PROSPECTUS SUPPLEMENT Registration No. 333-18005
(To Prospectus dated January 24, 1997) Rule 424(b)(5)
$6,000,000,000
Morgan Stanley Group Inc.
GLOBAL MEDIUM-TERM NOTES, SERIES C
GLOBAL UNITS, SERIES C
-----------------
Due More Than Nine Months from Date of Issue
-----------------
Morgan Stanley Group Inc. (the "Company") may offer from time to time,
either alone or as part of a Unit, its Global Medium-Term Notes, which are
issuable in one or more series and may be offered and sold in the United States,
outside the United States or both in and outside the United States
simultaneously. Global Medium-Term Notes issued as part of a Unit will be issued
in conjunction with one or more Universal Warrants, Purchase Contracts or any
combination thereof. See "Description of Units." The Global Medium-Term Notes,
Series C (the "Notes"), and the Global Units, Series C, each consisting of one
or more Series C Notes and one or more Universal Warrants, Purchase Contracts or
any combination thereof (the "Units" and together with the Series C Notes, the
"Program Securities"), offered by this Prospectus Supplement are offered
primarily in the United States at an aggregate initial public offering price of
up to $6,000,000,000, or the equivalent thereof in other currencies, including
composite currencies such as the ECU (the "Specified Currency"). See "Important
Currency Exchange Information." Such aggregate offering price is subject to
reduction as a result of the sale by the Company of certain other Debt
Securities, including the sale of the Company's Global Medium-Term Notes, Series
D and Series E and Global Units, Series D and Series E outside the United States
and of certain Warrants, Preferred Stock, Purchase Contracts and Units. See
"Plan of Distribution."
The Notes may be issued as Senior Indebtedness or Subordinated
Indebtedness. Subordinated Indebtedness will be subordinate to all Senior
Indebtedness. See "Description of Debt Securities -- Subordinated Debt" in the
accompanying Prospectus. The interest rate on each Note will be either a fixed
rate established by the Company at the date of issue of such Note, which may be
zero in the case of certain Original Issue Discount Notes, or a floating rate as
set forth therein and specified in the applicable Pricing Supplement. Such
interest rates may be determined by reference to the prices of certain
securities or commodities. A Fixed Rate Note may pay a level amount in respect
of both interest and principal amortized over the life of the Note (an
"Amortizing Note"). Each Note will mature on any day more than nine months from
the date of issue, as set forth in the applicable Pricing Supplement. See
"Description of Notes." Unless otherwise specified in the applicable Pricing
Supplement, the Notes may not be redeemed by the Company or be repayable at the
option of the holder prior to maturity and will be issued in fully registered
form in denominations of $1,000 (or, in the case of Notes not denominated in
U.S. dollars, the equivalent thereof in the Specified Currency, rounded to the
nearest 1,000 units of the Specified Currency) or any amount in excess thereof
which is an integral multiple of $1,000 (or, in the case of Notes not
denominated in U.S. dollars, 1,000 units of the Specified Currency). Any terms
relating to Notes being denominated in foreign currencies or composite
currencies will be as set forth in the applicable Pricing Supplement.
Universal Warrants included in Units will entitle the holders thereof
to purchase or sell (a) securities of an entity unaffiliated with the Company, a
basket of such securities, an index or indices of such securities or any
combination of the above, (b) currencies or composite currencies or (c)
commodities. The Company may satisfy its obligations, if any, with respect to
any Universal Warrants by delivering the underlying securities, currencies or
commodities or, in the case of underlying securities or commodities, the cash
value thereof, as set forth in the applicable Pricing Supplement. A Universal
Warrant issued as part of a Unit may not be separated from the other securities
comprising such Unit prior to such Warrant's expiration date unless otherwise
specified in the applicable Pricing Supplement.
Purchase Contracts included in Units will require the holders thereof
to purchase or sell (a) securities of an entity unaffiliated with the Company, a
basket of such securities, an index or indices of such securities or any
combination of the above, (b) currencies or composite currencies or (c)
commodities. A Purchase Contract issued as part of a Unit may not be separated
from the other securities comprising such Unit prior to such Purchase Contract's
settlement date, unless otherwise specified in the applicable Pricing
Supplement. The applicable Pricing Supplement will also specify the methods by
which the holders may purchase or sell such securities, currencies or
commodities and any acceleration, cancellation or termination provisions or
other provisions relating to the settlement of a Purchase Contract.
Each Program Security will be represented either by a Global Program
Security registered in the name of a nominee of The Depository Trust Company, as
Depositary (a "Book-Entry Program Security"), or by a certificate issued in
definitive form (a "Certificated Program Security"), as set forth in the
applicable Pricing Supplement. Interests in Global Program Securities
representing Book-Entry Program Securities will be shown on, and transfers
thereof will be effected only through, records maintained by the Depositary
(with respect to participants' interests) and its participants. Book-Entry
Program Securities will not be issuable as Certificated Program Securities
except under the circumstances described in the accompanying Prospectus.
-----------------
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.
------------------
<TABLE>
<CAPTION>
Price to Agent's Proceeds to
Public(1) Commissions(2) Company(2)(3)
<S> <C> <C> <C>
Per Note or Unit.............. 100.000% .125% - .750% 99.875% - 99.250%
Total(4)...................... $6,000,000,000 $7,500,000 $45,000,000 $5,992,500,000 $5,955,000,000
</TABLE>
<PAGE>
2
- ------------
(1) Unless otherwise specified in the applicable Pricing Supplement, Notes will
be sold at 100% of their principal amount and Units will be sold at 100% of
the principal amount of the Notes included therein.
(2) Unless otherwise specified in the applicable Pricing Supplement, the
commission payable to the Agent for each Program Security sold through the
Agent will range from .125% to .750% of the Price to Public of such Program
Security; provided, however, that commissions with respect to Program
Securities having a maturity of 30 years or greater will be negotiated. The
Company may also sell Program Securities to the Agent, as principal, at
negotiated discounts, for resale to investors and other purchasers.
(3) Before deducting expenses payable by the Company estimated at $3,250,000
(4) Or the equivalent thereof in other currencies, including composite
currencies.
-----------------
Offers to purchase the Program Securities are being solicited from time
to time by Morgan Stanley & Co. Incorporated, a wholly owned subsidiary of the
Company ("Morgan Stanley" or the "Agent"), on behalf of the Company. The Agent
has agreed to use reasonable efforts to solicit purchases of such Program
Securities. The Company may also sell Program Securities to the Agent acting as
principal for its own account or otherwise as determined by such Agent. No
termination date for the offering of the Program Securities has been
established. The Company or the Agent may reject any order in whole or in part.
The Program Securities will not be listed on any securities exchange, and there
can be no assurance that the Program Securities offered hereby will be sold or
that there will be a secondary market for the Program Securities.
See "Plan of Distribution."
This Prospectus Supplement and the accompanying Prospectus may be used
by the Agent in connection with offers and sales of the Program Securities in
market-making transactions at negotiated prices related to prevailing market
prices at the time of sale or otherwise. The Agent may act as principal or agent
in such transactions.
-----------------
MORGAN STANLEY & CO.
Incorporated
January 24, 1997
<PAGE>
No dealer, salesman or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus Supplement, any Pricing Supplement and the accompanying Prospectus in
connection with the offer contained in this Prospectus Supplement, any Pricing
Supplement and the accompanying Prospectus and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Company or by the Agent. This Prospectus Supplement, any Pricing
Supplement and the accompanying Prospectus do not constitute an offer to sell or
a solicitation of an offer to buy Securities by anyone in any jurisdiction in
which such offer or solicitation is not authorized or in which the person making
such offer or solicitation is not qualified to do so or to any person to whom it
is unlawful to make such offer or solicitation.
-------------------
IN CONNECTION WITH THIS OFFERING, THE AGENT MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE PROGRAM
SECURITIES, OR ANY SECURITIES THE PRICES OF WHICH MAY BE USED TO DETERMINE
PAYMENTS ON SUCH PROGRAM SECURITIES, AT LEVELS WHICH MIGHT NOT OTHERWISE
PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME. SUCH TRANSACTIONS WILL BE CARRIED OUT IN ACCORDANCE
WITH ALL RELEVANT LAWS AND REGULATIONS.
-------------------
IMPORTANT CURRENCY EXCHANGE INFORMATION
Purchasers are required to pay for the Program Securities in U.S.
dollars, and payments of principal, premium, if any, and interest on Notes or
payments with respect to Units or any security comprised by such Unit will be
made in U.S. dollars, unless otherwise provided in the applicable Pricing
Supplement. Currently, there are limited facilities in the United States for the
conversion of U.S. dollars into foreign currencies and vice versa. In addition,
most banks do not currently offer non-U.S. dollar denominated checking or
savings account facilities in the United States. Accordingly, unless otherwise
specified in a Pricing Supplement or unless alternative arrangements are made
(and subject, in the case of Book-Entry Program Securities, to any additional
procedures that may be required), payment of principal, premium, if any, and
interest on Notes (or any payment with respect to a Unit or any security
constituting such Unit) in a Specified Currency other than U.S. dollars will be
made to an account at a bank outside the United States. See "Description of
Notes," "Description of Units" and "Foreign Currency Risks."
If the applicable Pricing Supplement provides for payments of principal
of and interest on a non-U.S. dollar denominated Note (or any payment with
respect to a Unit or any security constituting such Unit) to be made in U.S.
dollars or for payments of principal of and interest on a U.S. dollar
denominated Note (or any payment with respect to a Unit or any security
constituting such Unit) to be made in a Specified Currency other than U.S.
dollars, the conversion of the Specified Currency into U.S. dollars or U.S.
dollars into the Specified Currency, as the case may be, will be handled by
Morgan Stanley, in its capacity as Exchange Rate Agent, or such other Exchange
Rate Agent identified in the Pricing Supplement. The costs of such conversion
will be borne by the holder of the Note or Unit through deductions from such
payments.
References herein to "U.S. dollars" or "U.S.$" or "$" are to the
currency of the United States of America.
-------------------
S-2
<PAGE>
DESCRIPTION OF NOTES
The following description of the particular terms of the Notes offered
hereby supplements the description of the general terms and provisions of the
Debt Securities set forth in the Prospectus, to which reference is hereby made.
In particular, as used under this caption, the term "Company" means Morgan
Stanley Group Inc. The particular terms of the Notes sold pursuant to any
pricing supplement (a "Pricing Supplement") will be described therein. The terms
and conditions set forth in "Description of Notes" will apply to each Note
unless otherwise specified in the applicable Pricing Supplement and in such
Note. The Notes described herein may be offered either alone or as part of a
Unit. See "Description of Units."
If any Note is not to be denominated in U.S. dollars, the applicable
Pricing Supplement will specify the currency or currencies, including composite
currencies such as the European Currency Unit (the "ECU"), in which the
principal, premium, if any, and interest, if any, with respect to such Note are
to be paid, along with any other terms relating to the non-U.S. dollar
denomination, including exchange rates for the Specified Currency as against the
U.S. dollar at selected times during the last five years, and any exchange
controls affecting such Specified Currency. See "Foreign Currency Risks."
General
The Notes may be issued either alone or as part of a Unit, under the
Senior Debt Indenture ("Senior Notes") or the Subordinated Debt Indenture
("Subordinated Notes"). The Notes issued under each Indenture, together with the
Company's Global Medium-Term Notes, Series D, and its Global Medium-Term Notes,
Series E, referred to below under "Plan of Distribution," will constitute a
single series under such Indenture, together with any medium-term notes of the
Company issued in the future under such Indenture which are designated by the
Company as constituting a single series of securities with the Notes and the
Global Medium-Term Notes, Series D, and Global Medium-Term Notes, Series E, for
purposes of such Indenture. Neither Indenture limits the amount of additional
indebtedness that the Company may incur. At August 31, 1996, the Company had
approximately $11.6 billion aggregate principal amount of medium-term notes
outstanding under the Senior Debt Indenture and approximately $91.2 million
aggregate principal amount of medium-term notes outstanding under the
Subordinated Debt Indenture. Such aggregate principal amounts may be increased
from time to time as authorized by, or pursuant to authority delegated by, the
Board of Directors of the Company. For the purpose of this paragraph, (i) the
principal amount of any Original Issue Discount Note (as defined below) means
the Issue Price (as defined below) of such Note and (ii) the principal amount of
any Note issued in a foreign currency or composite currency means the U.S.
dollar equivalent on the date of issue of the Issue Price of such Note.
Notes issued under the Senior Debt Indenture will rank pari passu with
all other Senior Indebtedness of the Company and with all other unsecured and
unsubordinated indebtedness of the Company. Notes issued under the Subordinated
Debt Indenture 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 the Senior
Indebtedness of the Company. See "Description of Debt Securities -- Subordinated
Debt" in the Prospectus. At August 31, 1996, there was outstanding approximately
$22.4 billion of Senior Indebtedness, approximately $1.3 billion of subordinated
indebtedness and approximately $865.3 million of Capital Units. Each Capital
Unit consists of a subordinated debenture of Morgan Stanley Finance plc, a
subsidiary of the Company, guaranteed by the Company on a subordinated basis and
a related purchase contract issued by the Company requiring the holder to
purchase one depositary share representing ownership of a fraction or multiple
of a share of the Company's preferred stock.
Fixed Rate Notes, Amortizing Notes and Original Issue Discount Notes
will mature on any day more than nine months from the date of issue, as set
forth in the applicable Pricing Supplement. Floating Rate Notes (including
Renewable Notes, as defined below) will mature on an Interest Payment Date (as
defined below) more than nine months from the date of issue, as set forth in the
applicable Pricing Supplement. Except as may be specified for Notes denominated
in foreign or composite currencies or as otherwise provided in the applicable
S-3
<PAGE>
Pricing Supplement, the Notes will be issued only in fully registered form in
denominations of $1,000 or any amount in excess thereof which is an integral
multiple of $1,000.
Unless otherwise provided in the applicable Pricing Supplement, Notes
denominated in a Specified Currency other than U.S. dollars will be issued in
denominations of the equivalent of $1,000 (rounded to an integral multiple of
1,000 units of such Specified Currency), or any amount in excess thereof which
is an integral multiple of 1,000 units of such Specified Currency, as determined
by reference to the noon dollar buying rate in New York City for cable transfers
of such Specified Currency published by the Federal Reserve Bank of New York
(the "Market Exchange Rate") on the Business Day (as defined below) immediately
preceding the date of issuance; provided, however, that in the case of ECUs, the
Market Exchange Rate shall be the rate of exchange determined by the Commission
of the European Communities (or any successor thereto) as published in the
Official Journal of the European Communities, or any successor publication, on
the Business Day immediately preceding the date of issuance.
The Notes will be offered on a continuing basis, and each Note will be
issued, either alone or as part of a Unit, initially as either a Book-Entry Note
or a Certificated Note. Except as set forth in the Prospectus under "Description
of Debt Securities -- Registered Global Securities," Book-Entry Notes will not
be issuable as Certificated Notes. See "Book-Entry System" below.
The Notes may be presented for payment of principal, premium, if any,
and interest, transfer of the Notes will be registrable and the Notes will be
exchangeable at the agency in the Borough of Manhattan, The City of New York,
maintained by the Company for such purpose; provided that Book-Entry Notes will
be exchangeable only in the manner and to the extent set forth under
"Description of Debt Securities -- Registered Global Securities" in the
Prospectus. On the date hereof, the agent for the payment, transfer and exchange
of the Notes (the "Paying Agent") is The Chase Manhattan Bank (formerly known as
Chemical Bank), acting through its corporate trust office at 450 West 33rd
Street, New York, New York 10001.
The applicable Pricing Supplement will specify the price (the "Issue
Price") of each Note to be sold pursuant thereto, the interest rate or interest
rate formula, ranking, maturity, currency or composite currency, principal
amount and any other terms on which each such Note will be issued.
As used herein, the following terms shall have the meanings set forth
below:
"Business Day" means any day, other than a Saturday or Sunday, that is
neither a legal holiday nor a day on which banking institutions are authorized
or required by law or regulation to close in The City of New York and (i) with
respect to LIBOR Notes (as defined below), that is also a London Banking Day,
(ii) with respect to Notes denominated in a Specified Currency other than U.S.
dollars, Australian dollars or ECUs, in the principal financial center of the
country of the Specified Currency, (iii) with respect to Notes denominated in
Australian dollars, in Sydney and (iv) with respect to Notes denominated in
ECUs, that is not a non-ECU clearing day, as determined by the ECU Banking
Association in Paris.
An "Interest Payment Date" with respect to any Note shall be a date on
which, under the terms of such Note, regularly scheduled interest shall be
payable.
"London Banking Day" means any day on which dealings in deposits in the
relevant Index Currency (as defined below) are transacted in the London
interbank market.
"Original Issue Discount Note" means any Note that provides for an
amount less than the principal amount thereof to be due and payable upon a
declaration of acceleration of the maturity thereof pursuant to the relevant
Indenture.
The "Record Date" with respect to any Interest Payment Date shall be
the date 15 calendar days prior to such Interest Payment Date, whether or not
such date shall be a Business Day.
S-4
<PAGE>
Payment Currency
If the applicable Pricing Supplement provides for all or a portion of
payments of interest and principal on a non-U.S. dollar denominated Note to be
made, at the option of the holder of such Note, in U.S. dollars, conversion of
the Specified Currency into U.S. dollars will be based on the highest bid
quotation in The City of New York received by the Exchange Rate Agent at
approximately 11:00 A.M., New York City time, on the second Business Day
preceding the applicable payment date from three recognized foreign exchange
dealers (one of which may be the Exchange Rate Agent unless the Exchange Rate
Agent is Morgan Stanley) for the purchase by the quoting dealer of the Specified
Currency for U.S. dollars for settlement on such payment date in the aggregate
amount of the Specified Currency payable to the holders of Notes and at which
the applicable dealer commits to execute a contract. If such bid quotations are
not available, payments will be made in the Specified Currency. All currency
exchange costs will be borne by the holders of Notes by deductions from such
payments.
Except as set forth below, if the principal of, premium, if any, or
interest on, any Note is payable in a Specified Currency other than U.S. dollars
and such Specified Currency is not available to the Company for making payments
thereof due to the imposition of exchange controls or other circumstances beyond
the control of the Company or is no longer used by the government of the country
issuing such currency or for the settlement of transactions by public
institutions within the international banking community, then the Company will
be entitled to satisfy its obligations to holders of the Notes by making such
payments in U.S. dollars on the basis of the Market Exchange Rate on the date of
such payment or, if the Market Exchange Rate is not available on such date, as
of the most recent practicable date; provided, however, that if such Specified
Currency is replaced by the Euro (as described under "Special Provisions
Relating to Notes Denominated in ECU" below), the payment of principal of,
premium, if any, or interest on any Note denominated in such currency shall be
effected in Euro in conformity with legally applicable measures taken pursuant
to, or by virtue of, the treaty establishing the European Community (the "EC"),
as amended by the treaty on European Union (as so amended, the "Treaty"). Any
payment made under such circumstances in U.S. dollars (or, if applicable, Euro)
where the required payment is in a Specified Currency other than U.S. dollars
will not constitute an Event of Default.
