factors Relating to the Capital Units................................ S-8
Description of the Capital Units.......................................... S-9
Description of Cumulative Preferred Stock................................. S-20
Description of Depositary Shares.......................................... S-23
Recent Tax Proposals...................................................... S-25
Certain Tax Considerations................................................ S-26
Underwriters.............................................................. S-31
Legal Matters............................................................. S-32
ERISA Matters for Pension Plans and Insurance Companies................... S-32
Prospectus
Available Information..................................................... 2
Incorporation of Certain Documents by Reference........................... 3
Morgan Stanley Group Inc.................................................. 4
Morgan Stanley Finance plc................................................ 4
Use of Proceeds........................................................... 4
Consolidated Ratios of Earnings to Fixed Charges and Earnings to Fixed
Charges and Preferred Stock Dividends.................................. 5
Description of Debt Securities of MS plc.................................. 5
Limitations on Issuance of Bearer Debt Securities......................... 12
Description of Capital Stock of the Company............................... 13
Description of the Capital Units.......................................... 24
Plan of Distribution...................................................... 28
Legal Matters............................................................. 29
Experts................................................................... 29
ERISA Matters............................................................. 29
-----------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE CAPITAL UNITS
OR SECURITIES OF THE COMPANY OR MS PLC AT LEVELS ABOVE THOSE WHICH MIGHT
OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE
NEW YORK STOCK EXCHANGE, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
PROSPECTUS SUMMARY
This Prospectus Summary is qualified in its entirety by the more detailed
information that appears elsewhere in this Prospectus Supplement and the
accompanying Prospectus. Prospective investors should carefully consider the
factors set forth under the caption "Risk Factors Relating to the Capital
Units".
THE OFFERING
The Capital Units
General.......................... Each Capital Unit will consist of (i) a %
Subordinated Debenture of MS plc due February
28, 2017 in the principal amount of $1,000,
(ii) a full and unconditional subordinated
Guarantee by the Company of the payment of
principal, interest and any Additional
Amounts on the Debenture and (iii) a related
Purchase Contract issued by the Company and
requiring the purchase by the holder thereof
of one Depositary Share representing
ownership of 5 shares of Cumulative Preferred
Stock of the Company at a purchase price of
$1,000 per Depositary Share. Prior to the
settlement or redemption of the related
Purchase Contracts, the Debentures, the
Guarantees and the Purchase Contracts may be
purchased and transferred only as Capital
Units.
Form of Capital Units............ Capital Units may be issued as Definitive
Capital Units or Book-Entry Capital Units.
Definitive Capital Units will consist of
definitive registered Purchase Contracts
attached to definitive registered Debentures
(and the related Guarantees). Book-Entry
Capital Units will be represented by
certificateless depositary interests issued
to DTC by The Chase Manhattan Bank, as
book-entry unit depositary (the "Book-Entry
Unit Depositary"), which will hold as
depositary a global registered Purchase
Contract and a global Debenture (and the
related Guarantee).
Unless a holder requests that such holder's
Capital Units be issued as Definitive Capital
Units, such Capital Units will be issued as
Book-Entry Capital Units. If requested by a
holder, Definitive Capital Units may be
issued in exchange for Book-Entry Capital
Units and vice versa. See "Description of the
Capital Units -- Description of Book-Entry
Capital Units".
The United Kingdom ("U.K.") withholding tax
consequences of holding beneficial interests
in Book-Entry Capital Units differ from the
tax consequences of holding Definitive
Capital Units. See "Description of the
Capital Units -- Description of the
Debentures -- General", "Description of the
Capital Unit -- Description of Book-Entry
Capital Units -- Issuance of Definitive
Capital Units", and "Certain Tax
Considerations" below and "Description of
Debt Securities of MS plc -- Payment of
Additional Amounts with respect to Debt
Securities" in the accompanying Prospectus.
Listing.......................... Application will be made to list the Capital
Units and the Depositary Shares issuable
pursuant to the Purchase Contracts on the New
York Stock Exchange. If a holder effects a
Cash Settlement (as defined below) of a
Purchase Contract, or a Purchase Contract
(but not the related Debenture) is redeemed,
the Debenture that will remain outstanding
will not be listed on the New York Stock
Exchange.
S-3
<PAGE>
Use of Proceeds.................. The net proceeds from the sale of the Capital
Units offered hereby will be loaned by MS plc
to Morgan Stanley & Co. International Limited
("MSIL") and subsidiaries of MSIL and will be
used for general corporate purposes of MSIL
and such subsidiaries. Such loans may be
subordinated to the claims of third parties
but will not be subordinated to the claims of
affiliates of MS plc.
The Debentures
General.......................... Each Debenture will have a principal amount
of $1,000 and will be issued by MS plc, an
English company that is an indirect wholly
owned subsidiary of the Company.
Payment of Principal............. Each Debenture will be due and payable on the
earliest of (i) February 28, 2017, (ii) any
Purchase Date (as defined herein) on which
the Debenture is prepaid in connection with
the settlement of the related Purchase
Contract and (iii) any other date on which
the Debenture is redeemed.
Interest......................... The Debentures will bear interest at the rate
of % per annum, payable quarterly on February
28, May 30, August 30 and November 30 of each
year, commencing February 28, 1997. United
States holders of Book-Entry Capital Units
will generally be entitled to receive
Additional Amounts for any U.K. tax that is
required to be withheld with respect to
payments of interest on the Debentures. MS
plc has been advised by U.K. tax counsel that
no U.K. withholding tax is presently
applicable to payments of interest on
Debentures that are part of Book-Entry
Capital Units. Holders of Definitive Capital
Units will be subject to withholding with
respect to payments of interest on the
Debentures that are part of such Definitive
Capital Units and will generally not be
entitled to receive any Additional Amounts.
See "Certain Tax Considerations".
Optional Redemption.............. Subject to the limitations set forth below,
on or after February 28, 2007, MS plc may, at
its option, redeem the Debentures in whole or
in part on any Interest Payment Date
initially at % of the principal amount of the
Debentures to be redeemed plus accrued and
unpaid interest to the redemption date and
declining to 100% of the principal amount,
plus accrued and unpaid interest, on or after
February 28, 2012. See "Description of the
Capital Units -- Description of the
Debentures -- Optional Redemption of
Debentures". In addition, the Company may
accelerate the closing of a Purchase Contract
to any Interest Payment Date that is on or
after February 28, 1998, in the manner
described in this Prospectus Supplement under
"Description of the Capital Units --
Description of the Purchase Contracts --
Acceleration of Purchase". If the holder
settles such Purchase Contract by payment of
its own cash, the related Debenture may be
redeemed on any Interest Payment Date that is
no earlier than six months after the
settlement date of such Purchase Contract.
Tax Event Redemption............. The Debentures may also be redeemed at MS
plc's option at any time, as a whole but not
in part, at the Tax Event Prepayment Price
upon either (i) the receipt by the Company of
an opinion of counsel to the effect that, as
a result of a change in the tax laws of the
United States or the official interpretation
thereof, there is more than an insubstantial
risk that interest payable by MS plc on the
Debentures is not, or within 90 days of the
date of such opinion,
S-4
<PAGE>
will not be, deductible by MS plc, in whole
or in part, for U.S. federal income tax
purposes or (ii) a determination by MS plc
that, as a result of a change in U.K. tax
laws or the official interpretation thereof,
(a) withholding of U.K. taxes is required
with respect to interest payments to United
States holders of Debentures that are part of
Book-Entry Capital Units or (b) the payment
of interest on the Debentures is treated as a
"distribution" for U.K. tax purposes. "Tax
Event Prepayment Price" means an amount equal
to (i) if a Tax Redemption occurs before
February 28, 2007, the greater of (a) 100% of
the principal amount of such Debentures and
(b) as determined by the Quotation Agent (as
defined herein), the sum of the present
values of the principal amount and premium
payable with respect to an optional
redemption of such Debentures on February 28,
2007, together with the sum of the present
values of the scheduled payments of interest
from the prepayment date to February 28, 2007
(the "Remaining Life"), all discounted to the
prepayment date on a semi-annual basis
(assuming a 360-day year consisting of 30-day
months) at the Adjusted Treasury Rate, plus,
in each case, accrued interest thereon to but
excluding the date of prepayment or (ii) if a
Tax Redemption occurs on or after February
28, 2007, the redemption prices (expressed as
a percentage of the principal amount) set
forth above for optional redemption. See
"Description of the Capital Units --
Description of the Debentures -- Tax Event
Redemption".
Ranking.......................... The Debentures will be unsecured, general
obligations of MS plc, subordinated to all
Senior Indebtedness of MS plc (as defined in
"Description of Debt Securities of MS plc--
Subordinated Debt" in the accompanying
Prospectus) to the extent set forth in the
Subordinated Debt Indenture. As of the date
of this Prospectus Supplement, MS plc has no
Senior Indebtedness outstanding.
Guarantee........................ Payment of principal and interest on the
Debentures will be fully and unconditionally
guaranteed by the Company on a subordinated
basis. The guarantee of the Company will be
subordinated to all Senior Indebtedness of
the Company (as defined under "Description of
Debt Securities of MS plc-- Subordinated
Debt" in the accompanying Prospectus) to the
extent set forth in the Subordinated Debt
Indenture.
Purchase Contracts
General.......................... Each Purchase Contract will be issued by the
Company and will obligate the holder to
purchase on August 30, 2016 (the "Stated
Purchase Date") (or earlier if accelerated as
described below) one Depositary Share
representing ownership of 5 shares of
Cumulative Preferred Stock at a purchase
price of $1,000 per Depositary Share.
Payment by Holder................ At the settlement of a Purchase Contract, a
holder may pay for the Depositary Share to be
issued under such Purchase Contract either
(i) by paying to the Capital Unit Agent
$1,000 in cash if the holder gives the
Capital Unit Agent written notice of such
payment no less than 10 nor more than 20 days
prior to the settlement date of the Purchase
Contract (a "Cash Settlement") or (ii) by
electing to have the related Debenture
prepaid on the settlement date of the
Purchase Contract, in which case the Capital
Unit Agent will deliver the proceeds of such
prepayment to the Company to purchase the
Depositary Share (a "Debenture Settlement").
A holder who does not comply with the
S-5
<PAGE>
provisions for effecting a Cash Settlement
will be deemed to have elected a Debenture
Settlement. If a holder effects a Cash
Settlement, the Debenture that is part of the
holder's Capital Unit will remain outstanding
(and may be transferred by a holder) until it
is redeemed or the final maturity thereof.
Acceleration of Purchase......... The Company may, at its option, accelerate to
any Interest Payment Date (each, an
"Accelerated Purchase Date" and, together
with the Stated Purchase Date, a "Purchase
Date") that is on or after February 28, 1998
the closing of the purchase of 50,000 or more
Purchase Contracts, subject to cancellation
of acceleration and termination of the
Purchase Contracts in the circumstances
described under "Description of the Capital
Units-- Description of the Purchase
Contracts-- Cancellation of Acceleration and
Termination"; provided that no partial
acceleration may result in fewer than 50,000
Purchase Contracts remaining outstanding
after such acceleration.
Redemption....................... On or after February 28, 2007, the Company
may, at its option, redeem the Purchase
Contracts in whole or in part on any Interest
Payment Date at a redemption price of $1.00
per Purchase Contract; provided that no
partial redemption may result in fewer than
50,000 Purchase Contracts remaining
outstanding after such redemption. MS plc
may, at its option, redeem the Debentures
concurrently with any redemption of the
related Purchase Contracts. Any Debentures
that remain outstanding after any redemption
of the related Purchase Contracts will not be
listed on the New York Stock Exchange. In
addition, all of the Purchase Contracts will
be redeemed in the event that the Debentures
are redeemed.
Cancellation of Acceleration..... Notice of acceleration of the Purchase Date
of a Purchase Contract will be automatically
rescinded and annulled if at 5:00 P.M. on the
date that is five business days prior to the
applicable Purchase Date (i) the Company's
publicly held long-term senior debt
obligations do not have an investment grade
rating, (ii) the yield-to-maturity on the
then-current 30-year United States Treasury
bond exceeds 14% or (iii) the Company has
outstanding any shares of stock ranking prior
to the Cumulative Preferred Stock, unless the
holders of not less than 66 2/3% of the
Capital Units consented to the issuance of
such stock (each, a "Cancellation
Condition"). See "Description of the Capital
Units-- Description of the Purchase
Contracts-- Cancellation of Acceleration and
Termination". Any acceleration notice may
also be cancelled if the Company gives
written notice of such cancellation to the
Capital Unit Agent and the holders on or
before the 10th day prior to the applicable
Purchase Date. The rescission or cancellation
of a notice of acceleration will not prevent
the Company from giving a notice of
acceleration at a later date.
Termination...................... The Purchase Contracts will terminate (i)
upon certain events of bankruptcy of the
Company or (ii) if at 5:00 P.M. on the date
that is five business days prior to the
Stated Purchase Date there exists a
Cancellation Condition. The obligation of a
holder under a Purchase Contract to purchase
a Depositary Share will not be terminated or
otherwise affected by the occurrence and
continuance of an Event of Default with
respect to the Debentures or by the failure
of the Company to make required payments
pursuant to the Guarantee. See "Description
of the Capital Units-- Description of the
Purchase Contracts -- Cancellation of
Acceleration and Termination".