Special Provisions Relating to Notes Denominated in ECU
Valuation of the ECU
Subject to the provisions under "Payment in a Component Currency"
below, the value of the ECU, in which the Notes may be denominated or may be
payable, is equal to the value of the ECU that is from time to time used as the
unit of account of the EC and which is at the date hereof valued on the basis of
specified amounts of the currencies of 12 of the 15 member states of the EC.
Under Article 109G of the Treaty, the currency composition of the ECU may not be
changed. Other changes to the ECU may be made by the EC in conformity with EC
law, in which event the ECU will change accordingly. From the start of the third
stage of European monetary union, the value of the ECU as against the currencies
of member states participating in the third stage will be irrevocably fixed and
the ECU will become a currency in its own right, replacing all or some of the
currencies of the 15 member states of the EC (as of the date of this Prospectus
Supplement, such currencies include the Austrian shilling, Belgian franc, Danish
krone, Dutch guilder, Finnish markka, French franc, German mark, Greek drachma,
Irish pound, Italian lira, Luxembourg franc, Portuguese escudo, Spanish peseta,
Swedish krona and pound sterling). In contemplation of the third stage, the
European Council meeting in Madrid on December 16, 1995 decided that the name of
the new currency will be the Euro and that, in accordance with the Treaty,
substitution of the Euro for the ECU will be at the rate of one Euro for one
ECU. From the start of the third stage of European monetary union, all payments
in respect of the Notes denominated or payable in ECU will be payable in Euro at
the rate then established in accordance with the Treaty.
S-5
<PAGE>
Payment in a Component Currency
With respect to each due date for the payment of principal of, or
interest on, the Notes on or after the first business day in Brussels on which
the ECU ceases to be used as the unit of account of the EC and has not become a
currency in its own right replacing all or some of the currencies of the member
states of the EC, the Company shall choose a substitute currency (the "Chosen
Currency"), which may be any currency which was, on the last day on which the
ECU was used as the unit of account of the EC, a component currency of the ECU
or U.S. dollars, in which all payments due on or after that date with respect to
the Notes and coupons shall be made. Notice of the Chosen Currency so selected
shall, where practicable, be published in the manner described in "Notices"
below. The amount of each payment in such Chosen Currency shall be computed on
the basis of the equivalent of the ECU in that currency, determined as described
below, as of the fourth business day in Brussels prior to the date on which such
payment is due.
On the first business day in Brussels on which the ECU ceases to be
used as the unit of account of the EC and has not become a currency in its own
right replacing all or some of the currencies of the member states of the EC,
the Company shall select a Chosen Currency in which all payments with respect to
Notes and coupons having a due date prior thereto but not yet presented for
payment are to be made. Notice of the Chosen Currency so selected shall, where
practicable, be published in the manner described in "Notices" below. The amount
of each payment in such Chosen Currency shall be computed on the basis of the
equivalent of the ECU in that currency, determined as described below, as of
such first business day.
The equivalent of the ECU in the relevant Chosen Currency as of any
date (the "Day of Valuation") shall be determined by, or on behalf of, the
Exchange Rate Agent on the following basis. The amounts and components composing
the ECU for this purpose (the "Components") shall be the amounts and components
that composed the ECU as of the last date on which the ECU was used as the unit
of account of the EC. The equivalent of the ECU in the Chosen Currency shall be
calculated by, first, aggregating the U.S. dollar equivalents of the Components;
and then, in the case of a Chosen Currency other than U.S. dollars, using the
rate used for determining the U.S. dollar equivalent of the Components in the
Chosen Currency as set forth below, calculating the equivalent in the Chosen
Currency of such aggregate amount in U.S. dollars.
The U.S. dollar equivalent of each of the Components shall be
determined by, or on behalf of, the Exchange Rate Agent on the basis of the
middle spot delivery quotations prevailing at 2:30 P.M., Brussels time, on the
Day of Valuation, as obtained by, or on behalf of, the Exchange Rate Agent from
one or more major banks, as selected by the Company, in the country of issue of
the component currency in question.
If for any reason no direct quotations are available for a Component as
of a Day of Valuation from any of the banks selected for this purpose, in
computing the U.S. dollar equivalent of such Component, the Exchange Rate Agent
shall (except as provided below) use the most recent direct quotations for such
Component obtained by it or on its behalf, provided that such quotations were
prevailing in the country of issue not more than two Business Days before such
Day of Valuation. If such most recent quotations were so prevailing in the
country of issue more than two Business Days before such Day of Valuation, the
Exchange Rate Agent shall determine the U.S. dollar equivalent of such Component
on the basis of cross rates derived from the middle spot delivery quotations for
such component currency and for the U.S. dollar prevailing at 2:30 P.M.,
Brussels time, on such Day of Valuation, as obtained by, or on behalf of, the
Exchange Rate Agent from one or more major banks, as selected by the Company, in
a country other than the country of issue of such component currency.
Notwithstanding the foregoing, the Exchange Rate Agent shall determine the U.S.
dollar equivalent of such Component on the basis of such cross rates if the
Company or such agent judges that the equivalent so calculated is more
representative than the U.S. dollar equivalent calculated as provided in the
first sentence of this paragraph. Unless otherwise specified by the Company, if
there is more than one market for dealing in any component currency by reason of
foreign exchange regulations or for any other reason, the market to be referred
to in respect of such currency shall be that upon which a nonresident issuer of
securities denominated in such currency would purchase such currency in order to
make payments in respect of such securities.
S-6
<PAGE>
Payments in the Chosen Currency will be made at the specified office of
a paying agent in the country of the Chosen Currency or, if none, or at the
option of the holder, at the specified office of any Paying Agent either by a
check drawn on, or by transfer to an account maintained by the holder with, a
bank in the principal financial center of the country of the Chosen Currency.
All determinations referred to above made by, or on behalf of, the
Company or by, or on behalf of, the Exchange Rate Agent shall be at such
entity's sole discretion and shall, in the absence of manifest error, be
conclusive for all purposes and binding on holders of Notes and coupons.
Notes Denominated in the Currencies of EC Member States
If, pursuant to the Treaty, all or some of the currencies of the member
countries of the EC are replaced by the Euro, the payment of principal of,
premium, if any, or interest on, the Notes denominated in such currencies shall
be effected in Euro in conformity with legally applicable measures taken
pursuant to, or by virtue of, the Treaty.
Interest and Principal Payments
Interest will be payable to the person in whose name the Note is
registered at the close of business on the applicable Record Date; provided that
the interest payable upon maturity, redemption or repayment (whether or not the
date of maturity, redemption or repayment is an Interest Payment Date) will be
payable to the person to whom principal is payable. The initial interest payment
on a Note will be made on the first Interest Payment Date falling after the date
the Note is issued; provided, however, that payments of interest (or, in the
case of an Amortizing Note, principal and interest) on a Note issued less than
15 calendar days before an Interest Payment Date will be paid on the next
succeeding Interest Payment Date to the holder of record on the Record Date with
respect to such succeeding Interest Payment Date. See "United States Federal
Taxation -- Discount Notes" below.
U.S. dollar payments of interest, other than interest payable at
maturity (or on the date of redemption or repayment, if a Note is redeemed or
repaid by the Company prior to maturity), will be made by check mailed to the
address of the person entitled thereto as shown on the Note register. U.S.
dollar payments of principal, premium, if any, and interest upon maturity,
redemption or repayment will be made in immediately available funds against
presentation and surrender of the Note. Notwithstanding the foregoing, (a) the
Depositary (as defined below), as holder of Book-Entry Notes, shall be entitled
to receive payments of interest by wire transfer of immediately available funds
and (b) a holder of $10,000,000 (or the equivalent) or more in aggregate
principal amount of Certificated Notes having the same Interest Payment Date
shall be entitled to receive payments of interest by wire transfer of
immediately available funds upon written request to the Paying Agent not later
than 15 calendar days prior to the applicable Interest Payment Date.
Unless otherwise specified in the applicable Pricing Supplement, a
beneficial owner of Book-Entry Notes denominated in a Specified Currency
electing to receive payments of principal or any premium or interest in a
currency other than U.S. dollars must notify the participant through which its
interest is held on or prior to the applicable Record Date, in the case of a
payment of interest, and on or prior to the sixteenth day prior to maturity (or
the date of redemption or repayment if a Note is redeemed or repaid prior to
maturity), in the case of principal or premium of such beneficial owner's
election to receive all or a portion of such payment in a Specified Currency.
Such participant must notify the Depositary of such election on or prior to the
third Business Day after such Record Date, in the case of a payment of interest,
and on or prior to the twelfth Business Day prior to maturity (or the date of
redemption or repayment if a Note is redeemed or repaid prior to maturity) in
the case of a payment of principal or premium. The Depositary will notify the
Paying Agent of such election on or prior to the fifth Business Day after such
Record Date, in the case of a payment of interest, and on or prior to the tenth
Business Day prior to maturity (or the date of redemption or repayment if a Note
is redeemed or repaid prior to maturity) in the case of a payment of principal
or premium. If complete instructions are received by the participant and
forwarded by the participant to the Depositary, and by the Depositary to the
Paying Agent, on or prior to such dates, the beneficial
S-7
<PAGE>
owner will receive payments in the Specified Currency by wire transfer of
immediately available funds to an account maintained by the payee with a bank
located outside the United States; otherwise the beneficial owner will receive
payments in U.S. dollars.
Certain Notes, including Original Issue Discount Notes, may be
considered to be issued with original issue discount, which must be included in
income for United States federal income tax purposes at a constant yield. See
"United States Federal Taxation -- Discount Notes" below. Unless otherwise
specified in the applicable Pricing Supplement, if the principal of any Original
Issue Discount Note is declared to be due and payable immediately as described
under "Description of Debt Securities -- Events of Default" in the Prospectus,
the amount of principal due and payable with respect to such Note shall be
limited to the aggregate principal amount of such Note multiplied by the sum of
its Issue Price (expressed as a percentage of the aggregate principal amount)
plus the original issue discount amortized from the date of issue to the date of
declaration, which amortization shall be calculated using the "interest method"
(computed in accordance with generally accepted accounting principles in effect
on the date of declaration). Special considerations applicable to any such Notes
will be set forth in the applicable Pricing Supplement.
Fixed Rate Notes
Each Fixed Rate Note will bear interest from the date of issuance at
the annual rate stated on the face thereof, except as described below under
"Extension of Maturity," until the principal thereof is paid or made available
for payment. Unless otherwise specified in the applicable Pricing Supplement,
such interest will be computed on the basis of a 360-day year of twelve 30-day
months. Unless otherwise specified in the applicable Pricing Supplement,
payments of interest on Fixed Rate Notes other than Amortizing Notes will be
made semiannually on each March 1 and September 1 and at maturity or upon any
earlier redemption or repayment. Payments of principal and interest on
Amortizing Notes, which are securities on which payments of principal and
interest are made in equal installments over the life of the security, will be
made either quarterly on each March 1, June 1, September 1 and December 1 or
semiannually on each March 1 and September 1, as set forth in the applicable
Pricing Supplement, and at maturity or upon any earlier redemption or repayment.
Payments with respect to Amortizing Notes will be applied first to interest due
and payable thereon and then to the reduction of the unpaid principal amount
thereof. A table setting forth repayment information in respect of each
Amortizing Note will be provided to the original purchaser and will be
available, upon request made to the Company, to subsequent holders.
If any Interest Payment Date for any Fixed Rate Note would fall on a
day that is not a Business Day, the interest payment shall be postponed to the
next day that is a Business Day, and no interest on such payment shall accrue
for the period from and after the Interest Payment Date. If the maturity date
(or date of redemption or repayment) of any Fixed Rate Note would fall on a day
that is not a Business Day, the payment of interest and principal (and premium,
if any) may be made on the next succeeding Business Day, and no interest on such
payment shall accrue for the period from and after the maturity date (or date of
redemption or repayment).
Interest payments for Fixed Rate Notes will include accrued interest
from and including the date of issue or from and including the last date in
respect of which interest has been paid, as the case may be, to, but excluding,
the Interest Payment Date or the date of maturity or earlier redemption or
repayment, as the case may be. The interest rates the Company will agree to pay
on newly issued Fixed Rate Notes are subject to change without notice by the
Company from time to time, but no such change will affect any Fixed Rate Notes
theretofore issued or that the Company has agreed to issue.
Floating Rate Notes
Each Floating Rate Note will bear interest from the date of issuance
until the principal thereof is paid or made available for payment at a rate
determined by reference to an interest rate basis or formula (the "Base Rate"),
which may be adjusted by a Spread and/or Spread Multiplier (each as defined
below). The applicable Pricing Supplement will designate one or more of the
following Base Rates as applicable to each Floating Rate Note: (a) the CD Rate
(a "CD Rate Note"), (b) the Commercial Paper Rate (a "Commercial Paper Rate
Note"), (c) the
S-8
<PAGE>
Federal Funds Rate (a "Federal Funds Rate Note"), (d) LIBOR (a "LIBOR Note"),
(e) the Prime Rate (a "Prime Rate Note"), (f) the Treasury Rate (a "Treasury
Rate Note"), (g) the Constant-Maturity Treasury Rate (a "CMT Rate Note") or (h)
such other Base Rate or interest rate formula as is set forth in such Pricing
Supplement and in such Floating Rate Note. The "Index Maturity" for any Floating
Rate Note is the period of maturity of the instrument or obligation from which
the Base Rate is calculated and will be specified in the applicable Pricing
Supplement.
Unless otherwise specified in the applicable Pricing Supplement, the
interest rate on each Floating Rate Note will be calculated by reference to the
specified Base Rate (i) plus or minus the Spread, if any, and/or (ii) multiplied
by the Spread Multiplier, if any. The "Spread" is the number of basis points
(one one-hundredth of a percentage point) specified in the applicable Pricing
Supplement to be added to or subtracted from the Base Rate for such Floating
Rate Note, and the "Spread Multiplier" is the percentage specified in the
applicable Pricing Supplement to be applied to the Base Rate for such Floating
Rate Note.
As specified in the applicable Pricing Supplement, a Floating Rate Note
may also have either or both of the following: (i) a maximum limitation, or
ceiling, on the rate of interest which may accrue during any interest period
("Maximum Interest Rate"); and (ii) a minimum limitation, or floor, on the rate
of interest that may accrue during any interest period ("Minimum Interest
Rate"). In addition to any Maximum Interest Rate that may be applicable to any
Floating Rate Note pursuant to the above provisions, the interest rate on a
Floating Rate Note will in no event be higher than the maximum rate permitted by
New York law, as the same may be modified by United States law of general
application. Under current New York law, the maximum rate of interest, subject
to certain exceptions, for any loan in an amount less than $250,000 is 16% and
for any loan in the amount of $250,000 or more but less than $2,500,000 is 25%
per annum on a simple interest basis. These limits do not apply to loans of
$2,500,000 or more.
Unless otherwise specified in the applicable Pricing Supplement, the
rate of interest on each Floating Rate Note will be reset daily, weekly,
monthly, quarterly, semiannually or annually (such period being the "Interest
Reset Period" for such Note, and the first day of each Interest Reset Period
being an "Interest Reset Date"), as specified in the applicable Pricing
Supplement. The determination of the rate of interest at which a Floating Rate
Note will be reset on any Interest Reset Date will be made on the Interest
Determination Date (as defined below) pertaining to such Interest Reset Date.
Unless otherwise specified in the Pricing Supplement, the Interest Reset Date
will be, in the case of Floating Rate Notes which reset daily, each Business
Day; in the case of Floating Rate Notes (other than Treasury Rate Notes) which
reset weekly, the Wednesday of each week; in the case of Treasury Rate Notes
which reset weekly, the Tuesday of each week, except as provided below; in the
case of Floating Rate Notes which reset monthly, the third Wednesday of each
month; in the case of Floating Rate Notes which reset quarterly, the third
Wednesday of March, June, September and December; in the case of Floating Rate
Notes which reset semiannually, the third Wednesday of two months of each year,
as specified in the applicable Pricing Supplement; and in the case of Floating
Rate Notes which reset annually, the third Wednesday of one month of each year,
as specified in the applicable Pricing Supplement; provided, however, that (a)
the interest rate in effect from the date of issue to the first Interest Reset
Date with respect to a Floating Rate Note will be the initial interest rate set
forth in the applicable Pricing Supplement (the "Initial Interest Rate") and (b)
unless otherwise specified in the applicable Pricing Supplement, the interest
rate in effect for the ten calendar days immediately prior to maturity,
redemption or repayment will be that in effect on the tenth calendar day
preceding such maturity, redemption or repayment date. If any Interest Reset
Date for any Floating Rate Note would otherwise be a day that is not a Business
Day, such Interest Reset Date shall be postponed to the next succeeding Business
Day, except that in the case of a LIBOR Note, if such Business Day is in the
next succeeding calendar month, such Interest Reset Date shall be the
immediately preceding Business Day.
Except as provided below, unless otherwise specified in the applicable
Pricing Supplement, interest on Floating Rate Notes will be payable: (i) in the
case of Floating Rate Notes with a daily, weekly or monthly Interest Reset Date,
on the third Wednesday of each month or on the third Wednesday of March, June,
September and December, as specified in the applicable Pricing Supplement; (ii)
in the case of Floating Rate Notes with a quarterly
S-9
<PAGE>
Interest Reset Date, on the third Wednesday of March, June, September and
December; (iii) in the case of Floating Rate Notes with a semiannual Interest
Reset Date, on the third Wednesday of the two months specified in the applicable
Pricing Supplement; and (iv) in the case of Floating Rate Notes with an annual
Interest Reset Date, on the third Wednesday of the month specified in the
applicable Pricing Supplement. Unless otherwise specified in the applicable
Pricing Supplement, if any Interest Payment Date (other than the maturity date
or any earlier redemption or repayment date) for any Floating Rate Note would
fall on a day that is not a Business Day with respect to such Floating Rate
Note, such Interest Payment Date will be the following day that is a Business
Day with respect to such Floating Rate Note, except that, in the case of a LIBOR
Note, if such Business Day is in the next succeeding calendar month, such
Interest Payment Date shall be the immediately preceding day that is a Business
Day with respect to such LIBOR Note. If the maturity date or any earlier
redemption or repayment date of a Floating Rate Note would fall on a day that is
not a Business Day, the payment of principal, premium, if any, and interest will
be made on the next succeeding Business Day, and no interest on such payment
shall accrue for the period from and after such maturity, redemption or
repayment date, as the case may be.
Unless otherwise specified in the applicable Pricing Supplement,
interest payments for Floating Rate Notes shall be the amount of interest
accrued from and including the date of issue or from and including the last date
to which interest has been paid to, but excluding, the Interest Payment Date or
maturity date or date of redemption or repayment.
With respect to a Floating Rate Note, accrued interest shall be
calculated by multiplying the principal amount of such Floating Rate Note by an
accrued interest factor. Such accrued interest factor will be computed by adding
the interest factors calculated for each day in the period for which interest is
being paid. Unless otherwise specified in the applicable Pricing Supplement, the
interest factor for each such day is computed by dividing the interest rate
applicable to such day by 360, in the case of CD Rate Notes, Commercial Paper
Rate Notes, Federal Funds Rate Notes, LIBOR Notes and Prime Rate Notes or by the
actual number of days in the year, in the case of Treasury Rate Notes and CMT
Rate Notes. All percentages used in or resulting from any calculation of the
rate of interest on a Floating Rate Note will be rounded, if necessary, to the
nearest one hundred-thousandth of a percentage point (.0000001), with five
one-millionths of a percentage point rounded upward, and all dollar amounts used
in or resulting from such calculation on Floating Rate Notes will be rounded to
the nearest cent, with one-half cent rounded upward. The interest rate in effect
on any Interest Reset Date will be the applicable rate as reset on such date.
The interest rate applicable to any other day is the interest rate from the
immediately preceding Interest Reset Date (or, if none, the Initial Interest
Rate).
The applicable Pricing Supplement shall specify a calculation agent
(the "Calculation Agent") with respect to any issue of Floating Rate Notes. Upon
the request of the holder of any Floating Rate Note, the Calculation Agent will
provide the interest rate then in effect and, if determined, the interest rate
that will become effective on the next Interest Reset Date with respect to such
Floating Rate Note.
The "Interest Determination Date" pertaining to an Interest Reset Date
for CD Rate Notes, Commercial Paper Rate Notes, Federal Funds Rate Notes, Prime
Rate Notes and CMT Rate Notes will be the second Business Day next preceding
such Interest Reset Date. The Interest Determination Date pertaining to an
Interest Reset Date for a LIBOR Note will be the second London Banking Day
preceding such Interest Reset Date, except that the Interest Determination Date
pertaining to an Interest Reset Date for a LIBOR Note for which the Index
Currency is pounds sterling will be such Interest Reset Date. The Interest
Determination Date pertaining to an Interest Reset Date for a Treasury Rate Note
will be the day of the week in which such Interest Reset Date falls on which
Treasury bills would normally be auctioned. Treasury bills are normally sold at
auction on Monday of each week, unless that day is a legal holiday, in which
case the auction is normally held on the following Tuesday, but such auction may
be held on the preceding Friday. If, as the result of a legal holiday, an
auction is so held on the preceding Friday, such Friday will be the Interest
Determination Date pertaining to the Interest Reset Date occurring in the next
succeeding week. If an auction falls on a day that is an Interest Reset Date,
such Interest Reset Date will be the next following Business Day.
S-10
<PAGE>
Unless otherwise specified in the applicable Pricing Supplement, the
"Calculation Date," where applicable, pertaining to an Interest Determination
Date will be the earlier of (i) the tenth calendar day after such Interest
Determination Date, or, if such day is not a Business Day, the next succeeding
Business Day, or (ii) the Business Day preceding the applicable Interest Payment
Date or Maturity Date, as the case may be.
Interest rates will be determined by the Calculation Agent as follows:
CD Rate Notes
CD Rate Notes will bear interest at the interest rate (calculated with
reference to the CD Rate and the Spread and/or Spread Multiplier, if any, and
subject to the Minimum Interest Rate and the Maximum Interest Rate, if any)
specified in the CD Rate Notes and in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "CD
Rate" means, with respect to any Interest Determination Date, the rate on such
date for negotiable certificates of deposit having the Index Maturity designated
in the applicable Pricing Supplement as published by the Board of Governors of
the Federal Reserve System in "Statistical Release H.15(519), Selected Interest
Rates," or any successor publication of the Board of Governors of the Federal
Reserve System ("H.15(519)") under the heading "CDs (Secondary Market)," or, if
not so published by 9:00 A.M., New York City time, on the Calculation Date
pertaining to such Interest Determination Date, the CD Rate will be the rate on
such Interest Determination Date for negotiable certificates of deposit of the
Index Maturity designated in the applicable Pricing Supplement as published by
the Federal Reserve Bank of New York in its daily statistical release "Composite
3:30 P.M. Quotations for U.S. Government Securities" (the "Composite
Quotations") under the heading "Certificates of Deposit." If such rate is not
yet published in either H.15(519) or the Composite Quotations by 3:00 P.M., New
York City time, on the Calculation Date pertaining to such Interest
Determination Date, the CD Rate on such Interest Determination Date will be
calculated by the Calculation Agent and will be the arithmetic mean of the
secondary market offered rates as of 10:00 A.M., New York City time, on such
Interest Determination Date for certificates of deposit in an amount that is
representative for a single transaction at that time with a remaining maturity
closest to the Index Maturity designated in the Pricing Supplement of three
leading nonbank dealers in negotiable U.S. dollar certificates of deposit in The
City of New York selected by the Calculation Agent for negotiable certificates
of deposit of major United States money center banks; provided, however, that if
the dealers selected as aforesaid by the Calculation Agent are not quoting as
set forth above, the "CD Rate" in effect for the applicable period will be the
same as the CD Rate for the immediately preceding Interest Reset Period (or, if
there was no such Interest Reset Period, the rate of interest payable on the CD
Rate Notes for which such CD Rate is being determined shall be the Initial
Interest Rate).
Commercial Paper Rate Notes
Commercial Paper Rate Notes will bear interest at the interest rate
(calculated with reference to the Commercial Paper Rate and the Spread and/or
Spread Multiplier, if any, and subject to the Minimum Interest Rate and the
Maximum Interest Rate, if any) specified in the Commercial Paper Rate Notes and
in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement,
"Commercial Paper Rate" means, with respect to any Interest Determination Date,
the Money Market Yield (as defined below) of the rate on such date for
commercial paper having the Index Maturity specified in the applicable Pricing
Supplement, as such rate shall be published in H.15(519), under the heading
"Commercial Paper." In the event that such rate is not published by 9:00 A.M.,
New York City time, on the Calculation Date pertaining to such Interest
Determination Date, then the Commercial Paper Rate shall be the Money Market
Yield of the rate on such Interest Determination Date for commercial paper of
the specified Index Maturity as published in Composite Quotations under the
heading "Commercial Paper." If by 3:00 P.M., New York City time, on such
Calculation Date such rate is not yet available in either H.15(519) or Composite
Quotations, then the Commercial Paper Rate shall be the Money Market Yield of
the arithmetic mean of the offered rates as of 11:00 A.M., New York City time,
on such Interest Determination
S-11
<PAGE>
Date of three leading dealers of commercial paper in The City of New York
selected by the Calculation Agent for commercial paper of the specified Index
Maturity, placed for an industrial issuer whose bond rating is "AA," or the
equivalent, from a nationally recognized rating agency; provided, however, that
if the dealers selected as aforesaid by the Calculation Agent are not quoting
offered rates as mentioned in this sentence, the Commercial Paper Rate in effect
for the applicable period will be the same as the Commercial Paper Rate for the
immediately preceding Interest Reset Period (or, if there was no such Interest
Reset Period, the rate of interest payable on the Commercial Paper Rate Notes
for which such Commercial Paper Rate is being determined shall be the Initial
Interest Rate).
"Money Market Yield" shall be a yield calculated in accordance with the
following formula:
Money Market Yield = D x 360 x 100
------------------------
360 - (D x M)
where "D" refers to the applicable per annum rate for commercial paper quoted on
a bank discount basis and expressed as a decimal, and "M" refers to the actual
number of days in the Index Maturity.
Federal Funds Rate Notes
Federal Funds Rate Notes will bear interest at the interest rate
(calculated with reference to the Federal Funds Rate and the Spread and/or
Spread Multiplier, if any, and subject to the Minimum Interest Rate and the
Maximum Interest Rate, if any) specified in the Federal Funds Rate Notes and in
the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, the
"Federal Funds Rate" means, with respect to any Interest Determination Date, the
rate on such date for Federal funds as published in H.15(519) under the heading
"Federal Funds (Effective)," or, if not so published by 9:00 A.M., New York City
time, on the Calculation Date pertaining to such Interest Determination Date,
the Federal Funds Rate will be the rate on such Interest Determination Date as
published in the Composite Quotations under the heading "Federal Funds/Effective
Rate." If such rate is not yet published in either H.15(519) or the Composite
Quotations by 3:00 P.M., New York City time, on the Calculation Date pertaining
to such Interest Determination Date, the Federal Funds Rate for such Interest
Determination Date will be calculated by the Calculation Agent and will be the
arithmetic mean of the rates for the last transaction in overnight Federal
funds, as of 11:00 A.M., New York City time, on such Interest Determination
Date, arranged by three leading brokers of Federal funds transactions in The
City of New York selected by the Calculation Agent; provided, however, that if
the brokers selected as aforesaid by the Calculation Agent are not quoting as
set forth above, the "Federal Funds Rate" in effect for the applicable period
will be the same as the Federal Funds Rate for the immediately preceding
Interest Reset Period (or, if there was no such Interest Reset Period, the rate
of interest payable on the Federal Funds Rate Notes for which such Federal Funds
Rate is being determined shall be the Initial Interest Rate).
LIBOR Notes
LIBOR Notes will bear interest at the interest rate (calculated with
reference to LIBOR and the Spread and/or Spread Multiplier, if any, and subject
to the Minimum Interest Rate and the Maximum Interest Rate, if any) specified in
the LIBOR Notes and in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement,
"LIBOR" for each Interest Determination Date will be determined by the
Calculation Agent as follows:
(i) As of the Interest Determination Date, the Calculation
Agent will determine (a) if "LIBOR Reuters" is specified in the
applicable Pricing Supplement, the arithmetic mean of the offered rates
(unless the specified Designated LIBOR Page (as defined below) by its
terms provides only for a single rate, in which case such single rate
shall be used) for deposits in the Index Currency for the period
S-12
<PAGE>
of the Index Maturity, each as designated in the applicable Pricing
Supplement, commencing on the second London Banking Day immediately
following such Interest Determination Date, which appear on the
Designated LIBOR Page at approximately 11:00 A.M., London time, on such
Interest Determination Date, if at least two such offered rates appear
(unless, as aforesaid, only a single rate is required) on such
Designated LIBOR Page, or (b) if "LIBOR Telerate" is specified in the
applicable Pricing Supplement, the rate for deposits in the Index
Currency for the period of the Index Maturity, each as designated in
the applicable Pricing Supplement, commencing on the second London
Banking Day following such Interest Determination Date (or, if pounds
sterling is the Index Currency, commencing on such Interest
Determination Date), that appears on the Designated LIBOR Page at
approximately 11:00 A.M., London time, on such Interest Determination
Date. If fewer than two offered rates appear (if "LIBOR Reuters" is
specified in the applicable Pricing Supplement and calculation of LIBOR
is based on the arithmetic mean of the offered rates), or if no rate
appears (if the applicable Pricing Supplement specifies either (x)
"LIBOR Reuters" and the Designated LIBOR Page by its terms provides
only for a single rate or (y) "LIBOR Telerate"), LIBOR in respect of
that Interest Determination Date will be determined as if the parties
had specified the rate described in (ii) below.
(ii) With respect to an Interest Determination Date on which
fewer than two offered rates appear (if "LIBOR Reuters" is specified in
the applicable Pricing Supplement and calculation of LIBOR is based on
the arithmetic mean of the offered rates) or no rate appears (if the
applicable Pricing Supplement specifies either (x) "LIBOR Reuters" and
the Designated LIBOR Page by its terms provides only for a single rate
or (y) "LIBOR Telerate"), the Calculation Agent will request the
principal London offices of each of four major reference banks in the
London interbank market, as selected by the Calculation Agent (after
consultation with the Company), to provide the Calculation Agent with
its offered quotations for deposits in the Index Currency for the
period of the specified Index Maturity, commencing on the second London
Banking Day immediately following such Interest Determination Date (or,
if pounds sterling is the Index Currency, commencing on such Interest
Determination Date), to prime banks in the London interbank market at
approximately 11:00 A.M., London time, on such Interest Determination
Date and in a principal amount equal to an amount of not less than $1
million (or the equivalent in the Index Currency, if the Index Currency
is not the U.S. dollar) that is representative of a single transaction
in such Index Currency in such market at such time. If at least two
such quotations are provided, LIBOR determined on such Interest
Determination Date will be the arithmetic mean of such quotations. If
fewer than two quotations are provided, LIBOR determined on such
Interest Determination Date will be the arithmetic mean of rates quoted
at approximately 11:00 A.M. (or such other time specified in the
applicable Pricing Supplement), in the applicable principal financial
center for the country of the Index Currency on such Interest
Determination Date, by three major banks in such principal financial
center selected by the Calculation Agent (after consultation with the
Company) on such Interest Determination Date for loans in the Index
Currency to leading European banks, for the period of the specified
Index Maturity commencing on the second London Banking Day immediately
following such Interest Determination Date (or, if pounds sterling is
the Index Currency, commencing on such Interest Determination Date) and
in a principal amount of not less than $1 million (or the equivalent in
the Index Currency, if the Index Currency is not the U.S. dollar) that
is representative of a single transaction in such Index Currency in
such market at such time; provided, however, that if the banks selected
as aforesaid by the Calculation Agent are not quoting rates as
mentioned in this sentence, "LIBOR" for such Interest Reset Period will
be the same as LIBOR for the immediately preceding Interest Reset
Period (or, if there was no such Interest Reset Period, the rate of
interest payable on the LIBOR Notes for which LIBOR is being determined
shall be the Initial Interest Rate).
"Index Currency" means the currency (including composite currencies)
specified in the applicable Pricing Supplement as the currency for which LIBOR
shall be calculated. If no such currency is specified in the applicable Pricing
Supplement, the Index Currency shall be U.S. dollars.
S-13
<PAGE>
"Designated LIBOR Page" means either (a) if "LIBOR Reuters" is
designated in the applicable Pricing Supplement, the display on the Reuters
Monitor Money Rates Service for the purpose of displaying the London interbank
rates of major banks for the applicable Index Currency, or (b) if "LIBOR
Telerate" is designated in the applicable Pricing Supplement, the display on the
Dow Jones Telerate Service for the purpose of displaying the London interbank
rates of major banks for the applicable Index Currency. If neither LIBOR Reuters
nor LIBOR Telerate is specified in the applicable Pricing Supplement, LIBOR for
the applicable Index Currency will be determined as if LIBOR Telerate (and, if
the U.S. dollar is the Index Currency, Page 3750) had been specified.
Prime Rate Notes
Prime Rate Notes will bear interest at the interest rate (calculated
with reference to the Prime Rate and the Spread and/or Spread Multiplier, if
any, and subject to the Minimum Interest Rate and the Maximum Interest Rate, if
any) specified in the Prime Rate Notes and in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "Prime
Rate" means, with respect to any Interest Determination Date, the rate set forth
in H.15(519) for such date opposite the caption "Bank Prime Loan." If such rate
is not yet published by 9:00 A.M., New York City time, on the Calculation Date
pertaining to such Interest Determination Date, the Prime Rate for such Interest
Determination Date will be the arithmetic mean of the rates of interest publicly
announced by each bank named on the Reuters Screen USPRIME1 Page (as defined
below) as such bank's prime rate or base lending rate as in effect for such
Interest Determination Date as quoted on the Reuters Screen USPRIME1 Page on
such Interest Determination Date, or, if fewer than four such rates appear on
the Reuters Screen USPRIME1 Page for such Interest Determination Date, the rate
shall be the arithmetic mean of the prime rates quoted on the basis of the
actual number of days in the year divided by 360 as of the close of business on
such Interest Determination Date by at least two of the three major money center
banks in The City of New York selected by the Calculation Agent from which
quotations are requested. If fewer than two quotations are provided, the Prime
Rate shall be calculated by the Calculation Agent and shall be determined as the
arithmetic mean on the basis of the prime rates in The City of New York by the
appropriate number of substitute banks or trust companies organized and doing
business under the laws of the United States, or any State thereof, in each case
having total equity capital of at least $500 million and being subject to
supervision or examination by federal or state authority, selected by the
Calculation Agent to quote such rate or rates; provided, however, that if the
banks or trust companies selected as aforesaid by the Calculation Agent are not
quoting rates as set forth above, the "Prime Rate" in effect for such Interest
Reset Period will be the same as the Prime Rate for the immediately preceding
Interest Reset Period (or, if there was no such Interest Reset Period, the rate
of interest payable on the Prime Rate Notes for which such Prime Rate is being
determined shall be the Initial Interest Rate). "Reuters Screen USPRIME1 Page"
means the display designated as Page "USPRIME1" on the Reuters Monitor Money
Rates Service (or such other page as may replace the USPRIME1 Page on that
service for the purpose of displaying prime rates or base lending rates of major
United States banks).
Treasury Rate Notes
Treasury Rate Notes will bear interest at the interest rate (calculated
with reference to the Treasury Rate and the Spread and/or Spread Multiplier, if
any, and subject to the Minimum Interest Rate and the Maximum Interest Rate, if
any) specified in the Treasury Rate Notes and in the applicable Pricing
Supplement.
Unless otherwise specified in the applicable Pricing Supplement, the
"Treasury Rate" means, with respect to any Interest Determination Date, the rate
for the auction held on such date of direct obligations of the United States
("Treasury Bills") having the Index Maturity designated in the applicable
Pricing Supplement, as published in H.15(519) under the heading "Treasury
Bills--auction average (investment)" or, if not so published by 9:00 A.M., New
York City time, on the Calculation Date pertaining to such Interest
Determination Date, the auction average rate on such Interest Determination Date
(expressed as a bond equivalent, on the basis of a year of 365 or 366 days, as
applicable, and applied on a daily basis) as otherwise announced by the United
States Department of the Treasury. In the event that the results of the auction
of Treasury Bills having the Index Maturity designated
S-14
<PAGE>
in the applicable Pricing Supplement are not published or reported as provided
above by 3:00 P.M., New York City time, on such Calculation Date or if no such
auction is held on such Interest Determination Date, then the Treasury Rate
shall be calculated by the Calculation Agent and shall be a yield to maturity
(expressed as a bond equivalent, on the basis of a year of 365 or 366 days, as
applicable, and applied on a daily basis) calculated using the arithmetic mean
of the secondary market bid rates, as of approximately 3:30 P.M., New York City
time, on such Interest Determination Date, of three leading primary United
States government securities dealers selected by the Calculation Agent for the
issue of Treasury Bills with a remaining maturity closest to the Index Maturity
designated in the applicable Pricing Supplement; provided, however, that if the
dealers selected as aforesaid by the Calculation Agent are not quoting bid rates
as mentioned in this sentence, the "Treasury Rate" for such Interest Reset Date
will be the same as the Treasury Rate for the immediately preceding Interest
Reset Period (or, if there was no such Interest Reset Period, the rate of
interest payable on the Treasury Rate Notes for which the Treasury Rate is being
determined shall be the Initial Interest Rate).
CMT Rate Notes
CMT Rate Notes will bear interest at the interest rate (calculated with
reference to the CMT Rate and the Spread and/or Spread Multiplier, if any, and
subject to the Minimum Interest Rate and the Maximum Interest Rate, if any)
specified in the CMT Rate Notes and in the applicable Pricing Supplement.