S-6
<PAGE>
Cumulative Preferred Stock and Depositary Shares
Depositary Shares................ Each Depositary Share will represent
ownership of 5 shares of Cumulative Preferred
Stock, which will be deposited with The Bank
of New York, as Preferred Stock Depositary,
and, through the Preferred Stock Depositary
will entitle the holder, proportionately, to
all rights, preferences and privileges of the
Cumulative Preferred Stock represented
thereby (including dividend, voting,
redemption and liquidation rights).
Stated Value and
Liquidation Preference......... The Cumulative Preferred Stock will have a
stated value of $200 per share ($1,000 per
Depositary Share) and a liquidation
preference of $200 per share ($1,000 per
Depositary Share), plus dividends accrued and
accumulated but unpaid.
Dividend Rate.................... Dividends on the Cumulative Preferred Stock
will be cumulative from the date of issue and
are payable quarterly on February 28, May 30,
August 30 and November 30 of each year, at
the rate of % per annum. The amount of
dividends payable on the Cumulative Preferred
Stock will be adjusted in the event of
certain amendments to the Code in respect of
the dividends received deduction.
Optional Redemption.............. On and after February 28, 2007, the Company
may, at its option, redeem the Cumulative
Preferred Stock at redemption prices
beginning at $ per share (equivalent to $ per
Depositary Share), plus accrued and
accumulated but unpaid dividends thereon to
but excluding the date fixed for redemption
and declining to $200 per share (equivalent
to $1,000 per Depositary Share) plus accrued
and accumulated but unpaid dividends on or
after February 28, 2012. See "Description of
Cumulative Preferred Stock-- Optional
Redemption".
Dividends Received
Deduction Redemption........... The Cumulative Preferred Stock may also be
redeemed, as a whole but not in part, at the
option of the Company in the event that the
Dividends Received Percentage (as defined
herein) is reduced to 50% or less, at
redemption prices beginning, on February 28,
1998, at $210 per share, plus accrued and
accumulated but unpaid dividends to but
excluding the date fixed for redemption, and
declining ratably to par over nine annual
periods; provided that on or after February
28, 2007, the redemption prices shall be as
set forth above for optional redemption. See
"Description of Cumulative Preferred Stock --
Dividends Received Deduction Redemption".
Voting........................... The Cumulative Preferred Stock will have no
voting rights except as required by law and
except that the holders, voting as a class
with other holders of Cumulative Preferred
Stock having the same right, will be entitled
to elect two directors if dividends are in
arrears for six or more quarterly dividend
periods (whether or not consecutive).
Ranking.......................... The Cumulative Preferred Stock will rank
prior to the common stock, par value $1.00
per share, of the Company, and pari passu
with the Company's other Preferred Stock that
is outstanding as of the date of this
Prospectus Supplement.
S-7
<PAGE>
RISK FACTORS RELATING TO THE CAPITAL UNITS
Prospective purchasers should consider, in addition to the other
information contained in this Prospectus Supplement and the accompanying
Prospectus, the following characteristics of the Capital Units.
Terms of the Capital Units
Although the purchaser of a Capital Unit will initially hold an
interest in a 20-year subordinated debt instrument of MS plc, purchasers of the
Capital Units must be prepared to make an investment in the Cumulative Preferred
Stock of the Company because, except in the limited circumstances described
herein, the Company may require each holder of a Capital Unit to purchase a
Depositary Share on any Interest Payment Date that is on or after February 28,
1998. The rights of a holder of the Company's Cumulative Preferred Stock are
junior to those of a holder of a Debenture guaranteed by the Company.
The dividend rate on the Cumulative Preferred Stock will not be
adjusted to reflect subsequent changes in interest rates or the financial
condition of the Company. Accordingly, the market value of a Depositary Share on
a Purchase Date may be more or less than $1,000, the purchase price of a
Depositary Share.
Although the cancellation and termination provisions of the Purchase
Contracts provide some protection against interest rate changes and credit risk,
these provisions take effect only in the event of a significant increase in
long-term interest rates or a significant deterioration in the financial
condition of the Company. They will not protect a holder from less significant
increases in interest rates or declines in the financial condition of the
Company or any resulting decline in the market value of the Depositary Shares.
Obligations of the Capital Unit Agent
Each Debenture and Guarantee constituting a part of a Capital Unit will
be issued pursuant to the Subordinated Debt Indenture and each Purchase Contract
constituting a part of a Capital Unit will be issued pursuant to the Capital
Unit Agreement. Although the Subordinated Debt Indenture is qualified as an
indenture under the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act"), the Capital Unit Agreement will not be qualified as an
indenture under the Trust Indenture Act and The Chase Manhattan Bank, in its
capacities as both Capital Unit Agent and Book-Entry Unit Depositary, will not
be required to qualify as a trustee thereunder. Under the terms of the Capital
Unit Agreement, The Chase Manhattan Bank, in its capacities as both Capital Unit
Agent and Book-Entry Unit Depositary, will have only limited obligations to the
holders of the Capital Units and has not undertaken any fiduciary duty to the
holders of Capital Units. See "Description of the Capital Units -- Description
of Book-Entry Capital Units -- Obligations of Book-Entry Unit Depositary".
Proposed Tax Legislation
Upon the occurrence of a Tax Event (as defined herein), the Debentures
may be redeemed at any time within 90 days of a Tax Event, as a whole but not in
part, at the option of MS plc, upon not less than 30 nor more than 60 days'
notice, at a redemption price equal to the Tax Event Prepayment Price (as
defined herein).
On December 7, 1995, President Clinton proposed certain tax law
changes (the "December Proposal") that would, among other things, deny interest
deductions on a debt instrument issued by a corporation that (i) is payable in
stock of the issuer or a related party or (ii) has a maximum term of more than
20 years and that is not shown as indebtedness on the separate balance sheet of
the issuer or, where the instrument is issued to a related party (other than a
corporation), where the holder or some other related party issues a related
instrument that is not shown as indebtedness on the issuer's consolidated
balance sheet. The same proposal was included as part of President Clinton's
Fiscal 1997 Budget Proposal announced on March 19, 1996 (the "March Proposal").
Under both the December Proposal and the March Proposal, the above-described
provision would be effective generally for instruments issued on or after
December 7, 1995. If the provision were to apply to the Debentures, MS plc
S-8
<PAGE>
would not be able to deduct interest on the Debentures. However, on March 29,
1996, the Chairmen of the Senate Finance and House Ways and Means Committees
issued a joint statement to the effect that it was their intention that the
effective date of the President's legislative proposals, if adopted, will be no
earlier than the date of appropriate Congressional action. There can be no
assurance, however, that current or future legislative or administrative
proposals or final legislation will not adversely affect the ability of MS plc
to deduct interest on the Debentures or otherwise affect the tax treatment
described herein. Such a change, therefore, could give rise to a Tax Event,
which would permit MS plc to cause a redemption of the Debentures upon receiving
an opinion of counsel as described more fully under "Description of the Capital
Units -- Description of the Debentures -- Tax Event Redemption".
See also "Recent Tax Proposals".
If following the issuance of the Cumulative Preferred Stock, the
Dividends Received Percentage (as defined herein) is equal to or less than 50%,
the Company, at its option, may redeem all, but not less than all, of the
outstanding shares of the Cumulative Preferred Stock (and the Depositary
Shares). Under both the December Proposal and the March Proposal, the Dividends
Received Percentage that is currently available to corporate shareholders for
certain dividends received from another corporation in which the shareholder
owns less than 20% (by vote and value) would be reduced from 70% to 50%. The
December Proposal proposed this reduction to be effective for dividends received
or accrued after January 31, 1996, while the March Proposal proposed that such
reduction apply only to dividends received or accrued after the 30th day after
the enactment of the proposal. See "Description of Cumulative Preferred Stock --
Dividends Received Deduction Redemption" and "Recent Tax Proposals".
DESCRIPTION OF THE CAPITAL UNITS
The following descriptions of the Capital Unit Agreement, the Capital
Units, the Subordinated Debt Indenture, the Debentures and the Guarantees
(referred to in the accompanying Prospectus as the "Offered Debt Securities")
and the Purchase Contracts supplement the descriptions of the general terms and
provisions of such agreement, such securities and such indenture set forth in
the accompanying Prospectus, to which descriptions reference is hereby made. As
used in the following description and under "Description of Preferred Stock" and
"Description of Depositary Shares" below, the term "Company" means Morgan
Stanley Group Inc. The following summary does not purport to be complete and is
qualified in its entirety by reference to the Capital Unit Agreement, which will
be filed, and the Subordinated Debt Indenture, which has been filed, with the
Commission as exhibits to Current Reports on Form 8-K incorporated by reference
in the accompanying Prospectus.
General
Each Capital Unit will consist of (i) a % Subordinated Debenture of MS
plc in a principal amount of $1,000, (ii) a full and unconditional subordinated
Guarantee by the Company of the payment of principal, interest and any
Additional Amounts (with respect only to Book-Entry Capital Units and Definitive
Capital Units issued in exchange for Book-Entry Capital Units upon the
occurrence of certain events) on the Debenture and (iii) a related Purchase
Contract issued by the Company and requiring the purchase on the Purchase Date
of one Depositary Share representing ownership of 5 shares of Cumulative
Preferred Stock of the Company at a purchase price of $1,000 per Depositary
Share. Prior to the settlement or redemption of the related Purchase Contracts,
the Debentures, the Guarantees and the Purchase Contracts may be purchased and
transferred only as Capital Units. To the extent a holder effects a Cash
Settlement upon the closing of a Purchase Contract, the holder's Capital Unit
will be cancelled and a Debenture and Guarantee that are not part of a Capital
Unit will be issued to such holder. Such Debenture and Guarantee may be
transferred by the holder thereof until maturity or earlier redemption but will
not be listed on the New York Stock Exchange. See "-- Description of the
Purchase Contracts -- Payment of Purchase Price; Delivery of Depositary Shares".
Certificates representing Definitive Capital Units will be issued in definitive
registered form without coupons.
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Prior to the purchase of Depositary Shares pursuant to the Purchase
Contracts, the holders of the Capital Units, as such, will not be preferred
stockholders of the Company or have any of the rights and privileges of a
preferred stockholder.
Description of the Debentures
General. The Debentures will be limited to $134,000,000 aggregate
principal amount. The Debentures will bear interest at the rate per annum
specified on the cover page hereof from the date of issuance or from the most
recent Interest Payment Date to which interest has been paid or provided for,
payable quarterly on February 28, May 30, August 30 and November 30 in each
year, commencing February 28, 1997, to the Book-Entry Unit Depositary (in the
case of the Book-Entry Capital Units) and to the persons in whose names
Definitive Capital Units are registered at the close of business on the February
13, May 15, August 15 and November 15 (each, a "Record Date") immediately
preceding such Interest Payment Date. If U.K. taxes are deducted or withheld
from payments of principal or interest on a global Debenture that is part of a
Book-Entry Capital Unit, MS plc will pay such Additional Amounts as are
necessary so that the net payments received by U.S. holders of interests in the
Book-Entry Capital Units will equal the net payments such U.S. holders would
have received in the absence of any such deduction or withholding. Holders who
request Definitive Capital Units will not be entitled to receive any such
Additional Amounts. See "Certain Tax Considerations" below and "Description of
Debt Securities of MS plc -- Payment of Additional Amounts with respect to Debt
Securities" in the accompanying Prospectus.
Each Debenture will mature on February 28, 2017 but may be redeemed
earlier or prepaid on any Purchase Date in connection with a Debenture
Settlement of a related Purchase Contract under the circumstances described
under "-- Description of the Purchase Contracts -- Payment of Purchase Price;
Delivery of Depositary Shares" or upon a Tax Redemption. See "--Tax Event
Redemption" and "-- Optional Redemption of Debentures".
The Debentures will rank pari passu with all other subordinated
indebtedness of MS plc and, together with such other subordinated indebtedness,
will be subordinated in right of payment to Senior Indebtedness of MS plc. See
"Description of Debt Securities of MS plc -- Subordinated Debt" in the
accompanying Prospectus. As of the date of this Prospectus Supplement, MS plc
has approximately $865.3 million of outstanding subordinated indebtedness and no
outstanding Senior Indebtedness. Neither the Capital Unit Agreement nor the
Subordinated Debt Indenture prohibits or limits the incurrence by MS plc of
Senior Indebtedness or other indebtedness.
The obligation of a holder under a Purchase Contract to purchase a
Depositary Share will not be terminated or otherwise affected by the occurrence
and continuance of an Event of Default with respect to the Debentures or the
failure by the Company to pay any amount with respect to the Debentures pursuant
to the Guarantee.
The Subordinated Debt Indenture permits the defeasance of the
Debentures upon the satisfaction of the conditions described under "Description
of Debt Securities of MS plc -- Discharge, Defeasance and Covenant Defeasance"
in the accompanying Prospectus. The Debentures are subject to such defeasance
provisions.