Unless otherwise indicated in an applicable Pricing Supplement, "CMT
Rate" means, with respect to any Interest Determination Date, the rate displayed
for the Index Maturity designated in such CMT Rate Note on the Designated CMT
Telerate Page (as defined below) under the caption "... Treasury Constant
Maturities ... Federal Reserve Board Release H.15 " under the column for the
Designated CMT Maturity Index (as defined below) for (i) if the Designated CMT
Telerate Page is 7055, the rate on such Interest Determination Date and (ii) if
the Designated CMT Telerate Page is 7052, the week or the month, as applicable,
ended immediately preceding the week in which the related Interest Determination
Date occurs. If such rate is no longer displayed on the relevant page, or if not
displayed by 3:00 P.M., New York City time, on the related Calculation Date,
then the CMT Rate for such Interest Determination Date will be such Treasury
Constant Maturity rate for the Designated CMT Maturity Index as published in the
relevant H.15(519). If such rate is no longer published, or if not published by
3:00 P.M., New York City time, on the related Calculation Date, then the CMT
Rate for such Interest Determination Date will be such Treasury Constant
Maturity rate for the Designated CMT Maturity Index (or other United States
Treasury rate for the Designated CMT Maturity Index) for the Interest
Determination Date with respect to the related Interest Reset Date as may then
be published by either the Board of Governors of the Federal Reserve System or
the United States Department of the Treasury that the Calculation Agent
determines to be comparable to the rate formerly displayed on the Designated CMT
Telerate Page and published in the relevant H.15(519). If such information is
not provided by 3:00 P.M., New York City time, on the related Calculation Date,
then the CMT Rate for the Interest Determination Date will be calculated by the
Calculation Agent and will be a yield to maturity, based on the arithmetic mean
of the secondary market closing offer side prices as of approximately 3:30 P.M.,
New York City time, on the Interest Determination Date reported, according to
their written records, by three leading primary United States government
securities dealers (each, a "Reference Dealer") in The City of New York (which
may include the Agent or its affiliates) selected by the Calculation Agent (from
five such Reference Dealers selected by the Calculation Agent, after
consultation with the Company, and eliminating the highest quotation (or, in the
event of equality, one of the highest) and the lowest quotation (or, in the
event of equality, one of the lowest)), for the most recently issued direct
noncallable fixed rate obligations of the United States ("Treasury notes") with
an original maturity of approximately the Designated CMT Maturity Index and
remaining term to maturity of not less than such Designated CMT Maturity Index
minus one year. If the Calculation Agent cannot obtain three such Treasury notes
quotations, the CMT Rate for such Interest Determination Date will be calculated
by the Calculation Agent and will be a yield to maturity based on the arithmetic
mean of the secondary market offer side prices as of approximately 3:30 P.M.,
New York City time, on the Interest Determination Date of three Reference
Dealers in The City of New York (from five such Reference Dealers selected by
the Calculation Agent, after consultation with the Company, and eliminating the
highest quotation (or, in the event of equality, one of the highest) and the
lowest quotation (or, in the event of equality, one of the lowest)), for
Treasury notes with an original maturity of the number of years
S-15
<PAGE>
that is the next highest to the Designated CMT Maturity Index and a remaining
term to maturity closest to the Designated CMT Maturity Index and in an amount
of at least $100,000,000. If three or four (and not five) of such Reference
Dealers are quoting as described above, then the CMT Rate will be based on the
arithmetic mean of the offer prices obtained and neither the highest nor the
lowest of such quotes will be eliminated; provided, however, that if fewer than
three Reference Dealers selected by the Calculation Agent are quoting as
described herein, the CMT Rate for such Interest Reset Date will be the same as
the CMT Rate for the immediately preceding Interest Reset Period (or, if there
was no such Interest Reset Period, the rate of interest payable on the CMT Rate
Notes for which the CMT Rate is being determined shall be the Initial Interest
Rate). If two Treasury notes with an original maturity as described in the
second preceding sentence have remaining terms to maturity equally close to the
Designated CMT Maturity Index, the quotes for the Treasury note with the shorter
remaining term to maturity will be used.
"Designated CMT Telerate Page" means the display on the Dow Jones
Telerate Service on the page designated in an applicable Pricing Supplement (or
any other page as may replace such page on that service for the purpose of
displaying Treasury Constant Maturities as reported in H.15(519)), for the
purpose of displaying Treasury Constant Maturities as reported in H.15(519). If
no such page is specified in the applicable Pricing Supplement, the Designated
CMT Telerate Page shall be 7052, for the most recent week.
"Designated CMT Maturity Index" shall be the original period to
maturity of the U.S. Treasury securities (either 1, 2, 3, 5, 7, 10, 20 or 30
years) specified in an applicable Pricing Supplement with respect to which the
CMT Rate will be calculated. If no such maturity is specified in the applicable
Pricing Supplement, the Designated CMT Maturity Index shall be two years.
Renewable Notes
The Company may also issue from time to time variable rate renewable
notes (the "Renewable Notes") that will bear interest at the interest rate
(calculated with reference to a Base Rate and the Spread and/or Spread
Multiplier, if any, and subject to the Minimum Interest Rate and the Maximum
Interest Rate, if any) specified in the Renewable Notes and in the applicable
Pricing Supplement. Renewable Notes are Book-Entry Floating Rate Notes.
The Renewable Notes will mature on an Interest Payment Date as
specified in the applicable Pricing Supplement (the "Initial Maturity Date"),
unless the maturity of all or any portion of the principal amount thereof is
extended in accordance with the procedures described below. On the Interest
Payment Dates in March and September in each year (unless different Interest
Payment Dates are specified in the applicable Pricing Supplement) (each such
Interest Payment Date, an "Election Date"), the maturity of the Renewable Notes
will be extended to the Interest Payment Date occurring twelve months after such
Election Date (unless a different extension period is specified in the
applicable Pricing Supplement), unless the holder thereof elects to terminate
the automatic extension of the maturity of the Renewable Notes or of any portion
thereof having a principal amount of $1,000 or any multiple of $1,000 in excess
thereof by delivering a notice to such effect to the Paying Agent not less than
nor more than a number of days to be specified in the applicable Pricing
Supplement prior to such Election Date. Such option may be exercised with
respect to less than the entire principal amount of the Renewable Notes;
provided that the principal amount for which such option is not exercised is at
least $1,000 or any larger amount that is an integral multiple of $1,000.
Notwithstanding the foregoing, the maturity of the Renewable Notes may not be
extended beyond the Final Maturity Date, as specified in the applicable Pricing
Supplement (the "Final Maturity Date"). If the holder elects to terminate the
automatic extension of the maturity of any portion of the principal amount of
the Renewable Notes and such election is not revoked as described below, such
portion will become due and payable on the Interest Payment Date falling six
months (unless another period is specified in the applicable Pricing Supplement)
after the Election Date prior to which the holder made such election.
Unless otherwise specified in the applicable Pricing Supplement, an
election to terminate the automatic extension of maturity may be revoked as to
any portion of the Renewable Notes having a principal amount of $1,000
S-16
<PAGE>
or any multiple of $1,000 in excess thereof by delivering a notice to such
effect to the Paying Agent on any day following the effective date of the
election to terminate the automatic extension of maturity and prior to the date
15 days before the date on which such portion would otherwise mature. Such a
revocation may be made for less than the entire principal amount of the
Renewable Notes for which the automatic extension of maturity has been
terminated; provided that the principal amount of the Renewable Notes for which
the automatic extension of maturity has been terminated and for which such a
revocation has not been made is at least $1,000 or any larger amount that is an
integral multiple of $1,000. Notwithstanding the foregoing, a revocation may not
be made during the period from and including a Record Date to but excluding the
immediately succeeding Interest Payment Date.
An election to terminate the automatic extension of the maturity of the
Renewable Notes, if not revoked as described above by the holder making the
election or any subsequent holder, will be binding upon such subsequent holder.
The Renewable Notes may be redeemed in whole or in part at the option
of the Company on the Interest Payment Dates in each year specified in the
applicable Pricing Supplement, commencing with the Interest Payment Date
specified in the applicable Pricing Supplement, at a redemption price of 100% of
the principal amount of the Renewable Notes to be redeemed, together with
accrued and unpaid interest to the date of redemption. Notwithstanding anything
to the contrary in this Prospectus Supplement, notice of redemption will be
provided by mailing a notice of such redemption to each holder by first-class
mail, postage prepaid, at least 180 days and not more than 210 days prior to the
date fixed for redemption.
Renewable Notes may also be issued, from time to time, with the Spread
or Spread Multiplier to be reset by a remarketing agent in remarketing
procedures (the "Remarketing Procedures") to be specified in such Renewable
Notes and in the applicable Pricing Supplement. A description of the Remarketing
Procedures, the terms of the remarketing agreement between the Company and the
remarketing agent and the terms of any additional agreements with other parties
that may be involved in the Remarketing Procedures will be set forth in the
applicable Pricing Supplement.
Exchangeable Notes
Notes may be issued, from time to time, that are optionally or
mandatorily exchangeable into the securities of an entity unaffiliated with the
Company, into a basket of such securities, into an index or indices of such
securities or into any combination of the above, as may be set forth in the
applicable Pricing Supplement (the "Exchangeable Notes"). The Exchangeable Notes
may or may not bear interest or be issued with original issue discount or at a
premium.
Unless otherwise specified in the applicable Pricing Supplement,
optionally Exchangeable Notes (the "Optionally Exchangeable Notes") will entitle
the holder of such a Note, during a period, or at specific times, to exchange
such Note for the underlying security, basket of securities or index or indices
of securities (or combination thereof) at a specified rate of exchange. If so
specified in the applicable Pricing Supplement, Optionally Exchangeable Notes
will be redeemable at the option of the Company prior to maturity. If the holder
of an Optionally Exchangeable Note does not elect to exchange such Note prior to
maturity or any applicable redemption date, such holder will receive the
principal amount of such Note.
Unless otherwise specified in the applicable Pricing Supplement,
mandatorily Exchangeable Notes (the "Mandatorily Exchangeable Notes") do not
entitle the holder of such a Note to exchange such Note prior to maturity; at
maturity, the holder is required to exchange such Note for the underlying
security, basket of securities or index or indices of securities (or combination
thereof) at a specified rate of exchange, and, therefore, the holder of a
Mandatorily Exchangeable Note may receive less than the principal amount of such
Note at maturity. If so indicated in the applicable Pricing Supplement, the
specified rate at which a Mandatorily Exchangeable Note may be exchanged may
vary depending on the value of the underlying security, basket of securities or
index or indices (or combination thereof) so that, upon exchange, the holder
participates in a percentage, which may be less than,
S-17
<PAGE>
equal to, or greater than 100% of the change in value of the underlying
security, basket of securities or index or indices (or combination thereof).
Upon exchange, at maturity or otherwise, the holder of an Exchangeable
Note may receive, at the specified exchange rate, either the underlying security
or the securities constituting the relevant basket or index or indices at the
specified exchange rate or the cash value of such underlying security or
securities, as may be specified in the applicable Pricing Supplement. The
underlying security or securities constituting any basket, index or indices may
be the securities of either U.S. or foreign entities or both, and the
Exchangeable Notes may or may not provide for protection against fluctuations in
the rate of currency exchange between the currency in which such Note is
denominated and the currency or currencies in which the market prices of such
underlying security or securities are quoted, as may be specified in the
applicable Pricing Supplement. Exchangeable Notes may have other terms, which
will be specified in the applicable Pricing Supplement.
If an Optionally Exchangeable Note is represented by a Registered
Global Security, the Depositary's nominee will be the holder of such Note or any
interest therein and therefore will be the only entity that can exercise a right
to exchange. In order to ensure that the Depositary's nominee will timely
exercise a right to exchange with respect to a particular Note or any portion
thereof, the beneficial owner of such Note must instruct the broker or other
direct or indirect participant through which it holds an interest in such Note
to notify the Depositary of its desire to exercise a right to exchange.
Different firms have different deadlines for accepting instructions from their
customers and, accordingly, each beneficial owner should consult the broker or
other direct or indirect participant through which it holds an interest in a
Note in order to ascertain the deadline for such an instruction in order for
timely notice to be delivered to the Depositary.
Payments upon Acceleration of Maturity
If the principal amount payable at maturity of any Exchangeable Note is
declared due and payable prior to maturity, the amount payable (unless otherwise
specified in the applicable Pricing Supplement) with respect to (i) an
Optionally Exchangeable Note will equal the face amount of such Note plus
accrued interest, if any, to but excluding the date of payment, provided that if
a holder shall have exchanged an Optionally Exchangeable Note prior to such time
without having received the amount due upon such exchange, the amount payable
shall be the amount due upon exchange and shall not include any accrued but
unpaid interest, and (ii) a Mandatorily Exchangeable Note will equal an amount
determined as if the date of such declaration were the maturity date plus
accrued interest, if any, to but excluding the date of payment.
Currency Linked Notes
Notes may be issued, from time to time, with the principal amount
payable on any principal payment date, or the amount of interest payable on any
interest payment date, to be determined by reference to the value of one or more
currencies (or composite currencies) as compared to the value of one or more
other currencies (or composite currencies) ("Currency Linked Notes").
Information as to the one or more currencies (or composite currencies) to which
the principal amount payable on any principal payment date or the amount of
interest payable on any interest payment date is indexed, the currency in which
the face amount of the Currency Linked Note is denominated (the "Denominated
Currency"), the currency in which principal on the Currency Linked Note will be
paid (the "Payment Currency"), specific historic exchange rate information, any
currency risks relating to the specific currencies selected, and certain
additional tax considerations, if any, will be set forth in the applicable
Pricing Supplement. The Denominated Currency and the Payment Currency may be the
same currency or different currencies. Unless otherwise specified in the
applicable Pricing Supplement, interest on Currency Linked Notes will be paid in
the Denominated Currency based on the face amount of the Currency Linked Note at
the rate per annum and on the dates set forth in the applicable Pricing
Supplement. Currency Linked Notes may include, but are not limited to, Notes of
the types described below.
S-18
<PAGE>
Principal Exchange Rate Linked Securities (PERLS)
PERLS are Currency Linked Notes pursuant to which the principal amount
payable on any principal payment date equals the Payment Currency equivalent at
such date of a fixed amount of a designated currency (or composite currency)
(the "Indexed Currency"). Generally, the fixed amount of Indexed Currency to
which the principal of a PERLS will be linked will be approximately equal in
value to the face amount of the PERLS in the Denominated Currency based on the
exchange rate between the Indexed Currency and the Denominated Currency in
effect at the time of pricing. The Denominated Currency, the Indexed Currency
and the Payment Currency will be identified in the applicable Pricing
Supplement. In addition, the fixed amount of the Indexed Currency to which the
principal of the PERLS is linked will be set forth in the applicable Pricing
Supplement for a specific representative face amount of the PERLS as well as for
the aggregate face amount of all PERLS forming part of the same issue (the
"Conversion Reference Amount").
Holders of PERLS may receive an amount of principal greater than, less
than or equal in value to the face amount of the PERLS, depending on the change,
if any, in the relative exchange rates of the Denominated Currency, the Payment
Currency and the Indexed Currency from the issue date to the date that is two
Exchange Rate Days (as defined below) preceding the maturity date.
The Payment Currency equivalent of any Indexed Currency amount on any
date will be determined by an exchange rate agent (identified in the applicable
Pricing Supplement) based on the arithmetic mean of the quotations obtained by
such agent from reference dealers (identified in the applicable Pricing
Supplement) at 11:00 A.M., New York City time, on the second Exchange Rate Day
preceding such date for the purchase by the reference dealers of the Conversion
Reference Amount of the Indexed Currency with the Payment Currency for
settlement on such date; provided that if there is no cross-exchange rate
available in New York City between the Indexed Currency and the Payment
Currency, the quotations will be calculated by the exchange rate agent at the
time referred to above using the U.S. dollar equivalent of the Indexed Currency
and the Payment Currency as the basis for comparing the values of such
currencies; and provided further that if the Payment Currency and the Indexed
Currency are identical, then the Payment Currency equivalent of any Indexed
Currency amount will be such amount.
"Exchange Rate Day" means, with respect to any currency conversion, any
day other than a Saturday or Sunday or a day on which banking institutions in
New York City are authorized or required by law or executive order to close and
that is a business day in each of the cities designated in the Pricing
Supplement for the currencies being converted and, in the case of conversions
involving ECUs, that is not a non-ECU clearing day, as determined by the ECU
Banking Association in Paris.
Reverse Principal Exchange Rate Linked Securities (Reverse PERLS)
Reverse PERLS are Currency Linked Notes pursuant to which the principal
amount payable on any principal payment date equals the Payment Currency
equivalent at such date of a fixed amount of a designated currency (or composite
currency) (the "First Indexed Currency") minus the Payment Currency equivalent
at maturity of a fixed amount of another designated currency (or composite
currency) (the "Second Indexed Currency"); provided that the minimum principal
amount payable at maturity will be zero. Generally, the fixed amount of the
First Indexed Currency to which the principal of a Reverse PERLS will be linked
will be approximately equal in value to twice the face amount of the Reverse
PERLS in the Denominated Currency, and the fixed amount of the Second Indexed
Currency to which the principal of a Reverse PERLS will be linked will be
approximately equal in value to the face amount of the Reverse PERLS in the
Denominated Currency, in each case based on the exchange rate between each
Indexed Currency and the Denominated Currency in effect at the time of pricing.
Holders of Reverse PERLS may receive an amount of principal greater
than, less than (with a minimum of zero) or equal in value to the face amount of
the Reverse PERLS, depending on the change, if any, in the relative exchange
rates of the Denominated Currency, the Payment Currency and the First and Second
Indexed Currencies from the issue date to the date that is two Exchange Rate
Days preceding the maturity date.
S-19
<PAGE>
The Denominated Currency, the First and Second Indexed Currencies and
the Payment Currency will be identified in the applicable Pricing Supplement. In
addition, the fixed amounts of the First and Second Indexed Currencies to which
the principal of the Reverse PERLS is linked will be set forth in the applicable
Pricing Supplement for a specific representative face amount of the Reverse
PERLS as well as for the aggregate face amount of all Reverse PERLS forming part
of the same issue (respectively, the "First Conversion Reference Amount" and the
"Second Conversion Reference Amount").
The Payment Currency equivalent of any First Indexed Currency amount on
any date will be determined by an exchange rate agent (identified in the
applicable Pricing Supplement) based on the arithmetic mean of the quotations
obtained by such agent from reference dealers (identified in the applicable
Pricing Supplement) at 11:00 A.M., New York City time, on the second Exchange
Rate Day preceding such date for the purchase by the reference dealers of the
First Conversion Reference Amount of the First Indexed Currency with the Payment
Currency for settlement on such date; provided that if there is no
cross-exchange rate available in New York City between the First Indexed
Currency and the Payment Currency, the quotations will be calculated by the
exchange rate agent at the time referred to above using the U.S. dollar
equivalent of the First Indexed Currency and the Payment Currency as the basis
for comparing the values of such currencies; provided further that if the First
Indexed Currency and the Payment Currency are identical, then the Payment
Currency equivalent of any First Indexed Currency amount will be such amount.
The Payment Currency equivalent of any Second Indexed Currency amount
on any date will be determined by an exchange rate agent (identified in the
applicable Pricing Supplement) based on the arithmetic mean of the quotations
obtained by such agent from the reference dealers (identified in the applicable
Pricing Supplement) at 11:00 A.M., New York City time, on the second Exchange
Rate Day preceding such date for the sale by the reference dealers of the Second
Conversion Reference Amount of the Second Indexed Currency for the Payment
Currency for settlement on such date; provided that if there is no
cross-exchange rate available in New York City between the Second Indexed
Currency and the Payment Currency, the quotations will be calculated by the
exchange rate agent at the time referred to above using the U.S. dollar
equivalent of the Second Indexed Currency and the Payment Currency as the basis
for comparing the values of such currencies; provided further that if the Second
Indexed Currency and the Payment Currency are identical, then the Payment
Currency equivalent of any Second Indexed Currency amount will be such amount.
Multicurrency Principal Exchange Rate Linked Securities (Multicurrency
PERLS)
Multicurrency PERLS are Currency Linked Notes pursuant to which the
principal amount payable on any principal payment date equals the Payment
Currency equivalent at such date of a fixed amount of a designated currency (or
composite currency) (the "First Indexed Currency") plus or minus the Payment
Currency equivalent at maturity of a fixed amount of a second designated
currency (or composite currency) (the "Second Indexed Currency") plus or minus
the Payment Currency equivalent at maturity of a fixed amount of a third
designated currency (or composite currency) (the "Third Indexed Currency");
provided that the minimum principal amount payable at maturity will be zero.
Generally, the added and subtracted fixed amounts of the First, Second and Third
Indexed Currencies (each, an "Indexed Currency") to which the principal of a
Multicurrency PERLS will be linked will have an aggregate value approximately
equal to the face amount of the Multicurrency PERLS in the Denominated Currency
based on exchange rates between each Indexed Currency and the Denominated
Currency in effect at the time of pricing.
Holders of Multicurrency PERLS may receive an amount of principal
greater than, less than (with a minimum of zero) or equal in value to the face
amount of the Multicurrency PERLS, depending on the change, if any, in the
relative exchange rates for the Denominated Currency, the Payment Currency and
the First, Second and Third Indexed Currencies from the issue date to the date
that is two Exchange Rate Days preceding the maturity date.
S-20
<PAGE>
The Denominated Currency, each Indexed Currency, the Payment Currency
and whether the fixed amounts of the Second and Third Indexed Currencies are to
be added or subtracted to determine the principal amount payable at maturity of
the Multicurrency PERLS will be set forth in the applicable Pricing Supplement.
In addition, the fixed amounts of the First, Second and Third Indexed Currencies
to which the principal of the Multicurrency PERLS is linked will be set forth in
the applicable Pricing Supplement for a specific representative face amount of
the Multicurrency PERLS as well as for the aggregate face amount of all
Multicurrency PERLS forming part of the same issue (respectively, the "First
Conversion Reference Amount," the "Second Conversion Reference Amount" and the
"Third Conversion Reference Amount," each a "Conversion Reference Amount"). As
used herein, "Added Indexed Currency" means the First Indexed Currency and any
other Indexed Currency that is added to determine the principal amount payable
at maturity of the Multicurrency PERLS and a "Subtracted Indexed Currency" means
an Indexed Currency that is subtracted to determine the principal amount payable
at maturity of the Multicurrency PERLS.
The Payment Currency equivalent of any Added Indexed Currency amount on
any date will be determined by an exchange rate agent (identified in the
applicable Pricing Supplement) based on the arithmetic mean of the quotations
obtained by such agent from reference dealers (identified in the applicable
Pricing Supplement) at 11:00 A.M., New York City time, on the second Exchange
Rate Day preceding such date for the purchase by the reference dealers of the
applicable Conversion Reference Amount of the Added Indexed Currency with the
Payment Currency for settlement on such date; provided that if there is no
cross-exchange rate available in New York City between the Added Indexed
Currency and the Payment Currency, the quotations will be calculated by the
exchange rate agent at the time referred to above using the U.S. dollar
equivalent of the Added Indexed Currency and the Payment Currency as the basis
for comparing the values of such currencies; provided further that if the Added
Indexed Currency and the Payment Currency are identical, then the Payment
Currency equivalent of any Added Indexed Currency amount will be such amount.
The Payment Currency equivalent of any Subtracted Indexed Currency
amount on any date will be determined by an exchange rate agent (identified in
the applicable Pricing Supplement) based on the arithmetic mean of the
quotations obtained by such agent from reference dealers (identified in the
applicable Pricing Supplement) at 11:00 A.M., New York City time, on the second
Exchange Rate Day preceding such date for the sale by the reference dealers of
the applicable Conversion Reference Amount of the Subtracted Indexed Currency
for the Payment Currency, for settlement on such date; provided that if there is
no cross-exchange rate available in New York City between the Subtracted Indexed
Currency and the Payment Currency, the quotations will be calculated by the
exchange rate agent at the time referred to above using the U.S. dollar
equivalent of the Subtracted Indexed Currency and the Payment Currency as the
basis for comparing the values of such currencies; provided further that if the
Subtracted Indexed Currency and the Payment Currency are identical, then the
Payment Currency equivalent of any Subtracted Indexed Currency amount will be
such amount.
Payments upon Acceleration of Maturity
If the principal amount payable at maturity of any PERLS, Reverse PERLS
or Multicurrency PERLS is declared due and payable prior to maturity, the amount
payable with respect to such Note will be paid in the Denominated Currency and
will equal the face amount of such Note plus accrued interest to but excluding
the date of payment.
Notes Linked to Commodity Prices, Single Securities, Baskets of Securities or
Indices
Notes may be issued, from time to time, with the principal amount
payable on any principal payment date, or the amount of interest payable on any
interest payment date, to be determined by reference to one or more commodity
prices, securities of entities unaffiliated with the Company, baskets of such
securities or indices and on such other terms as may be set forth in the
relevant Pricing Supplement.
S-21
<PAGE>
Extension of Maturity
The Pricing Supplement relating to each Fixed Rate Note (other than an
Amortizing Note or a Currency Linked Note) will indicate whether the Company has
the option to extend the maturity of such Fixed Rate Note for one or more
periods of one or more whole years (each, an "Extension Period") up to but not
beyond the date (the "Final Maturity Date") set forth in such Pricing
Supplement. If the Company has such option with respect to any such Fixed Rate
Note (an "Extendible Note"), the following procedures will apply, unless
modified as set forth in the applicable Pricing Supplement.
The Company may exercise such option with respect to an Extendible Note
by notifying the Paying Agent of such exercise at least 45 but not more than 60
days prior to the maturity date originally in effect with respect to such Note
(the "Original Maturity Date") or, if the maturity date of such Note has already
been extended, prior to the maturity date then in effect (an "Extended Maturity
Date"). No later than 38 days prior to the Original Maturity Date or an Extended
Maturity Date, as the case may be (each, a "Maturity Date"), the Paying Agent
will mail to the holder of such Note a notice (the "Extension Notice") relating
to such Extension Period, first-class mail, postage prepaid, setting forth (a)
the election of the Company to extend the maturity of such Note; (b) the new
Extended Maturity Date; (c) the interest rate applicable to the Extension
Period; and (d) the provisions, if any, for redemption during the Extension
Period, including the date or dates on which, the period or periods during which
and the price or prices at which such redemption may occur during the Extension
Period. Upon the mailing by the Paying Agent of an Extension Notice to the
holder of an Extendible Note, the maturity of such Note shall be extended
automatically, and, except as modified by the Extension Notice and as described
in the next paragraph, such Note will have the same terms it had prior to the
mailing of such Extension Notice.
Notwithstanding the foregoing, not later than 10:00 A.M., New York City
time, on the twentieth calendar day prior to the Maturity Date then in effect
for an Extendible Note (or, if such day is not a Business Day, not later than
10:00 A.M., New York City time, on the immediately succeeding Business Day), the
Company may, at its option, revoke the interest rate provided for in the
Extension Notice and establish a higher interest rate for the Extension Period
by causing the Paying Agent to send notice of such higher interest rate to the
holder of such Note by first-class mail, postage prepaid, or by such other means
as shall be agreed between the Company and the Paying Agent. Such notice shall
be irrevocable. All Extendible Notes with respect to which the Maturity Date is
extended in accordance with an Extension Notice will bear such higher interest
rate for the Extension Period, whether or not tendered for repayment.
If the Company elects to extend the maturity of an Extendible Note, the
holder of such Note will have the option to require the Company to repay such
Note on the Maturity Date then in effect at a price equal to the principal
amount thereof plus any accrued and unpaid interest to such date. In order for
an Extendible Note to be so repaid on such Maturity Date, the holder thereof
must follow the procedures set forth below under "Repayment at the Noteholders'
Option; Repurchase" for optional repayment, except that the period for delivery
of such Note or notification to the Paying Agent shall be at least 25 but not
more than 35 days prior to the Maturity Date then in effect and except that a
holder who has tendered an Extendible Note for repayment pursuant to an
Extension Notice may, by written notice to the Paying Agent, revoke any such
tender for repayment until 3:00 P.M., New York City time, on the twentieth
calendar day prior to the Maturity Date then in effect (or, if such day is not a
Business Day, until 3:00 P.M., New York City time, on the immediately succeeding
Business Day).
Book-Entry System
Upon issuance, all Fixed Rate Book-Entry Notes having the same Issue
Date, interest rate, if any, amortization schedule, if any, ranking, maturity
date and other terms, if any, will be represented by a single Global Note, and
all Floating Rate Book-Entry Notes having the same Issue Date, Initial Interest
Rate, Base Rate, Interest Reset Period, Interest Payment Dates, Index Maturity,
Spread and/or Spread Multiplier, if any, Minimum Interest Rate, if any, Maximum
Interest Rate, if any, ranking, maturity date and other terms, if any, will be
represented by a single Global Note. Each Global Note representing Book-Entry
Notes will be deposited with, or on behalf of, The Depository Trust Company, New
York, New York (the "Depositary"), and registered in the name of a nominee
S-22
<PAGE>
of the Depositary. Certificated Notes will not be exchangeable for Book-Entry
Notes (or interests therein) and, except under the circumstances described in
the Prospectus under "Description of Debt Securities -- Registered Global
Securities," Book-Entry Notes (or interests therein) will not be exchangeable
for Certificated Notes and will not otherwise be issuable as Certificated Notes.
A further description of the Depositary's procedures with respect to
Global Notes representing Book-Entry Notes is set forth in the Prospectus under
"Description of Debt Securities -- Global Securities." The Depositary has
confirmed to the Company, the Agent and each Trustee that it intends to follow
such procedures.
Optional Redemption
If applicable, the Pricing Supplement will indicate the terms on which
the Notes will be redeemable at the option of the Company. Notice of redemption
will be provided by mailing a notice of such redemption to each holder by
first-class mail, postage prepaid, at least 30 days and not more than 60 days
prior to the date fixed for redemption to the respective address of each holder
as that address appears upon the books maintained by the Paying Agent. The
Notes, except for Amortizing Notes, will not be subject to any sinking fund.
Repayment at the Noteholders' Option; Repurchase
If applicable, the Pricing Supplement relating to each Note will
indicate that the Note will be repayable at the option of the holder on a date
or dates specified prior to its maturity date and, unless otherwise specified in
such Pricing Supplement, at a price equal to 100% of the principal amount
thereof, together with accrued interest to the date of repayment, unless such
Note was issued with original issue discount, in which case the Pricing
Supplement will specify the amount payable upon such repayment.
In order for such a Note to be repaid, the Paying Agent must receive at
least 15 days but not more than 30 days prior to the repayment date (i) the Note
with the form entitled "Option to Elect Repayment" on the reverse of the Note
duly completed or (ii) a telegram, telex, facsimile transmission or a letter
from a member of a national securities exchange, or the National Association of
Securities Dealers, Inc. (the "NASD") or a commercial bank or trust company in
the United States setting forth the name of the holder of the Note, the
principal amount of the Note, the principal amount of the Note to be repaid, the
certificate number or a description of the tenor and terms of the Note, a
statement that the option to elect repayment is being exercised thereby and a
guarantee that the Note to be repaid, together with the duly completed form
entitled "Option to Elect Repayment" on the reverse of the Note, will be
received by the Paying Agent not later than the fifth Business Day after the
date of such telegram, telex, facsimile transmission or letter; provided,
however, that such telegram, telex, facsimile transmission or letter shall only
be effective if such Note and form duly completed are received by the Paying
Agent by such fifth Business Day. Except in the case of Renewable Notes or
Extendible Notes, and unless otherwise specified in the applicable Pricing
Supplement, exercise of the repayment option by the holder of a Note will be
irrevocable. The repayment option may be exercised by the holder of a Note for
less than the entire principal amount of the Note but, in that event, the
principal amount of the Note remaining outstanding after repayment must be an
authorized denomination.
If a Note is represented by a Registered Global Security, the
Depositary's nominee will be the holder of such Note and therefore will be the
only entity that can exercise a right to repayment. In order to ensure that the
Depositary's nominee will timely exercise a right to repayment with respect to a
particular Note, the beneficial owner of such Note must instruct the broker or
other direct or indirect participant through which it holds an interest in such
Note to notify the Depositary of its desire to exercise a right to repayment.
Different firms have different cut-off times for accepting instructions from
their customers and, accordingly, each beneficial owner should consult the
broker or other direct or indirect participant through which it holds an
interest in a Note in order to ascertain the cut-off time by which such an
instruction must be given in order for timely notice to be delivered to the
Depositary.
S-23
<PAGE>
The Company may purchase Notes at any price in the open market or
otherwise. Notes so purchased by the Company may, at the discretion of the
Company, be held or resold or surrendered to the relevant Trustee for
cancellation.
DESCRIPTION OF UNITS
The following description of the Units offered hereby, including the
designation and the terms of the Notes, Universal Warrants and Purchase
Contracts that may be included in a Unit, supplements the description of the
Units, Universal Warrants and Purchase Contracts set forth in the Prospectus, to
which reference is hereby made. In particular, the terms of the Universal
Warrants and Purchase Contracts offered hereby relate solely to Universal
Warrants and Purchase Contracts issued in conjunction with Notes as part of a
Unit. The terms and conditions of Notes issued as part of a Unit are set forth
above under "Description of Notes."
The particular terms of the Units, including the terms of the Notes,
Universal Warrants and Purchase Contracts that may be included in a Unit,
offered pursuant to any Pricing Supplement will be described therein. The terms
and conditions set forth in the Prospectus under "Description of Units,"
"Description of Warrants," "Description of Purchase Contracts" and "Description
of Debt Securities" and those set forth below under "-- General," "-- Certain
Provisions of the Unit Agreement," "-- Purchase Contracts," "-- Universal
Warrants" and "-- Certain Provisions of the Universal Warrant Agreement" and
above under "Description of Notes" will apply to each Unit and to any Universal
Warrant, Purchase Contract or Note included in such Unit, respectively, unless
otherwise specified in the applicable Pricing Supplement.
General
The Company may issue from time to time Units that may include, in
addition to Notes, one or more Universal Warrants or Purchase Contracts.
Reference is made to the applicable Pricing Supplement for (i) the designation
and the terms of the Units and of the Notes, Universal Warrants, Purchase
Contracts, or any combination thereof, comprising such Units, including whether
and under what circumstances such Notes, Universal Warrants or Purchase
Contracts may be traded separately, (ii) a description of any additional terms
of the Unit Agreement (as defined below) and (iii) a description of any
additional provisions for the issuance, payment, settlement, transfer or
exchange of the Units (or of the securities comprised by such Units).
Unless otherwise specified in the applicable Pricing Supplement, Units
will be issued only in fully registered form, in denominations of a single Unit
and any integral multiple thereof, with face amounts as indicated in the
applicable Pricing Supplement. The Units will be issued pursuant to the Unit
Agreement dated as of January 24, 1997 (the "Unit Agreement") among the Company,
The Chase Manhattan Bank, as Unit Agent (the "Unit Agent"), as Collateral Agent
(the "Collateral Agent"), and as Trustee and Paying Agent under the Senior Debt
Indenture and as Warrant Agent under the Universal Warrant Agreement, and the
holders from time to time of the Units. Each Unit will be issued as either a
Book-Entry Unit or a Certificated Unit, and any security comprised by such Unit
shall be in the corresponding form.
Book-Entry System. Upon issuance, all Book-Entry Units comprising the
same securities and having the same issue date and other terms, if any, will be
represented by a single registered global Unit (a "Registered Global Unit").
Each Registered Global Unit representing Book-Entry Units (and each Registered
Global Security (as defined in the Prospectus under "Global Securities")
comprised by such Registered Global Unit) will be deposited with, or on behalf
of, the Depositary, and registered in the name of a nominee of the Depositary.
Unless otherwise specified in the applicable Pricing Supplement, Certificated
Units will not be exchangeable for Book-Entry Units (or interests therein) and,
except under the circumstances described in the Prospectus under "Global
Securities," Book-Entry Units (or interests therein) will not be exchangeable
for Certificated Units and will not otherwise be issuable as Certificated Units.
S-24
<PAGE>
If a Book-Entry Unit represented by a Registered Global Unit (i)
includes a Universal Warrant entitling the holder to exercise the Universal
Warrant to purchase or sell Warrant Property (as defined below), (ii) includes
any Note or Purchase Contract that entitles the holder thereof to redeem,
accelerate or take any other action with respect to such Note or Purchase
Contract or (iii) otherwise entitles the holder of the Unit to take any action
with respect to the Unit or any security comprised by such Unit, the
Depositary's nominee will be the only entity that can exercise such right. In
order to ensure that the Depositary's nominee will timely exercise a right
conferred by a Unit (or by the securities comprised by such Unit) with respect
to a particular Unit (or any security comprised by such Unit) or any portion
thereof, the beneficial owner of such Unit must instruct the broker or other
direct or indirect participant through which it holds an interest in such Unit
to notify the Depositary of its desire to exercise any such right. Different
firms have different deadlines for accepting instructions from their customers
and, accordingly, each beneficial owner should consult the broker or other
direct or indirect participant through which it holds an interest in a Unit in
order to ascertain the deadline for such an instruction in order for timely
notice to be delivered to the Depositary.
A further description of the Depositary's procedures with respect to
Registered Global Securities (including Registered Global Units and the other
Registered Global Securities comprised by such Units) representing Book-Entry
Securities is set forth in the Prospectus under "Global Securities." The
Depositary has confirmed to the Company, the Unit Agent, the Collateral Agent,
the Paying Agent, the Warrant Agent and each Trustee that it intends to follow
such procedures.
Payments with respect to Units and Securities Comprised by Units. At
the office of the Unit Agent in the Borough of Manhattan, The City of New York,
maintained by the Company for such purpose, (i) the Units, accompanied by each
of the securities comprised by such Unit (unless the applicable Pricing
Supplement indicates that any such securities are separable from such Unit), may
be presented for payment or delivery of Warrant Property or Purchase Contract
Property (as defined below) or any other amounts due with respect thereto, (ii)
transfer of the Units will be registrable and (iii) the Units will be
exchangeable, provided that Book-Entry Units will be exchangeable only in the
manner and to the extent set forth under "Global Securities" in the Prospectus.
On the date hereof, the agent for the payment, transfer and exchange of the
Units is The Chase Manhattan Bank, as Unit Agent, acting through its corporate
trust office at 450 West 33rd Street, New York, New York 10001. No service
charge will be made for any registration of transfer or exchange of the Units
(or of any security comprised by such Unit) or interest therein, except for any
tax or other governmental charge that may be imposed in connection therewith.