Optional Redemption of Debentures. The Debentures are not redeemable
prior to February 28, 2007 unless a Tax Event has occurred. Subject to the
limitations set forth below, the Debentures will be redeemable, in whole or in
part, at the option of MS plc, upon not less than 30 nor more than 60 days'
notice, on any Interest Payment Date on or after February 28, 2007, at the
redemption prices (expressed as percentages of principal amount) set
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forth below plus accrued and unpaid interest to the date of redemption, if
redeemed during the twelve-month period beginning on February 28 of the years
indicated below:
Year Percentage
2007.......................................... %
2008.......................................... %
2009.......................................... %
2010.......................................... %
2011.......................................... %
On or after February 28, 2012, the redemption price will be 100%, plus
accrued and unpaid interest to the date of redemption.
Tax Event Redemption. Upon the occurrence of a Tax Event, the
Debentures may be redeemed at any time, as a whole but not in part, within 90
days of a Tax Event at the option of MS plc, upon not less than 30 nor more than
60 days' notice, at a redemption price equal to the Tax Event Prepayment Price
(as defined below). Any such redemption is referred to herein as a "Tax
Redemption".
A "Tax Event" means either a U.S. Tax Event or a U.K. Tax Event. A
"U.S. Tax Event" means the receipt by the Company of an opinion of counsel,
rendered by a law firm having a recognized national tax practice, to the effect
that, as a result of any amendment to, change in or announced prospective change
in the laws (or any regulations thereunder) of the U.S. or any political
subdivision or taxing authority thereof or therein, or as a result of any
official administrative pronouncement or judicial decision interpreting or
applying such laws or regulations, which amendment or change is adopted or which
proposed change, pronouncement or decision is announced on or after the date of
this Prospectus Supplement, there is more than an insubstantial risk that
interest payable by MS plc on the Debentures is not, or within 90 days of the
date of such opinion, will not be, deductible by MS plc, in whole or in part,
for U.S. federal income tax purposes.
A "U.K. Tax Event" means the determination by MS plc that, as a result
of any change in or amendment to the laws or regulations or rulings promulgated
thereunder of the U.K. or of any political subdivision or taxing authority
thereof or therein or any change in the official application or interpretation
of such laws, regulations or rulings, or any change in the official application
or interpretation of, or any execution of or amendment to, any treaty or
treaties affecting taxation to which the U.K. or such political subdivision or
taxing authority is a party, which change or amendment becomes effective on or
after the date of this Prospectus Supplement, (i) in making payments in respect
of principal or interest on Debentures that are part of Book-Entry Capital Units
it would become obligated to pay Additional Amounts with respect thereto as a
result of any withholding taxes or similar charges imposed by or for the account
of the U.K. or any political subdivision or taxing authority thereof or therein
or (ii) the payment of interest on the Debentures would be treated as a
"distribution" within the meaning of section 209 of the Income and Corporation
Taxes Act 1988 of the U.K. (or any statutory modification or re-enactment
thereof for the time being).
"Tax Event Prepayment Price" means an amount equal to (i) if a Tax
Redemption occurs before February 28, 2007, the greater of (a) 100% of the
principal amount of such Debentures and (b) as determined by the Quotation Agent
(as defined below), the sum of the present values of the principal amount and
premium payable with respect to an optional redemption of such Debentures on
February 28, 2007, together with the sum of the present values of the scheduled
payments of interest from the prepayment date to February 28, 2007, all
discounted to the prepayment date on a semi-annual basis (assuming a 360-day
year consisting of 30-day months) at the Adjusted Treasury Rate, plus, in each
case, accrued interest thereon to but excluding the date of prepayment or (ii)
if a Tax Redemption occurs on or after February 28, 2007, the redemption prices
(expressed as percentage of principal amount) set forth under "-- Optional
Redemption of Debentures".
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"Adjusted Treasury Rate" means, with respect to any prepayment date,
the Treasury Rate plus (i) 1.00% if such prepayment date occurs on or before
February 28, 1998 or (ii) 0.50% if such prepayment date occurs after February
28, 1998.
"Treasury Rate" means (i) the yield, under the heading which represents
the average for the immediately prior week, appearing in the most recently
published statistical release designated "H.15(519)" or any successor
publication which is published weekly by the Board of Governors of the Federal
Reserve System and which establishes yields on actively traded United States
Treasury securities adjusted to constant maturity under the caption "Treasury
Constant Maturities", for the maturity corresponding to the Remaining Life (if
no maturity is within three months before or after the Remaining Life, yields
for the two published maturities most closely corresponding to the Remaining
Life shall be determined and the Treasury Rate shall be interpolated or
extrapolated from such yields on a straight-line basis, rounding to the nearest
month) or (ii) if such release (or any successor release) is not published
during the week preceding the calculation date or does not contain such yields,
the rate per annum equal to the semi-annual equivalent yield to maturity of the
Comparable Treasury Issue, calculated using a price for the Comparable Treasury
Issue (expressed as a percentage of its principal amount) equal to the
Comparable Treasury Price for such prepayment date. The Treasury Rate shall be
calculated on the third business day preceding the prepayment date.
"Comparable Treasury Issue" means with respect to any prepayment date
the United States Treasury security selected by the Quotation Agent as having a
maturity comparable to the Remaining Life that would be utilized, at the time of
selection and in accordance with customary financial practice, in pricing new
issues of corporate debt securities of comparable maturity to the Remaining
Life. If no United States Treasury security has a maturity which is within a
period from three months before to three months after February 28, 2007, the two
most closely corresponding United States Treasury securities shall be used as
the Comparable Treasury Issue, and the Treasury Rate shall be interpolated or
extrapolated on a straight-line basis, rounding to the nearest month using such
securities.
"Quotation Agent" means Morgan Stanley & Co. Incorporated ("MS & Co."),
a wholly owned subsidiary of the Company, and its successors; provided, however,
that if the foregoing shall cease to be a primary U.S. Government securities
dealer in New York City (a "Primary Treasury Dealer"), the Company shall
substitute therefor another Primary Treasury Dealer. "Reference Treasury Dealer"
means (i) the Quotation Agent or (ii) any other Primary Treasury Dealer selected
by the Trustee after consultation with the Company.
"Comparable Treasury Price" means (i) the average of five Reference
Treasury Dealer Quotations for such prepayment date, after excluding the highest
and lowest such Reference Treasury Dealer Quotations, or (ii) if the Trustee
obtains fewer than three such Reference Treasury Dealer Quotations, the average
of such Quotations.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any prepayment date, the average, as determined by
the Trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m. New York
City time, on the third business day preceding such prepayment date.
In addition, the Company may accelerate the closing of a Purchase
Contract requiring, at the holder's option, a Debenture Settlement or a Cash
Settlement on any Interest Payment Date on or after February 28, 1998 in the
manner provided in "-- Description of the Purchase Contracts -- Payment of
Purchase Price; Delivery of Depositary Shares" and "-- Description of the
Purchase Contracts -- Acceleration of Purchase". If the holder properly effects
a Cash Settlement, the related Debenture may be redeemed at MS plc's option on
any Interest Payment Date that is no earlier than six months after the Purchase
Date of such Purchase Contract. Any Debenture that remains outstanding after a
Cash Settlement may be transferred by the holder thereof but will not be listed
on the New York Stock Exchange. If fewer than all the Debentures are redeemed on
a particular Interest Payment Date, Debentures will be redeemed on a pro rata
basis (with adjustments to prevent fractions).
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Notwithstanding the foregoing, MS plc may not redeem any Debenture
unless the related Purchase Contract has been redeemed on or prior to the
redemption date for such Debenture or, if the closing of the related Purchase
Contract has been accelerated as described under "-- Description of the Purchase
Contracts -- Acceleration of Purchase", unless such Purchase Contract has been
settled and the holder thereof had effected a Cash Settlement no less than six
months prior to the date of redemption of such Debenture.
Upon mailing of a redemption notice, interest on the Debentures called
for redemption will cease to accrue from and after the date fixed for redemption
(unless MS plc defaults in providing funds for the payment of the redemption
price), and such Debentures (and any related Purchase Contracts) will no longer
be deemed to be outstanding. On the date fixed for redemption, all rights and
obligations of the holders of such Debentures (except the right to receive the
redemption price, without interest) (and any related Purchase Contracts) will
cease and the principal amount of the Debentures called for redemption will
automatically be reduced to zero. MS plc's obligation to provide funds for such
redemption will be deemed fulfilled if, on or before 12:00 noon, New York City
time, on the date fixed for redemption, MS plc deposits with a paying agent (a
"Paying Agent") funds necessary for such redemption, in trust with irrevocable
instructions and authorization that such funds be applied to the redemption of
the Debentures called for redemption upon surrender of any certificates
therefor.
The Guarantee. The Debentures will be fully and unconditionally
guaranteed on a subordinated basis pursuant to a guarantee of the Company as to
the payment of principal, interest and any Additional Amounts (with respect only
to Book-Entry Capital Units and Definitive Capital Units issued in exchange for
Book-Entry Capital Units upon the occurrence of certain events described under
"Description of Book-Entry Capital Units -- Issuance of Definitive Capital
Units") when and as the same shall become due and payable, whether at maturity
or otherwise, pursuant to the terms of the Debentures. Under the terms of the
Guarantee, holders of the Debentures will not be required to exercise their
remedies against MS plc prior to proceeding directly against the Company. In
addition, the Company will not be entitled to offset its obligations under the
Guarantee against the holders' obligations under the Purchase Contracts or the
provisions of the Capital Unit Agreement relating thereto. See "Description of
Debt Securities of MS plc -- Guarantee of Debt Securities by the Company" in the
accompanying Prospectus.
Subordination of the Guarantee. The Guarantee will rank pari passu with
all other subordinated indebtedness of the Company and, together with such other
subordinated indebtedness, will be subordinated in right of payment to the prior
payment in full of Senior Indebtedness of the Company. See "Description of Debt
Securities of MS plc -- Subordinated Debt" and "-- Guarantee of Debt Securities
by the Company" in the accompanying Prospectus. At August 31, 1996, the Company
had approximately $22.4 billion aggregate principal amount of Senior
Indebtedness outstanding and approximately $1.3 billion aggregate principal
amount of subordinated indebtedness outstanding. In addition, the Company from
time to time issues subordinated guarantees, including subordinated guarantees
issued in respect of capital units which aggregated approximately $865.3 million
at the date of this Prospectus Supplement. The Company expects from time to time
to incur additional indebtedness constituting Senior Indebtedness of the
Company, and neither the Capital Unit Agreement nor the Subordinated Debt
Indenture prohibits or limits the incurrence by the Company of Senior
Indebtedness or other indebtedness.
Description of the Purchase Contracts
General. Each Purchase Contract will obligate the holder of the related
Capital Unit to purchase, and the Company to sell, on August 30, 2016, one
Depositary Share evidencing ownership of 5 shares of Cumulative Preferred Stock
at a purchase price of $1,000 per Depositary Share (the "Purchase Price");
provided that the Company may, at its option, at any time or from time to time
on not less than 30 nor more than 60 days' notice, accelerate the obligation of
the holders of at least 50,000 or more Purchase Contracts to purchase, and the
Company to sell, on the next succeeding Interest Payment Date (commencing with
February 28, 1998), one Depositary Share per Purchase Contract subject to such
accelerated closing; provided further that no such acceleration with respect to
less than all outstanding Purchase Contracts shall result in fewer than 50,000
Purchase Contracts remaining outstanding after such accelerated purchase. If
fewer than all Purchase Contracts are to be subject to closing on a particular
Accelerated Purchase Date, the selection of the Purchase Contracts to be subject
to such closing will
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be made on a pro rata basis (with adjustments to prevent fractions). If the
closing of a Purchase Contract has been accelerated, unless the holder has
elected and properly effected a Cash Settlement, such holder will be deemed to
have elected a Debenture Settlement, in which case the related Debenture will be
prepaid on the Purchase Date of the related Purchase Contract and such
prepayment of the principal amount of the Debenture will be made to the Capital
Unit Agent to be applied by the Capital Unit Agent to purchase a Depositary
Share. See "-- Payment of Purchase Price; Delivery of Depositary Shares".
Certain rights and obligations of the Company and the holders of the Capital
Units under the Purchase Contracts are subject to cancellation or termination
under certain circumstances. See "-- Cancellation of Acceleration and
Termination".
Payment of Purchase Price; Delivery of Depositary Shares. Under the
terms of the Capital Unit Agreement, on any Purchase Date under a particular
Purchase Contract, a holder may pay for the Depositary Share to be issued under
such Purchase Contract by a Debenture Settlement or by a Cash Settlement. A
holder must provide the Capital Unit Agent with written notice of its election
to effect a Cash Settlement not less than 10 nor more than 20 days prior to such
Purchase Date. A holder who does not provide such notice and actually delivers
such cash payment pursuant to the Cash Settlement will be deemed to have elected
a Debenture Settlement, in which case the Capital Unit Agent will purchase such
holder's Depositary Share with the cash received by the Capital Unit Agent upon
the prepayment of the principal amount of the related Debenture. If a holder
properly effects a Cash Settlement, the holder's Capital Unit will be cancelled
and a Debenture and Guarantee that are not part of a Capital Unit will be issued
and will remain outstanding until the redemption or final maturity of such
Debenture. See "-- Description of the Debentures -- Optional Redemption of
Debentures".
To be effective, any payment of the Purchase Price by a holder of a
Capital Unit (other than payment by a Debenture Settlement) must be made to the
Capital Unit Agent prior to 12:00 noon, New York City time, on the business day
immediately preceding the applicable Purchase Date in immediately available
funds payable to or upon the order of the Company and must be made with respect
to all, but not fewer than all, of the Purchase Contracts included in the
Capital Units held by such holder with respect to which the Purchase Date is
occurring.
Upon receiving an effective payment of the Purchase Price (including
payment by a Debenture Settlement) and upon surrender of the related Debenture
(in the case of a Debenture Settlement), the Company will be obligated to issue
and deliver the Cumulative Preferred Stock to the Preferred Stock Depositary,
and Depositary Shares will be distributed by the Preferred Stock Depositary to
the holders or their designees. In the case of Definitive Capital Units, any
interest on the Debentures received by the Capital Unit Agent upon settlement of
the related Purchase Contract will be distributed to the holders of such
Definitive Capital Units entitled thereto upon presentation and surrender of the
certificates evidencing such Definitive Capital Units. In the case of Book-Entry
Capital Units, any interest on the Debentures received by the Capital Unit Agent
will be distributed to DTC.
Redemption of Purchase Contracts. On or after February 28, 2007, the
Company may, at its option, redeem the Purchase Contracts, in whole or in part,
upon not less than 30 nor more than 60 days' notice on any Interest Payment Date
at a redemption price of $1.00 per Purchase Contract, provided that no partial
redemption may result in fewer than 50,000 Purchase Contracts remaining
outstanding after such redemption. In addition, all of the Purchase Contracts
will be redeemed in the event that the Debentures are redeemed. See "--
Description of the Debentures -- Tax Event Redemption". The procedures for
redemption of the Purchase Contracts will be substantially similar to the
provisions described in the final paragraph under "-- Description of the
Debentures -- Optional Redemption of Debentures".
Acceleration of Purchase. The Company may, at its option, accelerate to
any Interest Payment Date that is on or after February 28, 1998 the closing of
the purchase of 50,000 or more Purchase Contracts upon not less than 30 and not
more than 60 days' notice, subject to cancellation and termination in the
circumstances described below, provided that no partial acceleration may result
in fewer than 50,000 Purchase Contracts remaining outstanding after such
acceleration. If the closing of a Purchase Contract has been accelerated and the
holder has properly effected a Cash Settlement, the related Debenture may be
redeemed at MS plc's option on any Interest Payment Date that is no earlier than
six months after the Purchase Date of such Purchase Contract. See "--
Description of the Debentures -- Optional Redemption of Debentures". If the
holder does not elect and properly
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effect a Cash Settlement, such holder will be deemed to have elected a Debenture
Settlement, in which case the related Debenture will be prepaid on the
settlement date of the related Purchase Contract and such prepayment of the
principal amount of the Debenture will be made to the Capital Unit Agent to be
applied by the Capital Unit Agent to purchase a Depositary Share. See "--
Payment of Purchase Price; Delivery of Depositary Shares". Any acceleration
notice may be cancelled if the Company gives written notice of such cancellation
to the Capital Unit Agent and the holders on or before the 10th day prior to the
applicable Purchase Date.
Cancellation of Acceleration and Termination. The Company will not be
entitled to accelerate the obligations of the holders of the Capital Units under
the Purchase Contracts to any Accelerated Purchase Date, and notice of any such
acceleration will be automatically rescinded and annulled, if, at 5:00 P.M. New
York City time on the date that is five business days prior to such Accelerated
Purchase Date, (i) the Company has outstanding publicly held long-term senior
unsecured debt obligations ("Long-Term Senior Debt") that are not rated with an
investment grade rating by either Moody's Investors Service, Inc. (together with
any successor, "Moody's") or Standard & Poor's Corporation (together with any
successor, "S&P"); (ii) the market yield-to-maturity of the then-current 30-year
U.S. Treasury bond exceeds 14%; or (iii) the Company has outstanding any shares
of any class of stock of the Company ranking prior to the Cumulative Preferred
Stock as to dividends or upon liquidation, unless the holders of not less than
66 2/3% of the Capital Units outstanding at the time of the issuance of such
shares consented to such issuance (each, a "Cancellation Condition"). The
rescission of any notice of acceleration as set forth above will not prevent the
Company from giving notice of an Accelerated Purchase Date with respect to any
Purchase Contracts at a later date.
The term "investment grade" means a rating of Baa3 or above (or the
equivalent) by Moody's, BBB- or above (or the equivalent) by S&P or an
equivalent rating by one or more successor or substitute rating organizations
and a "rating" will include any "implied" rating. If from time to time the
Company has outstanding Long-Term Senior Debt that is not publicly rated by
Moody's or S&P, or both, or the Capital Units are not publicly rated by Moody's
or S&P, or both, the Company may select one or more nationally recognized
statistical rating organizations to be substituted for Moody's or S&P, or both,
as the case may be. The Company's Long-Term Senior Debt is currently rated A+ by
S&P and A1 by Moody's.
In addition, each Purchase Contract will automatically terminate (i)
upon certain events of bankruptcy with respect to the Company or (ii) if at 5:00
P.M. New York City time on the date that is five business days prior to the
Stated Purchase Date there exists a Cancellation Condition.
The obligation of a holder under a Purchase Contract to purchase a
Depositary Share will not be terminated or otherwise affected by the occurrence
and continuance of an Event of Default with respect to the Debentures or the
failure by the Company to pay any amount with respect to the Debentures pursuant
to the Guarantee.
Merger, Consolidation and Sales of Assets. Under the terms of the
Capital Unit Agreement, in the case of any consolidation or merger of the
Company with or into any other entity or the sale, transfer or lease of all or
substantially all of the assets of the Company, unless its obligations with
respect to the Purchase Contracts have been terminated (see "-- Cancellation of
Acceleration and Termination"), each holder of the Capital Units then
outstanding will have the right and the obligation under the related Purchase
Contracts to purchase on the Purchase Date the number of shares, property or
other assets which a holder of the number of shares of Cumulative Preferred
Stock to which such Purchase Contracts related would have been entitled to
receive as a result of such consolidation, merger, sale, transfer or lease.
Description of Book-Entry Capital Units
General. All Debentures underlying Book-Entry Capital Units will be
represented by a global Debenture without coupons (the "Global Debenture"), will
be issued in a denomination equal to the aggregate principal amount of
outstanding Debentures to be represented thereby and will be held by The Chase
Manhattan Bank, as Book-Entry Unit Depositary. All Purchase Contracts underlying
Book-Entry Capital Units will be represented by a registered
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global Purchase Contract (the "Global Purchase Contract") which will be
registered in the name of The Chase Manhattan Bank, as Book-Entry Unit
Depositary, and will be issued in a denomination equal to the number of
outstanding Purchase Contracts to be represented thereby. Such Global Debenture
and Global Purchase Contract will be deposited with the Book-Entry Unit
Depositary pursuant to the terms of the Capital Unit Agreement dated as of
December , 1996 among MS plc, the Company, The Chase Manhattan Bank and the
holders from time to time of Capital Units. The Book-Entry Unit Depositary will
issue a certificateless depositary interest (which represents a 100% interest in
the underlying Global Debenture and Global Purchase Contract) to DTC. Unless and
until Book-Entry Capital Units are exchanged in whole or in part for Definitive
Capital Units, the depositary interest held by DTC may not be transferred except
as a whole by DTC to a nominee of DTC or by a nominee of DTC to DTC or another
nominee of DTC or by DTC or any such nominee to a successor of DTC or a nominee
of such successor.
Pursuant to the Capital Unit Agreement, MS plc will appoint the
Book-Entry Unit Depositary as its agent for purposes of maintaining a register
recording the right to receive payments of principal of and interest on the
Global Debenture that is part of the Book-Entry Capital Units. Interests in such
Global Debenture cannot be transferred unless such transfer is recorded on the
register maintained by the Book-Entry Unit Depositary.
Ownership of beneficial interests in Book-Entry Capital Units will be
limited to persons that have accounts with DTC ("participants") or persons that
may hold interests through participants. Procedures with respect to the
ownership of Book-Entry Capital Units are set forth below.
So long as the Book-Entry Unit Depositary, or its nominee, is the
holder of the Global Debenture and the Global Purchase Contract underlying
Book-Entry Capital Units, the Book-Entry Unit Depositary or such nominee, as the
case may be, will be considered the sole holder of such Global Debenture for all
purposes under the Subordinated Debt Indenture and of such Global Purchase
Contract for all purposes under the Capital Unit Agreement. Except as set forth
below under "-- Issuance of Definitive Capital Units", participants or persons
that may hold interests through participants will not be entitled to have
Book-Entry Capital Units registered in their names, will not receive or be
entitled to receive physical delivery of Book-Entry Capital Units in definitive
form and will not be considered the owners or holders thereof under the
Subordinated Debt Indenture or Capital Unit Agreement. Accordingly, each person
owning an interest in a Book-Entry Capital Unit must rely on the procedures of
the Book-Entry Unit Depositary and DTC and, if such person is not a participant
in DTC, on the procedures of the participant through which such person owns its
interest, to exercise any rights and obligations of a holder under the
Subordinated Debt Indenture or Capital Unit Agreement. See "-- Action by Holders
of Book-Entry Capital Units".
Payments on Global Debenture and Global Purchase Contract. Payment of
any amounts in respect of Global Debentures and payment of any redemption
amounts for Global Purchase Contracts will be made to the Book-Entry Unit
Depositary, as the holder thereof and as collecting agent for DTC. The
Book-Entry Unit Depositary will distribute all such payments to DTC, which will
distribute such payment to its participants. All such payments will be
distributed without deduction or withholding for any taxes or other governmental
charges, or if any such deduction or withholding is required to be made under
the provisions of any applicable law or regulation, then, except as described in
the accompanying Prospectus under "Description of Debt Securities of MS plc --
Payments of Additional Amounts with respect to Debt Securities", the Company or
MS plc (in respect of the Global Debenture) will pay or cause to be paid such
additional amounts as may be necessary in order that the net amounts received by
holders of beneficial interests in the Global Debenture or the Global Purchase
Contract after such deduction or withholding, will equal the net amounts that
such holders would have otherwise received in respect of the Global Debenture or
Global Purchase Contract, as the case may be, absent such deduction or
withholding. DTC, upon receipt of any such payment, will immediately credit
participants' accounts with payments in amounts proportionate to their
respective ownership of Book-Entry Capital Units, as shown on the records of
DTC. The Company and MS plc expect that payments by participants to owners of
interests in Book-Entry Capital Units held through such participants will be
governed by standing customer instructions and customary practices, as is now
the case with the securities held for the accounts of customers in bearer form
or registered in "street name", and will be the responsibility of such
participants. None of the Company, MS plc, the Trustee or any other agent of
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the Company, MS plc or the Trustee will have any responsibility or liability for
any aspect of the records relating to or payments made on account of a
participant's interest in Book-Entry Capital Units or for maintaining,
supervising or reviewing any records relating to a participant's interest in
Book-Entry Capital Units.
DTC has advised the Company and MS plc as follows: 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 the provisions of Section 17A of the Exchange Act. DTC was created
to hold securities of its participants and to facilitate the clearance and
settlement of transactions among its participants in such securities through
electronic book-entry changes in accounts of the participants, thereby
eliminating the need for physical movement of securities certificates. DTC
participants include securities brokers and dealers (including the
Underwriters), banks, trust companies, clearing corporations and certain other
organizations, some of whom (and/or their representatives) own DTC. Access to
DTC book-entry 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.
Ownership of Book-Entry Capital Units will be limited to DTC
participants or persons that may hold interests through participants. Upon the
issuance by the Book-Entry Unit Depositary of the certificateless depositary
interest to DTC, DTC will credit, on its book-entry registration and transfer
system, the participants' accounts with the respective interests beneficially
owned by such participants. The accounts to be credited shall be designated by
the Underwriters. Ownership of interests in Book-Entry Capital Units will be
shown on, and the transfer of such interests will be effected only through,
records maintained by DTC (with respect to interests of participants) and on the
records of participants (with respect to interests of persons holding through
participants). The laws of some states may require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
limits and such laws may impair the ability to own, transfer or pledge
Book-Entry Capital Units.
The Company and MS plc understand that under existing industry
practices, if either of them requests any action of holders of Book-Entry
Capital Units or if an owner of a Book-Entry Capital Unit desires to give or
take any action that a holder is entitled to give or take under the Subordinated
Debt Indenture or Capital Unit Agreement, including the election to make a Cash
Settlement on any Purchase Date, DTC would authorize the participants holding
the relevant Book-Entry Capital Units to give or take such action, and such
participants would authorize beneficial owners owning through such participants
to give or take such action or would otherwise act upon the instructions of
beneficial owners holding through them.