Certain Provisions of the Unit Agreement
Under the terms of the Unit Agreement, each holder of a definitive Unit
and each beneficial owner of a Book-Entry Unit, by its acceptance thereof, (i)
consents to and agrees to be bound by the terms of the Unit Agreement and (ii)
appoints the Unit Agent as its authorized agent to execute, deliver and perform
any Purchase Contract included in such Unit in which such holder or beneficial
owner has an interest on behalf of such holder or beneficial owner, as the case
may be. Under the terms of the Unit Agreement, each holder of a definitive Unit
and each beneficial owner of a Book-Entry Unit, by acceptance thereof,
irrevocably agrees to be a party to and be bound by the terms of any Purchase
Contract included in such Unit in which such holder or beneficial owner has an
interest. Upon the registration of transfer of a Unit, the transferee will
assume the obligations of the transferor under any Purchase Contract included in
such Unit and under any other security comprised by such Unit in which such
holder or beneficial owner has an interest, and the transferor will be released
from such obligations. Pursuant to the terms of the Unit Agreement, the Company
has consented to the transfer of any such obligations to the transferee, to the
assumption of such obligations by the transferee and the release of the
transferor, if such transfer is made in accordance with the provisions of the
Unit Agreement.
Remedies. The Unit Agreement provides that upon the acceleration of the
Notes comprised by any Units, the obligations of the Company and the holders
under any Purchase Contracts comprised by such Units may also be accelerated
upon the request of the holders of not less than 25% of all the Purchase
Contracts, on behalf of all
S-25
<PAGE>
such holders, that constitute a part of Units that comprise such accelerated
Notes. No holder of any Unit or interest therein shall have any right by virtue
of or by availing itself of any provision of the Unit Agreement to institute any
action or proceeding at law or in equity or in bankruptcy or otherwise upon or
under or with respect to the Unit Agreement, or for the appointment of a
trustee, receiver, liquidator, custodian or other similar official, unless such
holder shall have given written notice to the Unit Agent and the Company of the
occurrence and continuance of a default thereunder and, (i) in the case of an
Event of Default under the Notes or the Senior Debt Indenture, unless the
procedures (including notice to the Trustee and the Company) described in
Article Five of the Senior Debt Indenture have been complied with and (ii) in
the case of certain defaults under any Purchase Contracts included in such Unit,
unless the holders of not less than 25% of the affected Purchase Contracts
comprised by all Units then outstanding shall have made written request upon the
Unit Agent to institute such action or proceeding in its own name as Unit Agent
under the Unit Agreement and shall have offered to the Unit Agent such
reasonable indemnity as it may require, and the Unit Agent for 60 days after its
receipt of such notice, request and offer of indemnity shall have failed to
institute any such action or proceedings and no direction inconsistent with such
request shall have been given to the Unit Agent pursuant to the Unit Agreement
in writing by the holders of a majority of the outstanding affected Units. If
such conditions have been satisfied, any holder of an affected Unit may then
(but only then) institute such action or proceeding. Notwithstanding the above,
the holder of any Unit or Purchase Contract will have the unconditional right to
purchase or sell, as the case may be, Purchase Contract Property pursuant to
such Purchase Contract and to institute suit for the enforcement of such right.
Except as may be described in a Pricing Supplement applicable to a
particular series of Units, there are no covenants or other provisions in the
Unit Agreement providing for a put or increased interest or otherwise that would
afford holders of Units additional protection in the event of a recapitalization
transaction, a change of control of the Company or a highly leveraged
transaction.
Modification. The Unit Agreement and the terms of the Purchase
Contracts and the Purchase Contract Certificates may be amended by the Company
and the Unit Agent, without the consent of the holders, for the purpose of
curing any ambiguity, or of curing, correcting or supplementing any defective or
inconsistent provision therein or in any other manner which the Company may deem
necessary or desirable and which will not adversely affect the interests of the
affected holders in any material respect.
The Unit Agreement will contain provisions permitting the Company and
the Unit Agent, with the consent of the holders of not less than a majority of
all series of Units at the time outstanding under such Unit Agreement and
affected thereby (voting as one class), to modify the rights of the holders of
the Units of each series so affected or the terms of any Purchase Contracts
included in any such series of Units and the terms of the Unit Agreement
relating to the Purchase Contracts of each series so affected, except that no
such modification may, without the consent of the holder of each outstanding
Unit affected thereby, (i) impair the right to institute suit for the
enforcement of any Purchase Contract, (ii) materially adversely affect the
holders' rights under any Purchase Contract or Unit or (iii) reduce the
aforesaid percentage of outstanding Units issued under the Unit Agreement, the
consent of the holders of which is required for the modification or amendment of
the provisions of the Unit Agreement relating to any such Purchase Contracts or
for any waiver of compliance with certain provisions of the Unit Agreement or
waiver of certain defaults relating to any such Purchase Contracts.
Modifications of any Notes comprised by Units may only be made in accordance
with the Senior Debt Indenture, as described in the Prospectus under
"Description of Debt Securities -- Modification of the Indentures."
Modifications of any Universal Warrants comprised by Units may only be made in
accordance with the terms of the Universal Warrant Agreement as described below
under "Certain Provisions of the Universal Warrant Agreement."
Title. The Company, the Unit Agent and any agent of the Company or the
Unit Agent will treat the registered owner of any Unit or Purchase Contract as
the owner thereof (whether or not the Note constituting a part of such Unit
shall be overdue and notwithstanding any notice to the contrary) for the purpose
of making payment, the performance of any Purchase Contracts included in any
series of Units and for all other purposes.
S-26
<PAGE>
Replacement of Unit Certificates or Purchase Contract Certificates. Any
mutilated certificate evidencing a definitive Unit or Purchase Contract will be
replaced at the expense of the holder upon surrender of such certificate to the
Unit Agent. Certificates that have been destroyed, lost or stolen will be
replaced at the expense of the holder upon delivery to the Company and the Unit
Agent of evidence of the destruction, loss or theft thereof satisfactory to the
Company and the Unit Agent. In the case of a destroyed, lost or stolen
certificate, an indemnity satisfactory to the Unit Agent and the Company may be
required at the expense of the holder of the Units or Purchase Contracts
evidenced by such certificate before a replacement will be issued.
The Unit Agreement provides that, notwithstanding the foregoing, no
such replacement certificate need be delivered (i) during the period beginning
15 days before the day of mailing of a notice of redemption or of any other
exercise of any right held by the Company with respect to the Unit (or any
security comprised by such Unit) evidenced by the mutilated, destroyed, lost or
stolen certificate and ending on the day of the giving of such notice, (ii) if
such mutilated, destroyed, lost or stolen certificate evidences any security
selected or called for redemption or other exercise of a right held by the
Company or (iii) at any time on or after the date of settlement or redemption,
as applicable, with respect to any Purchase Contract included in the Unit (or at
any time on or after the last exercise date with respect to any Universal
Warrant included in the Unit) evidenced by such mutilated, destroyed, lost or
stolen certificate, except with respect to any Units that remain or will remain
outstanding following such date of settlement or redemption or such last
exercise date.
Governing Law. The Unit Agreement, the Units and the Purchase Contracts
will be governed by, and construed in accordance with, the laws of the State of
New York.
Purchase Contracts
The Company may, pursuant to the Unit Agreement, issue from time to
time, as part of a Unit with one or more Notes or Universal Warrants, Purchase
Contracts for the purchase or sale of (a) securities of an entity unaffiliated
with the Company, a basket of such securities, and index or indices of such
securities or any combination of the above, (b) currencies or composite
currencies or (c) commodities (collectively, "Purchase Contract Property"). The
applicable Pricing Supplement will specify whether or not a Purchase Contract
issued as part of a Unit may be separated from the other securities comprised by
such Unit prior to such Purchase Contract's settlement date. Purchase Contracts
may not be so separated prior to the 91st day after the issuance of a Unit,
unless otherwise specified in the applicable Pricing Supplement. The applicable
Pricing Supplement will also specify the methods by which the holders may
purchase or sell such Purchase Contract Property and any acceleration,
cancellation or termination provisions or other provisions relating to the
settlement of a Purchase Contract. The Unit Agreement will not be qualified as
an indenture under the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act"), the Unit Agent will not be required to qualify as a trustee
thereunder and the holders of Units and Purchase Contracts will not have the
benefits of the protections of the Trust Indenture Act. However, any Notes
issued as part of a Unit will be issued under an indenture qualified under the
Trust Indenture Act and the trustee thereunder will have qualified as a trustee
under the Trust Indenture Act.
The Purchase Contracts may be issued in fully registered global or
definitive form, as specified in the applicable Pricing Supplement. In each
case, the form of the Purchase Contract included in a Unit will correspond to
the form of the Unit and of the Note and any Universal Warrant included in such
Unit. See "Global Securities" in the Prospectus.
Under circumstances specified in the applicable Pricing Supplement,
payments in respect of principal of Notes that are part of Units that include
Purchase Contracts requiring the holders to purchase Purchase Contract Property
may be applied by the Unit Agent in satisfaction of the obligations of the
holders of the Units under the related Purchase Contracts (unless a holder has
delivered cash in respect of its obligations under such Purchase Contract). Upon
settlement of any such Purchase Contract, the Purchase Contract Property will be
delivered only upon presentation and surrender of the certificates evidencing
Units at the office of the Unit Agent. If a holder delivers cash in settlement
of its obligations under a Purchase Contract that is part of a Unit, the related
Note that
S-27
<PAGE>
is a part of such Unit will remain outstanding if the maturity extends beyond
the relevant settlement date and, as more fully described in the applicable
Pricing Supplement, the holder will receive a registered Certificated Note or an
interest in a registered Global Note.
In order to secure the observance and performance of the covenants and
agreements of the holders of Purchase Contracts contained in the Unit Agreement
and in such Purchase Contracts, holders of Purchase Contracts acting through the
Unit Agent, as their attorney-in-fact, shall be deemed to grant, sell, convey,
assign, transfer and pledge unto The Chase Manhattan Bank, in its capacity as
Collateral Agent, for the benefit of the Company, as collateral security for the
performance when due by such holders of their respective obligations under the
Unit Agreement and under such Purchase Contracts, a security interest in and to,
and a lien upon and right of set-off (the "Pledge") against, all of their right,
title and interest in and to (i) the Notes that are part of Units that include
such Purchase Contracts, or such other property as may be specified in the
applicable Pricing Supplement (the "Pledged Items"); (ii) all additions to and
substitutions for such Pledged Items as may be permissible, if so specified in
the applicable Pricing Supplement; (iii) all income, proceeds and collections
received or to be received, or derived or to be derived, at any time from or in
connection with (i) and (ii) above; and (iv) all powers and rights owned or
thereafter acquired under or with respect to the Pledged Items. All payments
with respect to any Pledged Items received by the Collateral Agent shall be paid
by the Collateral Agent, unless such payments have been released from the Pledge
pursuant to the Unit Agreement, to the Company in satisfaction of the respective
obligations of the holders of the Units of which such Pledged Items are a part
under the Purchase Contracts forming a part of such Units.
Unless otherwise specified in the applicable Pricing Supplement, in the
event that a holder does not elect to deliver cash in settlement of its
obligations under a Purchase Contract that is part of a Unit and fails to
present and surrender the certificate evidencing the Units held by such holder
to the Unit Agent when required, the Purchase Contract Property to be purchased
by such holder under the Purchase Contracts evidenced thereby shall be
registered in the name of, and together with any distributions thereon shall be
held by, the Unit Agent in trust for the benefit of such holder until such
certificate is presented and surrendered or the holder provides satisfactory
evidence that such certificate has been destroyed, lost or stolen, together with
any indemnity that may be required by the Unit Agent or the Company in respect
thereof. In the event that a certificate is not presented (or such evidence and
indemnity are not provided) on or prior to the date two years after the relevant
settlement date with respect to the related Purchase Contract, any payments
received by the Unit Agent in respect of the Purchase Contract Property
delivered in respect of the Units evidenced by such certificate will be paid by
the Unit Agent to the Company and such holder will thereafter be required to
look solely to the Company for payment thereof. The Unit Agent will have no
obligation to invest or to pay interest on any amounts held by the Unit Agent
pending distribution, as described above.
Unsecured Obligations of the Company. The Purchase Contracts are
unsecured contractual obligations of the Company and will rank pari passu with
the Company's other unsecured contractual obligations and with the Company's
unsecured and unsubordinated debt. Most of the assets of the Company are owned
by its subsidiaries. Therefore, the Company's rights and the rights of its
creditors, including holders of Purchase Contracts, to participate in the
distribution of assets of any subsidiary upon such subsidiary's liquidation or
recapitalization will be subject to the prior claims of such subsidiary's
creditors, except to the extent that the Company may itself be a creditor with
recognized claims against the subsidiary. In addition, dividends, loans and
advances from certain of the Company's subsidiaries, including Morgan Stanley,
to the Company are restricted by net capital requirements under the Exchange Act
and under rules of certain exchanges and various domestic and foreign regulatory
bodies.
S-28
<PAGE>
Universal Warrants
The Company may issue from time to time, as part of a Unit with one or
more Notes or Purchase Contracts, Universal Warrants to purchase or sell (a)
securities of an entity unaffiliated with the Company, a basket of such
securities, an index or indices of such securities or any combination of the
above, (b) currencies or composite currencies or (c) commodities (collectively,
"Warrant Property"). The Company may satisfy its obligations, if any, with
respect to any Universal Warrants by delivering the Warrant Property or, in the
case of underlying securities or commodities, the cash value thereof, as set
forth in the applicable Pricing Supplement. The applicable Pricing Supplement
will specify whether or not a Universal Warrant issued as part of a Unit may be
separated from the other securities comprised by such Unit prior to such
Universal Warrant's expiration. Universal Warrants may not be so separated prior
to the 91st day after the issuance of a Unit, unless otherwise specified in the
applicable Pricing Supplement.
The Universal Warrants comprising part of a Unit will be issued under
the Universal Warrant Agreement dated as of January 24, 1997 (the "Universal
Warrant Agreement") between the Company and The Chase Manhattan Bank, as Warrant
Agent (the "Warrant Agent"), and may be issued in one or more series as set
forth in the applicable Pricing Supplement. The following summaries of certain
provisions of the Universal Warrant Agreement and Universal Warrants do not
purport to be complete and such summaries are subject to the detailed provisions
of such Universal Warrant Agreement to which reference is hereby made for a full
description of such provisions, including the definition of certain terms used
herein, and for other information regarding the Universal Warrants.
Reference is made to the applicable Pricing Supplement for the
following terms of and information relating to any Universal Warrants: (i) the
specific designation and aggregate number of and the price at which the
Universal Warrants will be issued; (ii) the currency or composite currency for
which the Universal Warrants may be purchased; (iii) the date on which the right
to exercise the Universal Warrants shall commence and the date on which such
right shall expire or, if the Universal Warrants are not continuously
exercisable throughout such period, the specific date or dates on which they
will be exercisable; (iv) the identity of any depositaries, execution or paying
agents, transfer agents, registrars or determination or other agents in respect
of the Universal Warrants; (v) whether such Universal Warrants are put Warrants
or call Warrants; (vi) (a) the specific Warrant Property (and the amount
thereof) purchasable or saleable upon exercise of each Universal Warrant; (b)
the price at which and the currency or composite currency with which such
Warrant Property may be purchased or sold upon such exercise (or the method of
determining the same); (c) whether such exercise price may be paid in cash, by
the exchange of any other security offered with such Universal Warrants or both
and the method of such exercise; and (d) whether the exercise of such Universal
Warrants is to be settled in cash or by delivery of the underlying securities or
commodities or both; and (vii) any other terms of the Universal Warrants.
Unless otherwise specified in the applicable Pricing Supplement, the
Universal Warrants may be issued in fully registered global or definitive form,
as specified in the applicable Pricing Supplement. In each case, the form of the
Universal Warrant included in a Unit will correspond to the form of the Unit and
of any other securities included in such Unit. See "Global Securities" in the
Prospectus.
At the option of the holder, upon request confirmed in writing and
subject to the terms of the Universal Warrant Agreement, Universal Warrants in
definitive form may be presented for exchange and for registration of transfer
(with the form of transfer endorsed thereon duly executed), but only in
connection with the transfer of the applicable Unit and each of the securities
comprised by such Unit, unless otherwise specified in the applicable Pricing
Supplement, at the corporate trust office of the Warrant Agent (or any other
office indicated in the Pricing Supplement relating to the Units comprising such
Universal Warrants) without service charge and upon payment of any taxes and
other governmental charges as described in the Universal Warrant Agreement. Such
transfer or exchange will be effected only if the Warrant Agent is satisfied
with the documents of title and identity of the person making the request.
S-29
<PAGE>
Certain Provisions of the Universal Warrant Agreement
Modifications. The Universal Warrant Agreement and the terms of the
Universal Warrants and the Universal Warrant Certificates may be amended by the
Company and the Warrant Agent, without the consent of the holders, for the
purpose of curing any ambiguity, or of curing, correcting or supplementing any
defective or inconsistent provision therein or in any other manner which the
Company may deem necessary or desirable and which will not adversely affect the
interests of the affected holders in any material respect.
The Company and the Warrant Agent may also modify or amend the
Universal Warrant Agreement and the terms of the Universal Warrants, with the
consent of the owners of not less than a majority in number of the then
outstanding unexercised Universal Warrants affected, provided that no such
modification or amendment that changes the exercise price of the Universal
Warrants, reduces the amount receivable upon exercise, cancellation or
expiration, shortens the period of time during which the Universal Warrants may
be exercised or otherwise materially and adversely affects the rights of the
owners of the Universal Warrants or reduces the percentage of outstanding
Universal Warrants, the consent of whose owners is required for modification or
amendment of the Universal Warrant Agreement or the terms of the Universal
Warrants, may be made without the consent of the owners affected thereby.
Merger, Consolidation, Sale or Other Disposition. If at any time there
shall be a merger or consolidation of the Company or a transfer of substantially
all of its assets, as permitted under the applicable Indentures, the successor
corporation thereunder shall succeed to and assume all obligations of the
Company under the Universal Warrant Agreement and the Universal Warrant
Certificates. The Company shall thereupon be relieved of any further obligation
under the Universal Warrant Agreement and the Universal Warrants. The Company
shall notify the Warrantholders of the occurrence of any such event. See
"Description of Debt Securities -- Certain Covenants" in the Prospectus.
Enforceability of Rights of Warrantholders; Governing Law. The Warrant
Agent will act solely as an agent of the Company in connection with the
Universal Warrant Certificates and will not assume any obligation or
relationship of agency or trust for or with any holders of Universal Warrant
Certificates or beneficial owners of Universal Warrants. Any holder of Universal
Warrant Certificates and any beneficial owner of Universal Warrants may, without
the consent of the Warrant Agent, any other holder or beneficial owner, enforce
by appropriate legal action, on its own behalf, its right to exercise the
Universal Warrants evidenced by such Universal Warrant Certificates, in the
manner provided therein and in the Universal Warrant Agreement. No holder of any
Universal Warrant Certificate or beneficial owner of any Universal Warrants
shall be entitled to any of the rights of a holder of the Warrant Property
purchasable upon exercise of such Universal Warrants. The Universal Warrants and
the Universal Warrant Agreement will be governed by, and construed in accordance
with, the laws of the State of New York.