Redemption. In the event the Global Debenture or Global Purchase
Contract (or portion thereof) is redeemed, the Book-Entry Unit Depositary will
redeem, from the amount received by it in respect of the redemption of the
Global Debenture or Global Purchase Contract, as the case may be, an equal
amount of the depositary interest issued to DTC. The redemption price payable in
connection with the redemption of Book-Entry Capital Units will be equal to the
amount received by the Book-Entry Unit Depositary in connection with the
redemption of the Global Debenture or Global Purchase Contract (or portion
thereof), as the case may be, less any amounts required to be withheld in
respect of taxes.
Transfers. All transfers of interests in Book-Entry Capital Units will
be recorded in accordance with the book-entry system maintained by DTC, pursuant
to customary procedures established by DTC and its participants. See "--
General". Investors may transfer or exchange interests in Book-Entry Capital
Units for Definitive Capital Units as set forth under "-- Issuance of Definitive
Capital Units" below and investors may transfer or exchange interests in
Definitive Capital Units for interests in Book-Entry Capital Units by depositing
their Definitive Capital Units with the Capital Unit Agent and requesting the
Capital Unit Agent to effect such transfer or exchange. The amount of the
depositary interest held by DTC will be increased and decreased to reflect such
transfers or exchanges. The Book-Entry Unit Depositary will make the appropriate
adjustments to the Global Debenture and Global Purchase Contract underlying the
Book-Entry Capital Units to reflect any such transfers or exchanges.
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Acceleration. Holders of Book-Entry Capital Units may elect to effect a
Cash Settlement on a Purchase Date in lieu of surrendering such holders'
interest in the Global Debenture in accordance with procedures set forth under
"-- Action by Holders of Book-Entry Capital Units" below. If such holders effect
such a Cash Settlement, or if all or any portion of the Global Purchase Contract
is redeemed, a second global Debenture (including a Guarantee) without coupons
will be issued by MS plc to the Book-Entry Unit Depositary representing the
aggregate principal amount of Debentures that will remain outstanding without a
related Purchase Contract. The Book-Entry Unit Depositary will then issue a
corresponding certificateless depositary interest in such second global
Debenture (and Guarantee) to DTC. The second global Debenture (and corresponding
certificateless depositary interest in such Debenture issued to DTC) will be
issued in an amount equal to the aggregate principal amount of Debentures that
were not repaid in connection with the acceleration or redemption of the related
Purchase Contracts and the aggregate principal amount of the initial Global
Debenture underlying Book-Entry Capital Units will be reduced by a corresponding
amount. MS plc will appoint the Book-Entry Unit Depositary as its agent for
purposes of maintaining a register recording the right to principal of and
interest on the second global Debenture. Interests in such second global
Debenture cannot be transferred unless such transfer is recorded on the register
maintained by the Book-Entry Unit Depositary. DTC will also operate a book-entry
system with respect to the depositary interest issued to it in respect of the
second global Debenture. Depositary Shares issuable to holders of Book-Entry
Capital Units will be issued to or upon the order of DTC (or its nominee) on
behalf of such holders.
Holders of Definitive Capital Units must tender their Definitive
Capital Units to the Capital Unit Agent in order to receive the Depositary
Shares representing the Cumulative Preferred Stock issuable upon the settlement
of the related Purchase Contract (whether such settlement is a Cash Settlement
or a Debenture Settlement). See "Description of the Capital Units -- Certain
Provisions of the Capital Unit Agreement -- Payment, Settlement, Transfer and
Exchange of Definitive Capital Units" in the accompanying Prospectus. When
Definitive Capital Units are received by the Capital Unit Agent, the Purchase
Contract portion of each such Definitive Capital Unit will be cancelled and a
certificate for the Depositary Shares representing an interest in the Cumulative
Preferred Stock will be issued to the holder. If the holder has elected and
properly effected a Cash Settlement, a certificate evidencing a Debenture and
Guarantee will also be issued to the holder. Transfers between interests in the
second global Debenture and definitive registered Debentures which are no longer
part of a Definitive Capital Unit will be effected in the same manner as
described in "-- Transfers" above.
Issuance of Definitive Capital Units. Holders of Book-Entry Capital
Units will be entitled to receive Definitive Capital Units in registered form if
DTC is at any time unwilling or unable to continue as depositary or ceases to be
a clearing agency registered under the Exchange Act, and a successor to DTC
registered as a clearing agency under the Exchange Act is not appointed by the
Company and MS plc within 90 days. In addition, Definitive Capital Units will be
issued in exchange for all Book-Entry Capital Units (i) if the Book-Entry Unit
Depositary is at any time unwilling or unable to continue as Book-Entry Unit
Depositary and a successor Book-Entry Unit Depositary is not appointed by the
Company and MS plc within 90 days, (ii) upon the occurrence of an Event of
Default with respect to the Debentures or (iii) if the Company and MS plc at any
time and in their sole discretion determine not to have any of the Capital Units
represented by Book-Entry Capital Units. Any Definitive Capital Units issued in
exchange for Book-Entry Capital Units will be registered in such name or names
as the Book-Entry Unit Depositary shall instruct the Trustee and Capital Unit
Agent, respectively, based on the instructions of DTC. It is expected that such
instructions will be based upon directions received by DTC from participants
with respect to ownership of Book-Entry Capital Units.
In addition to the foregoing, holders who purchase Capital Units as
part of their initial offering pursuant to this Prospectus Supplement and
holders of Book-Entry Capital Units will be entitled to request and receive
Definitive Capital Units. In the case of a person holding Book-Entry Capital
Units, Definitive Capital Units will be issued to and registered in the name of,
or as directed by, such person only upon the request in writing by the
Book-Entry Unit Depositary (based upon the instructions of DTC).
HOLDERS SHOULD BE AWARE THAT, UNDER CURRENT U.K. TAX LAW, UPON THE
ISSUANCE TO A HOLDER OF DEFINITIVE CAPITAL UNITS, SUCH HOLDER WILL BECOME
SUBJECT TO U.K. INCOME TAX (CURRENTLY 20%) TO BE WITHHELD ON ANY PAYMENTS OF
INTEREST ON
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THE DEBENTURES CONSTITUTING PART OF THE DEFINITIVE CAPITAL UNITS AS SET FORTH
UNDER "CERTAIN TAX CONSEQUENCES". IF SUCH DEFINITIVE CAPITAL UNITS ARE ISSUED
PURSUANT TO THE REQUEST OF A HOLDER, NEITHER MS PLC NOR THE COMPANY WILL BE
OBLIGATED TO PAY ANY ADDITIONAL AMOUNTS WITH RESPECT TO THE DEBENTURES. However,
U.S. holders of Definitive Capital Units may be entitled to receive a refund of
withheld amounts from the U.K. Inland Revenue in certain circumstances. See
"Certain Tax Considerations". In addition, if a holder receives Definitive
Capital Units other than pursuant to its request, such holder will be entitled
to receive Additional Amounts with respect to the Debentures that are part of
such Definitive Capital Units. See "Description of Debt Securities of MS plc --
Payment of Additional Amounts with respect to Debt Securities" in the
accompanying Prospectus.
Action by Holders of Book-Entry Capital Units. As soon as practicable
after receipt by the Book-Entry Unit Depositary of notice of any solicitation of
consents or request for a waiver or other action by the holders of Book-Entry
Capital Units, the Book-Entry Unit Depositary will mail to DTC a notice
containing (i) such information as is contained in such notice, (ii) a statement
that at the close of business on a specified record date DTC will be entitled to
instruct the Book-Entry Unit Depositary as to the consent, waiver or other
action, if any, pertaining to the Book-Entry Capital Units, and (iii) a
statement as to the manner in which such instructions may be given. Upon the
written request of DTC, the Book-Entry Unit Depositary shall endeavor insofar as
practicable to take such action regarding the requested consent, waiver or other
action in respect of the Book-Entry Capital Units in accordance with any
instructions set forth in such request. DTC is expected to follow the procedures
described under "-- General" above with respect to soliciting instructions from
its participants. The Book-Entry Unit Depositary will not exercise any
discretion in the granting of consents or waivers or the taking of any other
action relating to the Capital Unit Agreement or the Subordinated Debt
Indenture.
Reports. The Book-Entry Unit Depositary will immediately send to DTC a
copy of any notices, reports and other communications received relating to MS
plc, the Company or Book-Entry Capital Units.
Action by Book-Entry Unit Depositary. Upon the occurrence of a default
with respect to the Book-Entry Capital Units, or in connection with any other
right of the holder of the Global Debenture under the Subordinated Debt
Indenture or the Global Purchase Contract under the Capital Unit Agreement, if
requested in writing by DTC, the Book-Entry Unit Depositary will take any such
action as shall be requested in such notice; provided that the Book-Entry Unit
Depositary has been offered reasonable security or indemnity against the costs,
expenses and liabilities that might be incurred by it in compliance with such
request by the holders of Book-Entry Capital Units.
Charges of Book-Entry Unit Depositary. The Company and MS plc have
agreed to pay all charges of the Book-Entry Unit Depositary under the Capital
Unit Agreement. The Company and MS plc also have agreed to indemnify the
Book-Entry Unit Depositary against certain liabilities incurred by it under the
Capital Unit Agreement.
Amendment and Termination. In addition to the matters described under
"Description of the Capital Units -- Certain Provisions of the Capital Unit
Agreement -- Modification" in the accompanying Prospectus, the Capital Unit
Agreement may be amended by agreement among the Company, MS plc, the Capital
Unit Agent and the Book-Entry Unit Depositary. The consent of DTC shall not be
required in connection with any amendment to the Capital Unit Agreement (i) to
cure any inconsistency or ambiguity in the Capital Unit Agreement, (ii) to add
to the covenants and agreements of the Book-Entry Unit Depositary, the Capital
Unit Agent or the Company and MS plc, as applicable, (iii) to effectuate the
assignment of the Book-Entry Unit Depositary's rights and duties to a qualified
successor, (iv) to comply with the Securities Act, the Exchange Act or the U.S.
Investment Company Act of 1940, as amended, or (v) to modify, alter, amend or
supplement the Capital Unit Agreement in any other manner that is not adverse to
DTC or the holders of Book-Entry Capital Units. Except as set forth above, no
amendment that adversely affects DTC may be made to the Capital Unit Agreement
or the Book-Entry Capital Units without the consent of DTC.
The Book-Entry Unit Depositary will at any time at the direction of the
Company or MS plc, as applicable, terminate the Book-Entry Capital Unit
provisions of the Capital Unit Agreement by mailing a notice of such termination
to the Company, MS plc, the Trustee and the Capital Unit Agent and requesting
that the Trustee and
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the Capital Unit Agent, as applicable, issue Definitive Capital Units, in
replacement of Book-Entry Capital Units to the persons and in the amounts as
specified by DTC. Upon the issuance of such Definitive Capital Units, the
Book-Entry Capital Unit provisions of the Capital Unit Agreement will terminate.
The Book-Entry Capital Unit provisions of the Capital Unit Agreement may also be
terminated upon the resignation of the Book-Entry Unit Depositary if no
successor has been appointed within 90 days as set forth under "-- Resignation
or Removal of Book-Entry Unit Depositary" below.
Resignation or Removal of Book-Entry Unit Depositary. The Book-Entry
Unit Depositary may at any time resign as Book-Entry Unit Depositary by written
notice delivered to each of the Company, MS plc, the Trustee and the Capital
Unit Agent, such resignation to take effect upon the appointment by the Company
and MS plc of a successor book-entry unit depositary and its acceptance of such
appointment. If at the end of 90 days after delivery of such notice, no
successor depositary has been appointed or has accepted such appointment, the
Book-Entry Unit Depositary may terminate the Book-Entry Capital Unit provisions
of the Capital Unit Agreement.
Obligations of Book-Entry Unit Depositary. The Book-Entry Unit
Depositary will assume no obligation or liability under the Capital Unit
Agreement other than to use good faith and reasonable care in the performance of
its duties under the Capital Unit Agreement.
Description of Definitive Capital Units
For a further description of Definitive Capital Units and the related
provisions of the Capital Unit Agreement, see "Description of the Capital Units"
in the accompanying Prospectus.
Information Concerning the Capital Unit Agent, the Book-Entry Unit Depositary
and the Trustee
The Chase Manhattan Bank (formerly known as Chemical Bank) is the
Capital Unit Agent and Book-Entry Unit Depositary under the Capital Unit
Agreement and the Trustee under the Subordinated Debt Indenture. The Chase
Manhattan Bank is one of a number of banks with which the Company and its
subsidiaries maintain ordinary banking relationships and with which the Company
and its subsidiaries maintain credit facilities.
DESCRIPTION OF CUMULATIVE PREFERRED STOCK
The following description of the Cumulative Preferred Stock offered
hereby supplements the description of the general terms and provisions of the
Offered Preferred Stock set forth in the Prospectus, to which description
reference is hereby made. The Company and MS plc currently have outstanding
Capital Units that may result in up to 611,238 shares of the Company's 7.82%
Cumulative Preferred Stock, with a stated value of $200.00 per share (the "7.82%
Preferred Stock"), being issued at any time, up to 1,150,000 shares of the
Company's 7.80% Cumulative Preferred Stock, with a stated value of $200.00 per
share (the "7.80% Preferred Stock"), being issued at any time, up to 720,900
shares of the Company's 9.00% Cumulative Preferred Stock, with a stated value of
$200.00 per share (the "9.00% Preferred Stock"), being issued at any time, up to
996,776 shares of the Company's 8.40% Cumulative Preferred Stock, with a stated
value of $200.00 per share (the "8.40% Preferred Stock"), being issued at any
time, and up to 847,500 shares of the Company's 8.20% Preferred Stock, with a
stated value of $200.00 per share (the "8.20% Preferred Stock"), being issued at
any time. If issued, the liquidation preference with respect to each of the
7.82% Preferred Stock, the 7.80% Preferred Stock, the 9.00% Preferred Stock, the
8.40% Preferred Stock and the 8.20% Preferred Stock would be $200.00 per share
and each of the 7.82% Preferred Stock, the 7.80% Preferred Stock, the 9.00%
Preferred Stock, the 8.40% Preferred Stock and the 8.20% Preferred Stock would
be redeemable at the option of the Company on and after November 30, 1998,
February 28, 1999, February 28, 2000, August 30, 2000 and November 30, 2000,
respectively. Unless the context otherwise requires, as used in this Prospectus
Supplement and the accompanying Prospectus, the term "Existing Cumulative
Preferred Stock" includes shares of 7.82% Preferred Stock, 7.80% Preferred
Stock, 9.00% Preferred Stock, the 8.40%
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Preferred Stock and the 8.20% Preferred Stock that may be issued by the Company.
The following summary of the particular terms and provisions of the Cumulative
Preferred Stock does not purport to be complete and is qualified in its entirety
by reference to the Company's Restated Certificate of Incorporation and the
Certificate of Designation of Preferences and Rights of the Cumulative Preferred
Stock (the "Certificate of Designation").
Pursuant to action of the Board of Directors of the Company or a
committee thereof (the "Committee"), the shares of Cumulative Preferred Stock
represented by the Depositary Shares constitute a single series of Cumulative
Preferred Stock. The Cumulative Preferred Stock is not convertible into shares
of any other class or series of stock of the Company. Shares of Cumulative
Preferred Stock have no preemptive rights. Any shares of Cumulative Preferred
Stock that are surrendered for redemption will be returned to the status of
authorized and unissued Preferred Stock.
The Bank of New York is the registrar, transfer agent and dividend
disbursing agent for the shares of Cumulative Preferred Stock.
Rank. As of the date hereof, the Cumulative Preferred Stock ranks as to
payment of dividends and amounts payable on liquidation prior to the Common
Stock and on a parity with the ESOP Preferred Stock and each series of the
Existing Cumulative Preferred Stock.
Dividends. Holders of shares of Cumulative Preferred Stock are entitled
to receive, when and as declared by the Board of Directors or the Committee out
of funds legally available therefor, cash dividends payable quarterly at the
rate of % per annum. Dividends on the Cumulative Preferred Stock, calculated as
a percentage of the stated value, will be payable quarterly on February 28, May
30, August 30 and November 30, commencing on the first such date occurring after
the Cumulative Preferred Stock is issued pursuant to the Purchase Contracts.
Dividends on the Cumulative Preferred Stock will be cumulative from the date of
initial issuance of such Cumulative Preferred Stock. Dividends will be payable
to holders of record as they appear on the stock books of the Company on such
record dates, not more than 60 nor less than 10 days preceding the payment
dates, as shall be fixed by the Board of Directors or the Committee.
Changes in the Dividends Received Percentage. If one or more amendments
to the Code are enacted that reduce the percentage of the dividends received
deduction as specified in Section 243(a)(1) of the Code or any successor
provision (the "Dividends Received Percentage") to below the existing Dividends
Received Percentage (currently 70%), the amount of each dividend payable per
share of the Cumulative Preferred Stock for dividend payments made on or after
the date of enactment of such change, and so long as the Dividends Received
Percentage remains below 70%, will be adjusted by multiplying the amount of the
dividend payable determined as described above (before adjustment) by a factor,
which will be the number determined in accordance with the following formula
(the "DRD Formula"), and rounding the result to the nearest cent:
1 - (.35 (1 - .70))
-------------------------
1 - (.35 (1 - DRP))
For the purposes of the DRD Formula, "DRP" means the Dividends Received
Percentage applicable to the dividend in question. No amendment to the Code,
other than a change in the percentage of the dividends received deduction set
forth in Section 243(a)(1) of the Code or any successor provision, will give
rise to an adjustment. Notwithstanding the foregoing provisions, in the event
that, with respect to any such amendment, the Company will receive either an
unqualified opinion of nationally recognized independent tax counsel selected by
the Company or a private letter ruling or similar form of authorization from the
Internal Revenue Service to the effect that such an amendment would not apply to
dividends payable on the Cumulative Preferred Stock, then any such amendment
will not result in the adjustment provided for pursuant to the DRD Formula. The
opinion referenced in the previous sentence will be based upon a specific
exception in the legislation amending the DRP or upon a published pronouncement
of the Internal Revenue Service addressing such legislation. Unless the context
otherwise requires, references to dividends in this Prospectus Supplement will
mean dividends as adjusted by the DRD Formula. The
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Company's calculation of the dividends payable, as so adjusted and as certified
accurate as to calculation and reasonable as to method by the independent
certified public accountants then regularly engaged by the Company, will be
final and not subject to review absent manifest error.
If any amendment to the Code which reduces the Dividends Received
Percentage to below 70% is enacted after a dividend payable on a dividend
payment date has been declared and on or before such dividend is paid, the
amount of dividend payable on such dividend payment date will not be increased.
Instead, an amount, equal to the excess of (x) the product of the dividends paid
by the Company on such dividend payment date and the DRD Formula (where the DRP
used in the DRD Formula would be equal to the reduced Dividends Received
Percentage) over (y) the dividends paid by the Company on such dividend payment
date, will be payable on the next succeeding dividend payment date to holders of
record on the record date for such next succeeding dividend payment, in addition
to any other amounts payable on such date.
In the event that the amount of dividends payable per share of the
Cumulative Preferred Stock will be adjusted pursuant to the DRD Formula, the
Company will cause notice of each such adjustment to be sent to the holders of
the Cumulative Preferred Stock.
In the event that the Dividends Received Percentage is reduced to 50%
or less, the Company may, at its option, redeem the Cumulative Preferred Stock,
as a whole but not in part, as described below. See "-- Dividends Received
Deduction Redemption". See also "Recent Tax Proposals" for a discussion of
certain Proposals (as defined herein) to reduce the Dividends Received
Percentage.
Liquidation Rights. In the event of any liquidation, dissolution or
winding up of the Company, the holders of shares of Cumulative Preferred Stock
will be entitled to receive out of the assets of the Company available for
distribution to stockholders, before any distribution is made to holders of (i)
any other shares of Preferred Stock ranking junior to the Cumulative Preferred
Stock as to rights upon liquidation, dissolution or winding up that may be
issued in the future or (ii) Common Stock, liquidating distributions in the
amount of $200 per share (equivalent to $1,000 per Depositary Share), plus
accrued and accumulated but unpaid dividends to the date of final distribution,
but the holders of the shares of Cumulative Preferred Stock will not be entitled
to receive the liquidation price of such shares until the liquidation preference
of any other shares of the Company's capital stock ranking senior to the
Cumulative Preferred Stock as to rights upon liquidation, dissolution or winding
up shall have been paid (or a sum set aside therefor sufficient to provide for
payment) in full.
Optional Redemption. The Cumulative Preferred Stock is not subject to
any mandatory redemption or sinking fund provision. The Cumulative Preferred
Stock is not redeemable prior to February 28, 2007 except as described below. On
or after such date, the Cumulative Preferred Stock will be redeemable at the
option of the Company, in whole or in part, upon not less than 30 days' notice
at the redemption prices set forth below, plus accrued and accumulated but
unpaid dividends to but excluding the date fixed for redemption, if redeemed
during the twelve-month period beginning on February 28 of the years indicated
below:
Year Redemption Price
Per Share Per Depositary Share
2007.......................
2008.......................
2009.......................
2010.......................
2011.......................
On or after 2012........... $200.00 $1,000.00
If full cumulative dividends on the Cumulative Preferred Stock have not
been paid, the Cumulative Preferred Stock may not be redeemed in part and the
Company may not purchase or acquire any share of Cumulative Preferred Stock
otherwise than pursuant to a purchase or exchange offer made on the same terms
to
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all holders of the Cumulative Preferred Stock. If fewer than all the outstanding
shares of Cumulative Preferred Stock are to be redeemed, the Company will select
those to be redeemed by lot or a substantially equivalent method.
Dividends Received Deduction Redemption. If following the issuance of
the Cumulative Preferred Stock the Dividends Received Percentage is equal to or
less than 50% and, as a result, the amount of dividends on the Cumulative
Preferred Stock payable on any dividend payment date will be or is adjusted
upwards as described above under "-- Changes in the Dividends Received
Percentage", the Company, at its option, may redeem all, but not less than all,
of the outstanding shares of the Cumulative Preferred Stock (and the Depositary
Shares), provided that within sixty days of the later of the date on which an
amendment to the Code is enacted which reduces the Dividends Received Percentage
to 50% or less or the date on which notice of acceleration of the Purchase
Contracts is given, the Company sends notice to holders of the Cumulative
Preferred Stock of such redemption. A redemption of the Cumulative Preferred
Stock pursuant to this paragraph will take place on the date specified in the
notice, which shall be not less than thirty nor more than sixty days from the
date such notice is sent to holders of the Cumulative Preferred Stock. A
redemption of the Cumulative Preferred Stock in accordance with this paragraph
shall be at the applicable redemption price set forth in the following table, in
each case plus accrued and accumulated but unpaid dividends thereon to but
excluding the date fixed for redemption, including any changes in dividends
payable due to changes in the Dividends Received Percentage.
Redemption Period Redemption Price
Per
Per Share Depositary Share
February 28, 1998 to February 27, 1999........ $210.00 $1,050.00
February 28, 1999 to February 27, 2000........ 208.89 $1,044.44
February 28, 2000 to February 27, 2001........ 207.78 $1,038.89
February 28, 2001 to February 27, 2002........ 206.67 $1,033.33
February 28, 2002 to February 27, 2003........ 205.56 $1,027.78
February 28, 2003 to February 27, 2004........ 204.44 $1,022.22
February 28, 2004 to February 27, 2005........ 203.33 $1,016.67
February 28, 2005 to February 27, 2006........ 202.22 $1,011.11
February 28, 2006 to February 27, 2007........ 201.11 $1,005.56
If a redemption of the Cumulative Preferred Stock pursuant to this paragraph
occurs on or after February 28, 2007, the redemption prices shall be as set
forth in the first paragraph under " -- Optional Redemption".
Voting Rights. Holders of Cumulative Preferred Stock will not have any
voting rights except as set forth below or as otherwise from time to time
required by law. Whenever dividends on Cumulative Preferred Stock or any other
class or series of stock ranking on a parity with the Cumulative Preferred Stock
with respect to the payment of dividends shall be in arrears for dividend
periods, whether or not consecutive, containing in the aggregate a number of
days equivalent to six calendar quarters, the holders of shares of Cumulative
Preferred Stock (voting separately as a class with all other series of preferred
stock upon which like voting rights have been conferred and are exercisable)
will be entitled to vote for the election of two of the authorized number of
directors of the Company at the next annual meeting of stockholders and at each
subsequent meeting until all dividends accumulated on Cumulative Preferred Stock
have been fully paid or set apart for payment. The term of office of all
directors elected by the holders of Preferred Stock shall terminate immediately
upon the termination of the right of the holders of Preferred Stock to vote for
directors. Holders of shares of Cumulative Preferred Stock will have one vote
for each share held.
DESCRIPTION OF DEPOSITARY SHARES
Each Depositary Share represents 5 shares of Cumulative Preferred Stock
deposited with the Preferred Stock Depositary pursuant to the Deposit Agreement,
dated as of December , 1996 (the "Deposit Agreement"), among the Company, The
Bank of New York, as depositary (the "Preferred Stock Depositary"), and the
holders from time to time of depositary receipts issued thereunder. Subject to
the terms of the Deposit Agreement, each holder of a Depositary Share is
entitled, through the Preferred Stock Depositary, in proportion to the 5 shares
of Cumulative Preferred Stock represented by such Depositary Share, to all the
rights, preferences and privileges of
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the Cumulative Preferred Stock represented thereby (including dividend, voting
and liquidation rights) contained in the Certificate of Designation summarized
under "Description of Capital Stock of the Company -- Offered Preferred Stock"
in the accompanying Prospectus. The Company does not expect that there will be
any public trading market for the Cumulative Preferred Stock except as
represented by the Depositary Shares. The Depositary Shares will be evidenced by
depositary receipts ("Depositary Receipts") issued pursuant to the Deposit
Agreement.