Unsecured Obligations of the Company. The Universal Warrants are
unsecured contractual obligations of the Company and will rank pari passu with
the Company's other unsecured contractual obligations and with the Company's
unsecured and unsubordinated debt. Most of the assets of the Company are owned
by its subsidiaries. Therefore, the Company's rights and the rights of its
creditors, including Warrantholders, to participate in the distribution of
assets of any subsidiary upon such subsidiary's liquidation or recapitalization
will be subject to the prior claims of such subsidiary's creditors, except to
the extent that the Company may itself be a creditor with recognized claims
against the subsidiary. In addition, dividends, loans and advances from certain
of the Company's subsidiaries, including Morgan Stanley, to the Company are
restricted by net capital requirements under the Exchange Act and under rules of
certain exchanges and various domestic and foreign regulatory bodies.
S-30
<PAGE>
FOREIGN CURRENCY RISKS
Exchange Rates and Exchange Controls
An investment in Notes, Units or any of the securities constituting
such Units that are denominated in, or the payment of which is related to the
value of, a Specified Currency other than U.S. dollars entails significant risks
that are not associated with a similar investment in a security denominated in
U.S. dollars. Such risks include, without limitation, the possibility of
significant changes in rates of exchange between the U.S. dollar and the various
foreign currencies (or composite currencies) and the possibility of the
imposition or modification of exchange controls by either the U.S. or foreign
governments. Such risks generally depend on economic and political events over
which the Company has no control. In recent years, rates of exchange between
U.S. dollars and certain foreign currencies have been highly volatile and such
volatility may be expected to continue in the future. Fluctuations in any
particular exchange rate that have occurred in the past are not necessarily
indicative, however, of fluctuations in such rate that may occur during the term
of any Note, Unit or security included in such Unit. Depreciation against the
U.S. dollar of the currency in which a Note, Unit or security included in such
Unit is payable would result in a decrease in the effective yield of such Note
below its coupon rate or in the payout of such Unit (or security included
therein) and, in certain circumstances, could result in a loss to the investor
on a U.S. dollar basis. In addition, depending on the specific terms of a
Currency Linked Note, changes in exchange rates relating to any of the
currencies involved may result in a decrease in its effective yield and, in
certain circumstances, could result in a loss of all or a substantial portion of
the principal of a Note to the investor.
Fluctuations in the rates of exchange between U.S. dollars and any
other currency (i) in which payment of the exercise price of a Universal Warrant
is to be made, (ii) in which the Warrant Property is denominated or (iii) that
is to be purchased or sold by exercise of such Universal Warrant (or between any
of the currencies noted in clauses (i) through (iii) above) may change the value
of such Universal Warrant or of the Unit comprising such Universal Warrant and
could result in a loss to the investor even if the spot price of the Warrant
Property were such that the Universal Warrant appeared to be "in the money."
Similarly, currency fluctuations between U.S. dollars, the currency in which the
purchase price is denominated, the currency in which the Purchase Contract
Property is denominated or, if applicable, the currency to be purchased or sold
pursuant to such Purchase Contract could adversely affect the value of any
Purchase Contract or of the Unit comprising such Purchase Contract and could
result in a loss to the investor.
EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN FINANCIAL AND LEGAL
ADVISORS AS TO ANY SPECIFIC RISKS ENTAILED BY AN INVESTMENT BY SUCH INVESTOR IN
NOTES, UNITS OR ANY OF THE SECURITIES CONSTITUTING SUCH UNITS THAT ARE
DENOMINATED IN, OR THE PAYMENT OF WHICH IS RELATED TO THE VALUE OF, FOREIGN
CURRENCY. SUCH NOTES, UNITS OR OTHER SECURITIES INCLUDED IN SUCH UNITS ARE NOT
AN APPROPRIATE INVESTMENT FOR INVESTORS WHO ARE UNSOPHISTICATED WITH RESPECT TO
FOREIGN CURRENCY TRANSACTIONS.
The information set forth in this Prospectus Supplement is directed to
prospective purchasers who are United States residents, and the Company
disclaims any responsibility to advise prospective purchasers who are residents
of countries other than the United States with respect to any matters that may
affect the purchase, holding or receipt of payments of principal of, premium, if
any, and interest on the Notes (or of any payment due with respect to a Unit).
Such persons should consult their own counsel with regard to such matters.
Foreign exchange rates can either float or be fixed by sovereign
governments. Exchange rates of most economically developed nations are permitted
to fluctuate in value relative to the U.S. dollar. National governments,
however, rarely voluntarily allow their currencies to float freely in response
to economic forces. From time to time governments use a variety of techniques,
such as intervention by a country's central bank or imposition of regulatory
controls or taxes, to affect the exchange rate of their currencies. Governments
may also issue a new currency to replace an existing currency or alter the
exchange rate or relative exchange characteristics
S-31
<PAGE>
by devaluation or revaluation of a currency. Thus, a special risk in purchasing
non-U.S. dollar denominated Notes or Currency Linked Notes (or Universal
Warrants or Purchase Contracts where the exercise or purchase price and the
underlying property is denominated in currencies differing from one another or
from U.S. dollars) is that their U.S. dollar-equivalent yields or payouts could
be affected by governmental actions, which could change or interfere with
theretofore freely determined currency valuation, fluctuations in response to
other market forces, and the movement of currencies across borders. There will
be no adjustment or change in the terms of such Notes, Units or any securities
constituting such Units in the event that exchange rates should become fixed, or
in the event of any devaluation or revaluation or imposition of exchange or
other regulatory controls or taxes, or in the event of other developments
affecting the U.S. dollar or any applicable Specified Currency.
Governments have imposed from time to time, and may in the future
impose, exchange controls that could affect exchange rates as well as the
availability of a specified foreign currency (or of securities denominated in
such currency) at the time of payment of principal of, premium, if any, or
interest on a Note (or of any payment due with respect to a Unit or any security
constituting a Unit). Even if there are no actual exchange controls, it is
possible that the Specified Currency for any particular Note not denominated in
U.S. dollars (or the applicable currency for any payment with respect to a Unit
(or any of the securities constituting such Unit) would not be available when
payments on such Note are due, including as a result of the replacement of such
Specified Currency by a single European currency (expected to be named the
Euro). In that event, the Company would make required payments in U.S. dollars
on the basis of the Market Exchange Rate on the date of such payment, or if such
rate of exchange is not then available, on the basis of the Market Exchange Rate
as of the most recent practicable date; provided, however, that, if the
Specified Currency for any Note (or the applicable currency for any payment with
respect to a Unit (or any of the securities constituting such Unit) is not
available because it has been replaced by the Euro, the Company would make such
payments in Euro in conformity with legally applicable measures taken pursuant
to, or by virtue of, the Treaty. See "Description of Notes -- Payment Currency."
With respect to any Note, Unit or security included in such Unit
denominated in a foreign currency or currency unit, or the payment of, or in
respect to, any Note, Unit or security included in such Unit which is related to
the value of, a foreign currency or currency unit, the applicable Pricing
Supplement will include information with respect to applicable current exchange
controls, if any, and historic exchange rate information on such currency or
currency unit. The information contained therein shall constitute a part of this
Prospectus Supplement and is furnished as a matter of information only and
should not be regarded as indicative of the range of or trends in fluctuations
in currency exchange rates that may occur in the future.
Governing Law and Judgments
The Notes, Units, Universal Warrants and Purchase Contracts will be
governed by and construed in accordance with the laws of the State of New York.
If a court in the United States were to grant a judgment in an action based on
Notes denominated in a Specified Currency other than U.S. dollars or on any
Units, Universal Warrants and Purchase Contracts denominated in any such
currency, it is likely that such court would grant judgment only in U.S.
dollars. If the court were a New York court, however, such court would grant a
judgment in the Specified Currency or currency in respect of which any payment
on a Unit, Universal Warrant, or Purchase Contract was due. Such judgment would
then be converted into U.S. dollars at the rate of exchange prevailing on the
date of entry of the judgment.
S-32
<PAGE>
UNITED STATES FEDERAL TAXATION
In the opinion of Shearman & Sterling, counsel to the Company, the
following summary accurately describes the principal United States federal
income tax consequences of ownership and disposition of the Notes and of Units
consisting of Notes and certain Universal Warrants or Purchase Contracts. This
summary is based on the Internal Revenue Code of 1986, as amended (the "Code"),
and existing and proposed Treasury regulations, revenue rulings, administrative
interpretations and judicial decisions (all as currently in effect and all of
which are subject to change, possibly with retroactive effect). Except as
specifically set forth herein this summary deals only with Notes and Units
purchased by a United States Holder (as defined below) on original issuance and
held as capital assets within the meaning of Section 1221 of the Code. It does
not discuss all of the tax consequences that may be relevant to holders in light
of their particular circumstances or to holders subject to special rules, such
as persons other than United States Holders, insurance companies, dealers in
securities or foreign currencies, persons holding the Notes or Units as part of
a hedging transaction, "straddle," conversion transaction, or other integrated
transaction, or United States Holders whose functional currency (as defined in
Section 985 of the Code) is not the U.S. dollar. Persons considering the
purchase of the Notes or Units should consult with their own tax advisors with
regard to the application of the United States federal income tax laws to their
particular situations as well as any tax consequences arising under the laws of
any state, local or foreign jurisdiction.
As used herein, the term "United States Holder" means a beneficial
owner of a Note or Unit who or that is for United States federal income tax
purposes (i) a citizen or resident of the United States, (ii) a corporation,
partnership or other entity created or organized in or under the laws of the
United States or of any political subdivision thereof, (iii) an estate the
income of which is subject to United States federal income taxation regardless
of its source, or (iv) a trust if both: (A) a United States court is able to
exercise primary supervision over the administration of the trust, and (B) one
or more United States trustees or fiduciaries have the authority to control all
substantial decisions of the trust.
Notes
Payments of Interest on the Notes
Interest paid on a Note (whether in U.S. dollars or in other than U.S.
dollars), that is not a Discount Note or an Exchangeable Note, will generally be
taxable to a United States Holder as ordinary interest income at the time it
accrues or is received, in accordance with the United States Holder's method of
accounting for federal income tax purposes.
Special rules governing the treatment of interest paid with respect to
Discount Notes, including certain Notes that pay interest annually that are
issued less than 15 calendar days before an Interest Payment Date, Notes that
mature one year or less from their date of issuance and Notes issued for an
amount less than their stated redemption price at maturity, are described under
"Discount Notes" below. Special rules governing the treatment of interest paid
with respect to Exchangeable Notes are described under "Optionally Exchangeable
Notes" and "Mandatorily Exchangeable Notes" below.
Discount Notes
The following discussion is a summary of the principal United States
federal income tax consequences of the ownership and disposition of Discount
Notes (as defined below) by United States Holders. Additional rules applicable
to Discount Notes that are denominated in a Specified Currency other than the
U.S. dollar, or have payments of interest or principal determined by reference
to the value of one or more currencies or currency units other than the U.S.
dollar, are described under "Foreign Currency Notes" below.
A Note that has an "issue price" that is less than its "stated
redemption price at maturity" will generally be considered to have been issued
bearing original issue discount ("OID") for United States federal income tax
S-33
<PAGE>
purposes (a "Discount Note"), unless such difference is less than a specified de
minimis amount. The issue price of a Note issued for cash generally will be the
initial offering price to the public at which a substantial amount of Notes is
sold. Such issue price does not change even if part of the issue is subsequently
sold at a different price. The stated redemption price at maturity of a Note is
the total of all payments required to be made under the Note other than
"qualified stated interest" payments. The term "qualified stated interest" is
defined as stated interest that is unconditionally payable at least annually at
a single fixed rate of interest. In addition, qualified stated interest
generally includes stated interest with respect to a variable rate debt
instrument that is unconditionally payable at least annually at a single
qualified floating rate or a rate that is determined using a single fixed
formula that is based on objective financial or economic information. A rate is
a qualified floating rate if variations in the rate can reasonably be expected
to measure contemporaneous fluctuations in the cost of newly borrowed funds.
No payment of interest on a Note that matures one year or less from its
date of issuance will be considered qualified stated interest and accordingly
such a Note will be treated as a Discount Note.
A United States Holder of a Discount Note is required to include
qualified stated interest with respect to the Note in income at the time it is
received or accrued, in accordance with such holder's method of accounting.
In addition, United States Holders of Discount Notes that mature more
than one year from the date of issuance will be required to include OID in
income for United States federal income tax purposes as it accrues, in
accordance with a constant yield method based on a compounding of interest,
before the receipt of cash payments attributable to such income, but such
holders will not be required to include separately in income cash payments
received on such Notes, even if denominated as interest, to the extent they do
not constitute qualified stated interest. The amount of OID includible in income
for a taxable year by a United States Holder of a Discount Note will generally
equal the sum of the "daily portions" of the total OID on the Discount Note for
each day during the taxable year in which such holder held the Discount Note
("accrued OID"). Generally, the daily portion of OID is determined by allocating
to each day in any "accrual period" a ratable portion of the OID allocable to
such accrual period. The term "accrual period" means an interval of time of one
year or less; provided that each scheduled payment of principal or interest
either occurs on the final day of an accrual period or the first day of an
accrual period. The amount of OID allocable to an accrual period will be the
excess of (a) the product of the "adjusted issue price" of the Discount Note at
the beginning of such accrual period and its "yield to maturity" (adjusted to
reflect the length of the accrual period) over (b) the amount of any qualified
stated interest allocable to the accrual period. The "adjusted issue price" of a
Discount Note at the beginning of an accrual period will equal the issue price
thereof plus the amount of OID previously includible in the gross income of any
United States Holder (without reduction for any premium or amortized acquisition
premium, as described below), less any payments made on such Discount Note
(other than qualified stated interest) on or before the first day of the accrual
period. The "yield to maturity" of the Discount Note will be computed on the
basis of a constant annual interest rate compounded at the end of each accrual
period. Under the foregoing rules, United States Holders of Discount Notes will
generally be required to include in income increasingly greater amounts of OID
in successive accrual periods. Special rules will apply for calculating OID for
initial short or final accrual periods.
Notes that pay interest annually that are issued less than 15 calendar
days before an Interest Payment Date may be treated as Discount Notes. United
States Holders intending to purchase such Notes should refer to the applicable
Pricing Supplement.
Certain of the Discount Notes may be redeemable prior to maturity at
the option of the Company (a "call option") and/or repayable prior to maturity
at the option of the holder (a "put option"). Discount Notes containing either
or both of such features may be subject to rules that differ from the general
rules discussed above. Holders intending to purchase Discount Notes with either
or both of such features should carefully examine the applicable Pricing
Supplement and should consult with their own tax advisors with respect to either
or both of such features since the tax consequences with respect to OID will
depend, in part, on the particular terms and the particular features of the
purchased Note.
S-34
<PAGE>
In general, a United States Holder who uses the cash method of tax
accounting and who holds a Discount Note that matures one year or less from the
date of its issuance (a "short-term Discount Note") is not required to accrue
OID for United States federal income tax purposes unless such holder elects to
do so. United States Holders who report income for United States federal income
tax purposes on the accrual method and certain other holders, including banks
and dealers in securities, are required to include OID (or alternatively
acquisition discount) on such short-term Discount Notes on a straight-line
basis, unless an election is made to accrue the OID according to a constant
yield method based on daily compounding. In the case of a United States Holder
who is not required, and does not elect, to include OID in income currently, any
gain realized on the sale, exchange or retirement of a short-term Discount Note
will be ordinary interest income to the extent of the OID accrued on a
straight-line basis (or, if elected by such holder, under the constant yield
method) through the date of sale, exchange or retirement. In addition, such
non-electing United States Holders who are not subject to the current inclusion
requirement described in the second sentence of this paragraph may be required
to defer the deduction of all or a portion of any interest paid on indebtedness
incurred to purchase short-term Discount Notes until such OID is included in
such holder's income.
If the amount of OID with respect to a Note is less than the specified
de minimis amount (generally, 0.0025 multiplied by the product of the stated
redemption price at maturity and the number of complete years to maturity), the
amount of OID is treated as zero and all stated interest is treated as qualified
stated interest. A United States Holder will be required to treat any stated
principal payment on a Note as capital gain to the extent of the product of the
total amount of de minimis OID and a fraction, the numerator of which is the
amount of the principal payment made and the denominator of which is the stated
principal amount of the Note.
United States Holders are permitted to elect to include all interest on
a Note using the constant yield method. For this purpose, interest includes
stated interest, acquisition discount, OID, de minimis OID, market discount, de
minimis market discount, and unstated interest, as adjusted by any amortizable
bond premium or acquisition premium. Special rules apply to elections made with
respect to Notes with amortizable bond premium or market discount and United
States Holders considering such an election should consult their own tax
advisors. The election cannot be revoked without the approval of the Internal
Revenue Service.
Market Discount and Premium
If a United States Holder purchases a Note (other than a Discount Note
or an Exchangeable Note) for an amount that is less than its stated redemption
price at maturity or, in the case of a Discount Note, its adjusted issue price,
the amount of the difference will be treated as "market discount" for United
States federal income tax purposes, unless such difference is less than a
specified de minimis amount.
Under the market discount rules of the Code, a United States Holder
will be required to treat any partial principal payment (or, in the case of a
Discount Note, any payment that does not constitute qualified stated interest)
on, or any gain realized on the sale, exchange, retirement or other disposition
of, a Note as ordinary income to the extent of the lesser of (i) the amount of
such payment or realized gain or (ii) the market discount that has not
previously been included in income and is treated as having accrued on such Note
at the time of such payment or disposition. If such Note is disposed of in a
nontaxable transaction (other than a nonrecognition transaction described in
Code Section 1276(c)), the amount of gain realized on such disposition for
purposes of the market discount rules shall be determined as if such holder had
sold the Note at its then fair market value. Market discount will be considered
to accrue ratably during the period from the date of acquisition to the maturity
date of the Note, unless the United States Holder elects to accrue on the basis
of a constant interest rate.
A United States Holder may 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 such Note until the maturity of the Note or its
earlier disposition (except for certain nonrecognition transactions). A United
States Holder may elect to include market discount in income currently as it
accrues (on either a ratable or a constant interest rate basis), in
S-35
<PAGE>
which case the rules described above regarding the treatment as ordinary income
of gain upon the disposition of the Note and upon the receipt of certain cash
payments and regarding the deferral of interest deductions will not apply.
A United States Holder who purchases a Discount Note for an amount that
is greater than its adjusted issue price, but less than or equal to the sum of
all amounts payable on the Note after the purchase date (other than qualified
stated interest), will be considered to have purchased such Note at an
"acquisition premium" within the meaning of the Code. Under the acquisition
premium rules of the Code, the amount of OID which such holder must include in
its gross income with respect to such Note for any taxable year will be reduced
by a fraction the numerator of which is the excess of the cost of the Note over
its adjusted issue price and the denominator of which is the excess of the sum
of all amounts payable on the Note after the purchase date (other than qualified
stated interest) over the adjusted issue price.
A United States Holder who purchases a Discount Note for an amount that
is greater than the sum of all amounts payable on the Note after the purchase
date (other than qualified stated interest) will be considered to have purchased
such Note at a "premium" within the meaning of the OID Regulations. In such
case, the holder is not required to include any OID in gross income.