The following description of the particular terms and provisions of the
Depositary Shares supplements, and to the extent inconsistent therewith
replaces, the description of the general terms and provisions of the Depositary
Shares set forth in the accompanying Prospectus, to which description reference
is hereby made. The following summary of the Depositary Shares, the Depositary
Receipts and the Deposit Agreement does not purport to be complete and is
qualified in its entirety by reference to the Deposit Agreement (which contains
the form of Depositary Receipt).
Issuance of Depositary Receipts. Immediately following the issuance of
the Cumulative Preferred Stock by the Company, the Company will deposit the
Cumulative Preferred Stock with the Preferred Stock Depositary, which will then
issue and deliver the Depositary Receipts to the holders of Capital Units who
have satisfied their obligations under the related Purchase Contracts.
Depositary Receipts will be issued evidencing only whole Depositary Shares.
Dividends and Other Distribution. The Preferred Stock Depositary will
distribute all cash dividends or other cash distributions received in respect of
the Cumulative Preferred Stock to the record holders of Depositary Shares in
proportion to the number of the Depositary Shares owned by such holders. The
amount distributed will be reduced by any amounts required to be withheld by the
Company or the Preferred Stock Depositary on account of taxes or other
governmental charges.
Withdrawal of Stock. Upon surrender of the Depositary Receipts at the
corporate trust office of the Preferred Stock Depositary and upon payment of the
taxes, charges and fees provided for in the Deposit Agreement and subject to the
terms thereof, the holder of the Depositary Shares evidenced thereby is entitled
to delivery at such office, to or upon his or her order, of the number of whole
shares of Cumulative Preferred Stock and any money or other property, if any,
represented by such Depositary Shares. Holders of Depositary Shares will be
entitled to receive whole shares of Cumulative Preferred Stock on the basis set
forth herein, but holders of such whole shares of Cumulative Preferred Stock
will not thereafter be entitled to deposit such shares of Cumulative Preferred
Stock with the Preferred Stock Depositary or to receive Depositary Shares
therefor.
Voting. Because each Depositary Share represents ownership of 5 shares
of Cumulative Preferred Stock, holders of Depositary Shares will be entitled to
5 votes per Depositary Share under the limited circumstances in which the
holders of Cumulative Preferred Stock are entitled to vote.
Redemption. The Depositary Shares will be redeemed, upon not less than
30 days' notice, using the cash proceeds received by the Preferred Stock
Depositary resulting from any redemption of shares of Cumulative Preferred Stock
held by the Preferred Stock Depositary. The redemption price will be equal to
the redemption prices set forth under "Description of Cumulative Preferred Stock
- -- Optional Redemption" and "-- Dividends Received Deduction Redemption". If the
Company redeems shares of Cumulative Preferred Stock held by the Preferred Stock
Depositary, the Preferred Stock Depositary will redeem as of the same redemption
date the number of Depositary Shares representing the shares of Cumulative
Preferred Stock so redeemed. If fewer than all the Depositary Shares are to be
redeemed, the Depositary Shares to be redeemed will be selected by lot or
substantially equivalent method determined by the Preferred Stock Depositary.
Holders of Depositary Receipts will pay transfer and other taxes and
governmental charges and such other charges as are expressly provided in the
Deposit Agreement to be for their accounts.
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RECENT TAX PROPOSALS
On December 7, 1995, President Clinton proposed the December Proposal
that would, among other things, deny interest deductions on a debt instrument,
issued by a corporation, that (i) is payable in stock of the issuer or a related
party or (ii) has a maximum term of more than 20 years and that is not shown as
indebtedness on the separate balance sheet of the issuer or, where the
instrument is issued to a related party (other than a corporation), where the
holder or some other related party issues a related instrument that is not shown
as indebtedness on the issuer's consolidated balance sheet. The March Proposal
was included as part of President Clinton's Fiscal 1997 Budget Proposal
announced on March 19, 1996. Under both the December Proposal and the March
Proposal, the above-described provision would be effective generally for
instruments issued on or after December 7, 1995. If the provision were to apply
to the Debentures, MS plc would not be able to deduct interest on the
Debentures. However, on March 29, 1996, the Chairmen of the Senate Finance and
House Ways and Means Committees issued a joint statement to the effect that it
was their intention that the effective date of the President's legislative
proposals, if adopted, will be no earlier than the date of appropriate
Congressional action. There can be no assurance, however, that current or future
legislative or administrative proposals or final legislation will not adversely
affect the ability of MS plc to deduct interest on the Debentures or otherwise
affect the tax treatment described herein. Such a change, therefore, could give
rise to a Tax Event, which would permit MS plc to cause a redemption of the
Debentures upon receiving an opinion of counsel as described above under
"Description of the Capital Units -- Description of the Debentures -- Tax Event
Redemption".
In addition, under both the December Proposal and the March Proposal,
the Dividends Received Percentage that is currently available to corporate
shareholders for certain dividends received from another corporation in which
the shareholder owns less than 20% (by vote and value) would be reduced from 70%
to 50%. The December Proposal proposed this reduction to be effective for
dividends received or accrued after January 31, 1996, while the March Proposal
proposed that such reduction apply only to dividends received or accrued after
the 30th day after the enactment of the proposal. To the extent the Dividends
Received Percentage is reduced from 70%, the amount of dividends payable per
share will be adjusted in certain circumstances. In the event that the Dividends
Received Percentage is reduced to 50% or less, the Company may, at its option,
redeem the Cumulative Preferred Stock, as a whole but not in part. See
"Description of Cumulative Preferred Stock -- Changes in the Dividends Received
Percentage". Additionally, under current law, the dividends received deduction
is allowed to a corporate shareholder only if the shareholder satisfies a 46-day
holding period for the dividend-paying stock (or a 91-day period for certain
dividends on preferred stock). The Proposals provide that a taxpayer would not
be entitled to a dividends received deduction if the taxpayer's holding period
for the dividend-paying stock were not satisfied over a period immediately
before or immediately after the taxpayer would become entitled to receive the
dividend. The December Proposal proposed that this change apply only to
dividends received or accrued after January 31, 1996, while the March Proposal
proposed that such change apply only to dividends received or accrued after the
30th day after the enactment of the proposal.
Due to the inherently uncertain nature of proposed changes to the tax
law such as the December Proposal and the March Proposal, there can be no
assurance as to whether, or in what form, the proposals may be enacted into law,
or as to the effective dates of any such changes to the law.
S-25
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CERTAIN TAX CONSIDERATIONS
The following summary of certain U.S. and U.K. tax consequences is set
forth with respect to U.S. federal tax matters in reliance upon the advice of
Shearman & Sterling, New York, New York and with respect to U.K. tax matters in
reliance upon the advice of Linklaters & Paines, London, England. The summary
describes certain U.S. federal and U.K. tax consequences of the ownership of
Capital Units and Depositary Shares as of the date of this Prospectus
Supplement. Except where noted, it deals only with Capital Units or Depositary
Shares beneficially owned as capital assets by purchasers that are citizens or
residents of the United States, U.S. corporations or persons otherwise subject
to U.S. federal income taxation on a net basis with respect to Capital Units and
Depositary Shares (a "U.S. Holder"). It does not deal with special situations,
such as those of dealers in securities or life insurance companies or persons
owning, directly or indirectly, 10% or more of the voting stock of the Company.
The summary does not address the U.K. tax consequences to a holder that is
resident (or, in the case of an individual, who is ordinarily resident) for U.K.
tax purposes in the United Kingdom, who is domiciled under U.K. law in the
United Kingdom, or that carries on business in the United Kingdom through a
branch or agency.
The statements below regarding U.S. tax consequences are based upon the
provisions of the Code and regulations, rulings and judicial decisions
thereunder as of the date of this Prospectus Supplement. The statements
regarding U.K. tax laws set forth below are based on those laws as in force on
the date of this Prospectus Supplement. Such authorities may be repealed,
revoked or modified, in which case tax consequences different from those
discussed below could result.
Persons considering the purchase, ownership or disposition of Capital
Units or Depositary Shares should consult their own tax advisors concerning the
U.S. federal and U.K. tax consequences in light of their particular situations
as well as any consequences arising under the laws of any other taxing
jurisdiction.
General
Owners of the Depositary Shares will be treated for U.S. federal income
tax purposes as owners of the Cumulative Preferred Stock represented by such
Depositary Shares.
The discussion below assumes that the issue price of a Capital Unit
(i.e., the initial offering price to the public at which a substantial amount of
Capital Units are sold) will equal the amount payable at maturity of a
Debenture.
For U.S. federal income tax purposes, in general, the issue price of
each Capital Unit would be allocated between the Debenture and the Purchase
Contract included in the Capital Unit. MS plc and the holders have agreed in the
Capital Unit Agreement that the issue price of the Debenture, and therefore the
tax basis of the Debenture for an original holder, would equal the amount
payable at maturity of the Debenture. Thus, an original holder should not
allocate any portion of the issue price of a Capital Unit to the Purchase
Contract.
For U.S. federal and U.K. tax purposes, the Debentures will be treated
as debt.
Payments on the Debentures
For U.S. federal income tax purposes, a U.S. Holder will include
interest payable on the Debentures in income when received or accrued, in
accordance with the holder's method of accounting. Such interest will generally
be treated as foreign source passive income for foreign tax credit purposes.
A U.S. Holder of an interest in a Global Debenture will not be subject
to U.K. withholding taxes on payments of interest on such Global Debenture;
provided that (i) the Capital Units, as anticipated, are and continue to be
quoted on a recognized stock exchange, and (ii) payments are made through a
paying agent which is not in the U.K.
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A U.S. Holder of an interest in a global Debenture that is not part of
a Capital Unit will be subject to U.K. withholding taxes on payments of interest
on such Debenture at a rate of 20% unless (i) the global Debenture is and
continues to be quoted on a recognized stock exchange and (ii) payments are made
through a paying agent which is not in the U.K. It is not currently anticipated
that any such global Debenture would be quoted on a recognized stock exchange.
Such a U.S. Holder will, in certain circumstances, be entitled to receive
Additional Amounts for any U.K. tax that is required to be withheld with respect
to any such Debenture. See "Description of Debt Securities of MS plc -- Payment
of Additional Amounts with respect to Debt Securities" in the accompanying
Prospectus. For U.S. federal income tax purposes, any Additional Amounts will be
includible in income by a holder as interest at the time such amounts are paid
by MS plc, whether or not the holder is entitled to a refund of such tax or such
refund is sought. Recipients of Additional Amounts who are U.S. Holders should
generally be entitled to claim a refund of any such U.K. withholding tax
pursuant to the United States/United Kingdom Double Taxation Convention (the
"Income Tax Treaty"). However, it is possible that a U.S. Holder may have
difficulty in establishing his claim to a refund, in which case such claim may
be denied by U.K. Inland Revenue. In the case of a holder entitled to claim a
refund of any U.K. tax withheld, no U.S. foreign tax credit or deduction may be
claimed for the amount of U.K. tax eligible for a refund, whether or not such
refund is sought, to the extent that it is reasonably certain that such U.K. tax
will be refunded. If a U.S. Holder receives a refund of U.K. tax for which a
deduction or foreign tax credit was previously claimed, the holder will
generally (i) in the case of a deduction, include the refund in gross income, or
(ii) in the case of a foreign tax credit, be required to notify the Internal
Revenue Service of the receipt of the refund, according to the requirements of
Section 1.905-4T of the Treasury regulations or successor provision, and the
Internal Revenue Service will redetermine the holder's U.S. federal income tax
liability for the taxable year in which the credit was originally claimed.
Interest payable on the Debentures (including a Global Debenture or an
interest in a global Debenture that is not part of a Capital Unit) will
constitute U.K. source income for U.K. tax purposes and as such, remains subject
to U.K. tax by direct assessment even if the interest is exempt from U.K.
withholding tax. However, exemption from U.K. tax may be available in
appropriate cases under the Income Tax Treaty. In any event, under the Finance
Act 1995, interest on the Debentures will not be chargeable to U.K. tax in the
hands of a beneficial owner who is not resident in the United Kingdom unless
such owner carries on a trade, profession or vocation in the United Kingdom
through a U.K. branch or agency in connection with which the interest is
received to which the Debentures are attributable. There are certain exemptions
for interest received by certain categories of agent (such as some brokers and
investment managers).
Payments of interest on a Debenture to a U.S. Holder of a Definitive
Capital Unit will be subject to U.K. withholding tax at a rate of 20%. However,
a U.S. Holder would generally be entitled to receive a refund of such tax in
full from the U.K. Inland Revenue pursuant to the Income Tax Treaty. The
appropriate form (Form FD13) must be sent in duplicate to the Internal Revenue
Service Center Director with which such U.S. Holder's last federal income tax
return was filed. Forms are available in the United States from the Chief,
International Operations Division, Internal Revenue Service, 950 L'Enfant Plaza
South, S.W., Washington, D.C. 20024, or in the United Kingdom from the Inspector
of Foreign Dividends, 72, Maid Marian Way, Nottingham, NG1 6AS, England.
Alternatively, a U.S. Holder of a Definitive Capital Unit may apply to the U.K.
Inland Revenue for an advance ruling that payments on the Debentures can be made
free of U.K. withholding tax. Claims for repayment must be made within six years
of the end of the U.K. year of assessment (generally April 5 in each year) to
which the income related and must be accompanied by the original statement
provided by MS plc (or any nominee holding the Debentures on the U.S. Holder's
behalf) showing the amount of income tax deducted and when the interest payment
was made. As a claim is not considered made until the U.K. authorities receive
the appropriate form from the Internal Revenue Service, forms should be sent to
the Internal Revenue Service well before the end of the applicable limitation
period. Payments of Additional Amounts will not be paid by MS plc with respect
to a definitive registered Debenture issued to a holder upon such holder's
request. See "Description of Debt Securities of MS plc -- Payment of Additional
Amounts with respect to Debt Securities" in the accompanying Prospectus.
S-27
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Sale or Disposition of Capital Units
For U.S. federal income tax purposes, gain or loss generally will be
recognized by a U.S. Holder on a sale or other disposition of a Capital Unit
prior to maturity of the Debentures measured by the difference between the sum
of any cash and the fair market value of the property received in the sale or
other disposition (reduced by any amount attributable to accrued interest, which
will be taxable as such unless previously taken into account) and the holder's
tax basis in the Capital Unit. Any gain or loss recognized by an original holder
generally will be capital gain or loss and will be long-term capital gain or
loss if at the time of such sale or other disposition the Capital Units have
been held by the holder for more than one year. Any such gain will not be
treated as foreign source income.
A U.S. Holder will not be subject to U.K. tax (including withholding
tax) on the sale or disposition of a Capital Unit (or an interest in a global
Debenture that is not part of a Capital Unit). Similarly, a U.S. Holder will not
be subject to U.K. tax where an interest in a Global Debenture is exchanged for
a definitive registered Debenture represented by a Definitive Capital Unit.
Redemption or Maturity of Debentures
For U.S. federal income tax purposes, a U.S. Holder will recognize gain
or loss, if any, on the redemption of a Debenture or upon payment at maturity
measured by the difference between the amount realized upon such redemption or
maturity of the Debenture (reduced by any amount attributable to accrued
interest, which will be taxable as such unless previously taken into account)
and the holder's tax basis in the Debenture. In the event a Debenture is
redeemed pursuant to a prepayment in connection with the settlement of a
Purchase Contract, the amount realized by the holder of the Debenture will be
equal to the issue price of such Debenture. A holder's tax basis in a Debenture
will generally equal the cost of the Debenture to such holder. Any gain or loss
recognized will be capital gain or loss and will be long-term capital gain or
loss if the holder has held the stock for more than one year at the time of
redemption or maturity.
A U.S. Holder will not be subject to U.K. tax (including withholding
tax) on the redemption (including pursuant to a prepayment in connection with
the settlement of a Purchase Contract) of an interest in a global Debenture. For
the U.K. withholding tax consequences in connection with accrued interest
received on redemption, see "Payments on the Debentures" above.
Market Discount/Bond Premium Consequences for Secondary Holders of Capital Units
The U.K. tax consequences with respect to a Capital Unit for a U.S.
Holder who acquires Capital Units after their initial offering will be
substantially the same as those for a U.S. Holder who acquires Capital Units in
their initial offering.
Except as described below, the U.S. federal income tax consequences
with respect to a Capital Unit for a U.S. Holder who acquires Capital Units
after their initial offering generally will be the same as those for a U.S.
Holder who acquires Capital Units in their initial offering.
The purchase price of each Capital Unit must be allocated between the
Debenture and the Purchase Contract included in the Capital Unit in accordance
with their respective fair market values at the time of purchase.
If the fair market value (and, therefore, the tax basis) of a Debenture
at the time of purchase is less than the amount payable at maturity of the
Debenture, the difference generally will be considered "market discount". Market
discount is disregarded as "de minimis" if it is less than 0.25% of the amount
payable at maturity of the Debenture multiplied by the number of complete years
remaining to maturity of the Debenture. If a U.S. Holder realizes a gain upon
disposition of a Debenture (including as part of a disposition of a Capital
Unit), the lesser of
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(i) the excess of the amount received on the disposition over the holder's tax
basis in the Debenture or (ii) the portion of the market discount that accrued
while the Debenture was held by the holder and that was not previously included
in income generally will be treated as ordinary interest income. If a U.S.
Holder disposes of a Debenture (including as part of a disposition of a Capital
Unit) in any transaction other than a sale, exchange or involuntary conversion
(e.g., as a gift), the holder generally will be treated as having realized an
amount equal to the fair market value of the Debenture and will be required to
recognize as ordinary income any gain on disposition to the extent of the
accrued market discount. Market discount will be considered to accrue ratably
during the period from the date of acquisition to the maturity date of the
Debenture, unless the holder elects to accrue it on the basis of a constant
interest rate.
A U.S. Holder will generally be required to defer the deduction of all
or a portion of the interest paid or accrued on any indebtedness incurred or
maintained to purchase or carry a Debenture purchased at a market discount until
the maturity of the Debenture or its earlier disposition (including a
nonrecognition transaction described in Section 1276(c) of the Internal Revenue
Code).
A U.S. Holder may elect to include market discount in income currently
as it accrues (on either a ratable or constant interest rate basis), in which
case the rules described above regarding the treatment as ordinary income of
gain upon the disposition of the Debenture and regarding the deferral of
interest deductions will not apply. An election to include market discount
currently will apply to other debt instruments acquired at a discount by the
holder. A U.S. Holder should consult a tax advisor before making the election.
If the fair market value (and, therefore, the tax basis) of a Debenture
at the time of purchase is greater than the amount payable at maturity of the
Debenture, the excess will be "bond premium". A holder may either recognize the
bond premium as a capital loss upon payment of the Debenture at maturity or make
an election to amortize it over the term of the Debenture. If the election is
made, the bond premium will generally reduce the interest income on a Debenture
on a constant yield basis over the remaining term of the Debenture and will
reduce the basis of the Debenture by the amortized amount. An election to
amortize bond premium will apply to other debt instruments acquired at a premium
by the holder. A U.S. Holder should consult a tax advisor before making the
election.
Tax Basis of Depositary Shares
For U.S. federal income tax purposes, a U.S. Holder who acquires
Capital Units in their initial offering will take a tax basis in the Depositary
Shares in an amount equal to the purchase price for the Depositary Shares (which
should be the same as the purchase price for the holder's Capital Units). A U.S.
Holder who acquires Capital Units after their initial offering will take a tax
basis in the Depositary Shares in an amount equal to the purchase price for the
Depositary Shares plus the amount, if any, allocated to the Purchase Contract of
such holder. A U.S. Holder's holding period for Depositary Shares will commence
on the day after the date the Depositary Shares are acquired.
Distributions on Depositary Shares
Distributions made with respect to the Depositary Shares will
constitute dividends for U.S. federal income tax purposes to the extent paid out
of the current or accumulated earnings and profits of the Company, as determined
for U.S. federal income tax purposes. Dividends paid by the Company will be
eligible for the dividends received deduction allowed to corporations under the
Code, subject to applicable limitations.
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Sale or Disposition of Depositary Shares
A U.S. Holder who sells or otherwise disposes of Depositary Shares
generally will recognize capital gain or loss for U.S. federal income tax
purposes in an amount equal to the difference between the amount realized and
the holder's tax basis in the Depositary Shares. Similarly, a U.S. Holder will
generally recognize capital gain or loss for U.S. federal income tax purposes
upon a redemption of Depositary Shares by the Company (assuming that holder does
not own, and is not deemed to own, any Common Stock of the Company), in an
amount equal to the difference between (i) the total redemption price and (ii)
the tax basis of the Depositary Share redeemed. Such capital gain or loss will
be long-term capital gain or loss if the holder has held the stock for more than
one year at the time of disposition.
Issue/Transfer Taxes
Under proposals announced in the U.K. Budget on November 26, 1996, a
U.K. stamp duty reserve tax ("SDRT") of 1.5% may be payable on the issue of the
Book-Entry Capital Units. Even if this charge becomes payable upon issuance of
the Capital Units, however, holders will not be asked to pay any additional
amounts to satisfy this liability, and the U.S. federal income tax consequences
to U.S. Holders should generally be unaffected.
No U.K. stamp duty will be payable on the transfer of Definitive
Capital Units, Book-Entry Capital Units, or interests in a global Debenture that
is not part of a Capital Unit; provided that any instrument of transfer is not
executed in the U.K. and remains at all subsequent times outside the U.K.
A charge for U.K. SDRT may arise in relation to any agreement to
transfer Definitive Capital Units or interests in a global Debenture that is not
part of a Capital Unit and not held within the book-entry system at the rate of
0.5% of the amount or value of the consideration. An agreement for the transfer
of Book-Entry Capital Units within the book-entry system will not give rise to a
liability for SDRT.
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UNDERWRITERS
Under the terms and subject to the conditions contained in the
Underwriting Agreement dated the date hereof, the Underwriters named below have
severally agreed to purchase, and the Company and MS plc have agreed to sell to
them, severally, the respective number of Capital Units set forth opposite their
names below:
Number of
Name Capital Units
Morgan Stanley & Co. Incorporated.......................
Chase Securities Inc....................................
Citicorp Securities, Inc................................
Dean Witter Reynolds Inc................................
Donaldson, Lufkin & Jenrette Securities Corporation.....
NationsBanc Capital Markets, Inc........................
Smith Barney Inc........................................ _______
Total........................ 134,000
=======
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the Capital Units 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 the Capital
Units if any are taken.
The Underwriters initially propose to offer part of the Capital Units
directly to the public at the public offering price set forth on the cover page
hereof and part to certain dealers at a price that represents a concession not
in excess of $ per Capital Unit. Any Underwriter may allow, and such dealers may
reallow, a concession, not in excess of $ per Capital Unit, to certain other
dealers. After the initial offering of the Capital Units, the offering price and
other selling terms may from time to time be varied by the Underwriters.
The Company and MS plc have agreed to indemnify the Underwriters
against certain liabilities, including liabilities under the Securities Act of
1933.
The Underwriters and any dealers utilized in the sale of Capital Units
will not confirm sales to accounts over which they exercise discretionary
authority.
MS & Co. is a wholly owned subsidiary of the Company. The offering of
Capital Units will comply with the requirements of Rule 2720 of the National
Association of Securities Dealers, Inc. ("NASD") regarding an NASD member firm's
underwriting securities of an affiliate.
In the Underwriting Agreement, each Underwriter has represented and
agreed that (i) it has not offered or sold and prior to the date six months
after the date of issue of the Capital Units will not offer or sell any Capital
Units to persons in the United Kingdom except to persons whose ordinary
activities involve them in acquiring, holding, managing or disposing of
investments (as principal or agent) for the purposes of their businesses or
otherwise in circumstances which have not resulted and will not result in an
offer to the public in the United Kingdom within the meaning of the Public
Offers of Securities Regulations 1995; (ii) it 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 Capital Units in, from or otherwise
involving the United Kingdom; and (iii) it has only issued or passed on and will
only issue or pass on in the United Kingdom any document received by it in
connection with the issue of the Capital Units to a person who is of a kind
described in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996 or is a person to whom such document may
otherwise lawfully be issued or passed on.
Following the initial distribution of the Capital Units, MS & Co. may
offer and sell Capital Units in the course of its business as a broker-dealer.
MS & Co. may act as principal or agent in such transactions. This
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Prospectus Supplement and the Prospectus may be used by MS & Co. 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. MS & Co. is not
obligated to make a market in the Capital Units and may discontinue any
market-making activities at any time without notice.
Application will be made to list the Capital Units and the Depositary
Shares issuable pursuant to the Purchase Contracts on the New York Stock
Exchange. Trading of the Capital Units on the New York Stock Exchange is
expected to commence within a 30-day period after the initial delivery of the
Capital Units.
LEGAL MATTERS
The validity of the Debentures, the Guarantees, the Preferred Stock and
the Purchase Contracts will be passed upon for the Company by Jonathan M. Clark,
General Counsel and Secretary of the Company and a Managing Director of MS &
Co., or other counsel who is satisfactory to MS & Co. 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
Debentures governed by the laws of England will be passed upon for MS plc by
Linklaters & Paines. Certain tax matters described under the caption "Certain
Tax Considerations" will be passed upon for the Company by Shearman & Sterling
and for MS plc by Linklaters & Paines. Certain legal matters relating to the
Debentures, the Guarantees, the Preferred Stock and the Purchase Contracts will
be passed upon for the Underwriters by Davis Polk & Wardwell. Shearman &
Sterling and Davis Polk & Wardwell have in the past represented and continue 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, Shearman & Sterling owns less than 1% of the common stock of a
company in which the Company owns an interest.
ERISA MATTERS FOR PENSION PLANS AND INSURANCE COMPANIES
The Company and certain affiliates of the Company, including MS & Co.
and MSIL, 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 Debentures or Guarantees 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
Debentures or Guarantees 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
Debentures or Guarantees should consult with its legal counsel.
S-32