If a United States Holder purchases a Note (other than an Exchangeable
Note) for an amount that is greater than the amount payable at maturity (or on
the earlier call date, in the case of a Note that is redeemable at the option of
the Company), such holder will be considered to have purchased such Note with
"amortizable bond premium" equal in amount to such excess, and may elect (in
accordance with applicable Code provisions) to amortize such premium, using a
constant yield method over the remaining term of the Note and to offset interest
otherwise required to be included in income in respect of such Note during any
taxable year by the amortized amount of such excess for such taxable year.
However, if such Note may be optionally redeemed after the United States Holder
acquires it at a price in excess of its stated redemption price at maturity,
special rules would apply which could result in a deferral of the amortization
of some bond premium until later in the term of such Note.
Sale, Exchange or Retirement of the Notes
Upon the sale, exchange or retirement of a Note, a United States Holder
will generally recognize taxable gain or loss equal to the difference between
the amount realized on the sale, exchange or retirement and such holder's
adjusted tax basis in the Note. For these purposes, the amount realized on the
sale, exchange or retirement of a Note (other than an Exchangeable Note) does
not include any amount attributable to accrued interest (or, in the case of a
Discount Note, accrued qualified stated interest), which will be taxable as such
unless previously taken into account. A United States Holder's adjusted tax
basis in a Note (other than an Exchangeable Note) generally will equal the cost
of the Note to such holder, increased by the amounts of any market discount, OID
and de minimis OID previously included in income by the holder with respect to
such Note and reduced by any amortized bond premium and any principal payments
received by the United States Holder and, in the case of a Discount Note, by the
amounts of any other payments that do not constitute qualified stated interest.
Subject to the discussion under "Foreign Currency Notes" and
"Optionally Exchangeable Notes" below, gain or loss recognized on the sale,
exchange or retirement of a Note will be capital gain or loss (except to the
extent of any accrued market discount or, in the case of a short-term Discount
Note, any accrued OID which the United States Holder has not previously included
in income), and will generally be long-term capital gain or loss if at the time
of sale, exchange or retirement the Note has been held for more than one year.
A United States Holder generally will not recognize gain or loss upon
the election (or revocation of such election) or failure to elect to terminate
the automatic extension of maturity of a Renewable Note.
S-36
<PAGE>
Foreign Currency Notes
The following discussion summarizes the principal United States federal
income tax consequences to a United States Holder of the ownership and
disposition of Notes (other than the Currency Linked Notes described above) that
are denominated in a Specified Currency other than the U.S. dollar or the
payments of interest or principal on which are payable in one or more currencies
or currency units other than the U.S. dollar (a "Foreign Currency Note").
The rules discussed below will generally not apply to a United States
Holder that enters into a "qualified hedging transaction." A qualified hedging
transaction is an integrated economic transaction consisting of a qualifying
debt instrument, such as a Foreign Currency Note, and a "section 1.988-5(a)
hedge," as defined in section 1.988-5(a)(4) of the Treasury regulations.
Generally, such an integrated economic transaction, if identified as such by
either the United States Holder or the Internal Revenue Service, is treated as a
single transaction for United States federal income tax purposes, the effect of
which is to treat such a holder as owning a synthetic debt instrument that is
subject to rules applicable to Discount Notes. The rules with respect to a
qualified hedging transaction are extremely complex and special rules may apply
in certain circumstances, and persons that are considering hedging the currency
risk are urged to consult with their own tax advisors with respect to the
application of these rules.
A United States Holder who uses the cash method of accounting and who
receives a payment of interest with respect to a Foreign Currency Note (other
than a Discount Note (except to the extent any qualified stated interest is
received) in which OID is accrued on a current basis) will be required to
include in income the U.S. dollar value of the foreign currency payment
(determined on the date such payment is received) regardless of whether the
payment is in fact converted to U.S. dollars at that time, and such U.S. dollar
value will be the United States Holder's tax basis in the foreign currency.
A United States Holder (to the extent the above paragraph is not
applicable) will be required to include in income the U.S. dollar value of the
amount of interest income (including OID or market discount and reduced by
premium, acquisition premium and amortizable bond premium to the extent
applicable) that has accrued and is otherwise required to be taken into account
with respect to a Foreign Currency Note during an accrual period. The U.S.
dollar value of such accrued income will be determined by translating such
income at the average rate of exchange for the accrual period or, with respect
to an accrual period that spans two taxable years, at the average rate for the
partial period within the taxable year. The average rate of exchange for the
accrual period (or partial period) is the simple average of the exchange rates
for each business day of such period (or other method if such method is
reasonably derived and consistently applied). A United States Holder may elect
to determine the U.S. dollar value of such accrued income by translating such
income at the spot rate on the last day of the interest accrual period (or, in
the case of a partial accrual period, the spot rate on the last day of the
taxable year) or, if the date of receipt is within five business days of the
last day of the interest accrual period, the spot rate on the date of receipt.
Such United States Holder will recognize ordinary gain or loss with respect to
accrued interest income on the date such income is received. The amount of
ordinary gain or loss recognized will equal the difference between the U.S.
dollar value of the foreign currency payments received (determined on the date
such payment is received) in respect of such accrual period and the U.S. dollar
value of interest income that has accrued during such accrual period (as
determined above).
A United States Holder will have a tax basis in any foreign currency
received on the sale, exchange or retirement of a Foreign Currency Note equal to
the U.S. dollar value of such foreign currency, determined at the time of such
sale, exchange or retirement. Any gain or loss realized by a United States
Holder on a sale or other disposition of foreign currency (including its
exchange for U.S. dollars or its use to purchase Foreign Currency Notes) will be
ordinary income or loss.
A United States Holder's tax basis in a Foreign Currency Note, and the
amount of any subsequent adjustment to such holder's tax basis, will be the U.S.
dollar value of the foreign currency amount paid for such Foreign Currency Note,
or of the foreign currency amount of the adjustment, determined on the date of
such
S-37
<PAGE>
purchase or adjustment. A United States Holder who converts U.S. dollars to a
foreign currency and immediately uses that currency to purchase a Foreign
Currency Note denominated in the same currency ordinarily will not recognize
gain or loss in connection with such conversion and purchase. However, a United
States Holder who purchases a Foreign Currency Note with previously owned
foreign currency will recognize ordinary income or loss in an amount equal to
the difference, if any, between such holder's tax basis in the foreign currency
and the U.S. dollar fair market value of the Foreign Currency Note on the date
of purchase. For purposes of determining the amount of any gain or loss
recognized by a United States Holder on the sale, exchange or retirement of a
Foreign Currency Note, the amount realized upon such sale, exchange or
retirement will be the U.S. dollar value of the foreign currency received,
determined on the date of sale, exchange or retirement.
Gain or loss realized upon the sale, exchange or retirement of a
Foreign Currency Note will be ordinary income or loss to the extent it is
attributable to fluctuations in currency exchange rates. Gain or loss
attributable to fluctuations in exchange rates will equal the difference between
the U.S. dollar value of the foreign currency principal amount of such Note,
determined on the date such payment is received or such Note is disposed of,
including any payment with respect to accrued interest, and the U.S. dollar
value of the foreign currency principal amount of such Note, determined on the
date such United States Holder acquired such Note, and the U.S. dollar value of
accrued interest received (determined by translating such interest at the
average exchange rate for the accrual period). The foreign currency principal
amount of a Foreign Currency Note generally equals the United States Holder's
purchase price in units of foreign currency. Such foreign currency gain or loss
will be recognized only to the extent of the total gain or loss recognized by a
United States Holder on the sale, exchange or retirement of the Foreign Currency
Note.
The source of exchange gain or loss will be determined by reference to
the residence of the holder or the "qualified business unit" of the holder on
whose books the Note is properly reflected. Any gain or loss recognized by such
a United States Holder in excess of such foreign currency gain or loss will be
capital gain or loss (except to the extent of any accrued market discount or, in
the case of a short-term Discount Note, any accrued OID), and generally will be
long-term capital gain or loss if the holding period of the Foreign Currency
Note exceeds one year.
Any gain or loss that is treated as ordinary income or loss, as
described above, generally will not be treated as interest income or expense
except to the extent provided by administrative pronouncements of the Internal
Revenue Service.
OID, market discount, premium, acquisition premium and amortizable bond
premium of a Foreign Currency Note are to be determined in the relevant foreign
currency. The amount of such discount or premium that is taken into account
currently under general rules applicable to Notes other than Foreign Currency
Notes is to be determined for any accrual period in the relevant foreign
currency and then translated into the United States Holder's functional currency
on the basis of the average exchange rate in effect during such accrual period.
The amount of accrued market discount (other than market discount that is
included in income on a current basis) taken into account upon the receipt of
any partial principal payment or upon the sale, exchange, retirement or other
disposition of a Foreign Currency Note will be the U.S. dollar value of such
accrued market discount (determined on the date of receipt of such partial
principal payment or upon the sale, exchange, retirement or other disposition).
Any loss realized on the sale, exchange or retirement of a Foreign
Currency Note with amortizable bond premium by a United States Holder who has
not elected to amortize such premium will be a capital loss to the extent of
such bond premium. If such an election is made, amortizable bond premium taken
into account on a current basis shall reduce interest income in units of the
relevant foreign currency. Exchange gain or loss is realized on such amortized
bond premium with respect to any period by treating the bond premium amortized
in such period as a return of principal.
The Code and the applicable regulations do not discuss the tax
consequences of an issuance of a Foreign Currency Note that is denominated in,
or has payments of interest or principal determined by reference to, a so-called
hyperinflationary currency or more than one currency. On March 17, 1992,
Treasury regulations were proposed with regard to debt instruments denominated
in a hyperinflationary currency and certain debt instruments
S-38
<PAGE>
denominated in more than one currency. These proposed regulations are proposed
to be effective for transactions entered into on or after the date such
regulations are finalized.
A Foreign Currency Note will be considered to be a debt instrument
denominated in a hyperinflationary currency if it is denominated in a Specified
Currency of a country in which there is cumulative inflation of at least 100%
during the 36 calendar month period ending on the last day of the preceding
calendar year. Under the proposed regulations, a United States Holder that
acquires a Foreign Currency Note that is denominated in a hyperinflationary
currency will recognize gain or loss for its taxable year determined by
reference to the change in exchange rates between the first day of the taxable
year (or the date the Note was acquired, if later) and the last day of the
taxable year (or the date the Note was disposed of, if earlier). Such gain or
loss will reduce or increase the amount of interest income otherwise required to
be taken into account. Special rules apply to the extent such loss exceeds the
amount of interest income otherwise taken into account.
Under the proposed regulations, a Foreign Currency Note will be
considered to be a "dual currency debt instrument" if (i) the qualified stated
interest is denominated in or determined by reference to a single currency, (ii)
the stated redemption price at maturity is denominated in or determined by
reference to a different currency, and (iii) the amount of all payments in each
currency is fixed on the issue date. A Foreign Currency Note (other than a dual
currency debt instrument) will be considered to be a "multicurrency debt
instrument" if payments are to be made in more than one currency and the amount
of all payments in each currency is fixed on the issue date. A dual currency
debt instrument will be treated as two hypothetical debt instruments, a zero
coupon bond denominated in the currency of the stated redemption price at
maturity and an installment obligation denominated in the currency of the
qualified stated interest. A multicurrency debt instrument will be treated
similarly and separated into component hypothetical debt instruments in each
currency. The OID and foreign currency rules discussed above will apply to each
hypothetical debt instrument. The proposed regulations do not apply to any
Foreign Currency Note that is denominated in, or has payments of interest or
principal determined by reference to, more than one currency except to the
extent the Note meets the definition of a dual currency debt instrument or
multicurrency debt instrument.
Optionally Exchangeable Notes
The following discussion summarizes the principal United States federal
income tax consequences to a United States Holder of the ownership and
disposition of Optionally Exchangeable Notes.
Optionally Exchangeable Notes will be treated as "contingent payment
debt instruments" for United States federal income tax purposes. As a result,
the Optionally Exchangeable Notes will generally be subject to the OID
provisions of the Code and the Treasury regulations issued thereunder and a
United States Holder will be required to accrue interest income on the
Optionally Exchangeable Notes as set forth below.
At the time the Optionally Exchangeable Notes are issued, the Company
will be required to determine a "comparable yield" for the Optionally
Exchangeable Notes that takes into account the yield at which the Company could
issue a fixed rate debt instrument with terms similar to those of the Optionally
Exchangeable Notes (including the level of subordination, term, timing of
payments and general market conditions, but excluding any adjustments for
liquidity or the riskiness of the contingencies with respect to the Optionally
Exchangeable Notes). The comparable yield may be greater than or less than the
stated interest rate, if any, with respect to the Optionally Exchangeable Notes.
Solely for purposes of determining the amount of interest income that a
United States Holder will be required to accrue, the Company will be required to
construct a "projected payment schedule" in respect of the Optionally
Exchangeable Notes representing a series of payments the amount and timing of
which would produce a yield to maturity on the Optionally Exchangeable Notes
equal to the comparable yield. NEITHER THE COMPARABLE YIELD NOR THE PROJECTED
PAYMENT SCHEDULE CONSTITUTES A REPRESENTATION BY THE COMPANY REGARDING THE
ACTUAL AMOUNT THAT THE
S-39
<PAGE>
OPTIONALLY EXCHANGEABLE NOTES WILL PAY. For United States federal income tax
purposes, a United States Holder is required to use the comparable yield and the
projected payment schedule established by the Company in determining interest
accruals and adjustments in respect of an Optionally Exchangeable Note, unless
such United States Holder timely discloses and justifies the use of other
estimates to the Internal Revenue Service.
Based on the comparable yield and the issue price of the Optionally
Exchangeable Notes, a United States Holder of an Optionally Exchangeable Note
(regardless of accounting method) will be required to accrue as OID the sum of
the daily portions of interest on the Optionally Exchangeable Note for each day
in the taxable year on which the holder held the Optionally Exchangeable Note,
adjusted upward or downward to reflect the difference, if any, between the
actual and the projected amount of any contingent payments on the Optionally
Exchangeable Note (as set forth below). The daily portions of interest in
respect of an Optionally Exchangeable Note are determined by allocating to each
day in an accrual period the ratable portion of interest on the Optionally
Exchangeable Note that accrues in the accrual period. The amount of interest on
an Optionally Exchangeable Note that accrues in an accrual period is the product
of the comparable yield on the Optionally Exchangeable Note (adjusted to reflect
the length of the accrual period) and the adjusted issue price of the Optionally
Exchangeable Note. The adjusted issue price of an Optionally Exchangeable Note
at the beginning of the first accrual period will equal its issue price and for
any accrual period thereafter will be (x) the sum of the issue price of such
Optionally Exchangeable Note and any interest previously accrued thereon by a
holder (disregarding any positive or negative adjustments) minus (y) the amount
of any projected payments on the Optionally Exchangeable Note for previous
accrual periods.
A United States Holder will be required to recognize interest income
equal to the amount of any positive adjustment (i.e., the excess of actual
payments over projected payments) in respect of an Optionally Exchangeable Note
for a taxable year. A negative adjustment (i.e., the excess of projected
payments over actual payments) in respect of an Optionally Exchangeable Note for
a taxable year (i) will first reduce the amount of interest in respect of the
Optionally Exchangeable Note that a United States Holder would otherwise be
required to include in income in the taxable year and (ii) to the extent of any
excess, will give rise to an ordinary loss equal to that portion of such excess
as does not exceed the excess of (A) the amount of all previous interest
inclusions under the Optionally Exchangeable Note over (B) the total amount of
the United States Holder's net negative adjustments treated as ordinary loss on
the Exchangeable Note in prior taxable years. A net negative adjustment is not
subject to the two percent floor limitation imposed on miscellaneous deductions
under Section 67 of the Code. Any negative adjustment in excess of the amounts
described above in (i) and (ii) will be carried forward to offset future
interest income in respect of the Optionally Exchangeable Note or to reduce the
amount realized on a sale, exchange or retirement of the Optionally Exchangeable
Note. Where a United States Holder purchases an Optionally Exchangeable Note at
a price other than the issue price thereof, the difference between the purchase
price and the issue price will generally be treated as a positive or negative
adjustment, as the case may be, and allocated to the daily portions of interest
or projected payments with respect to the Optionally Exchangeable Note over its
remaining term.
Upon a sale, exchange or retirement of an Optionally Exchangeable Note,
a United States Holder will generally recognize taxable gain or loss equal to
the difference between the amount realized on the sale, exchange or retirement
and such holder's tax basis in the Optionally Exchangeable Note. If the Company
delivers property (other than cash) to a holder in retirement of an Optionally
Exchangeable Note, the amount realized will equal the fair market value of the
property, determined at the time of such retirement, plus the amount of cash, if
any, received in lieu of property. A United States Holder's tax basis in an
Optionally Exchangeable Note will equal the cost thereof, increased by the
amount of interest income previously accrued by the holder in respect of the
Optionally Exchangeable Note (disregarding any positive or negative adjustments)
and decreased by the amount of all prior projected payments in respect of the
Optionally Exchangeable Note. A United States Holder generally will treat any
gain as interest income, and any loss as ordinary loss to the extent of the
excess of previous interest inclusions over the total negative adjustments
previously taken into account as ordinary losses, and the balance as capital
loss.
S-40
<PAGE>
A United States Holder will have a tax basis in any property (other
than cash) received upon the retirement of an Optionally Exchangeable Note equal
to the fair market value of such property, determined at the time of such
retirement. Any gain or loss realized by a United States Holder on a sale or
exchange of such property will generally be capital gain or loss and will
generally be long-term capital gain or loss if the sale or exchange occurs more
than one year after the retirement of the Exchangeable Note.
Mandatorily Exchangeable Notes
Under current United States federal income tax law, it is unclear how a
Mandatorily Exchangeable Note will be treated. Prospective purchasers of
Mandatorily Exchangeable Notes are urged to review the applicable Pricing
Supplement and consult with their tax advisors.
PERLS, Reverse PERLS and Multicurrency PERLS
The following discussion relates to PERLS, Reverse PERLS and
Multicurrency PERLS that bear current coupons consistent with or greater than
comparable dollar denominated debt obligations. In other cases, holders should
refer to the discussion relating to taxation in the applicable Pricing
Supplement.
Although no authority exists that addresses instruments having
characteristics similar to such instruments and the conclusions herein are
therefore not entirely free from doubt, Shearman & Sterling advises that such
PERLS, Reverse PERLS and Multicurrency PERLS should constitute debt obligations
for United States federal income tax purposes and that no portion of the issue
price should be allocated to the foreign currency feature. The Company intends
to treat PERLS, Reverse PERLS and Multicurrency PERLS as indebtedness of the
Company and such characterization is binding on all United States Holders,
except for holders who disclose a different position on their United States
federal income tax return. In any case, the Company's treatment is not binding
upon the Internal Revenue Service or the courts, and there can be no assurance
that it will be accepted.
The Treasury regulations under the OID provisions of the Code state
that a debt instrument will not be treated as a contingent debt instrument
merely because some or all of the payments are denominated in or determined by
reference to the value of one or more foreign currencies. It should be noted,
however, that the foreign currency regulations do not yet address the treatment
of instruments like PERLS, Reverse PERLS or Multicurrency PERLS and the proposed
regulations do not address the treatment of such instruments except insofar as
they meet the definitions of dual currency debt instruments and multicurrency
debt instruments. It is possible that such regulations (or other authority),
when issued, could result in tax consequences that differ from those described
herein, and that such authority could apply with retroactive effect. See
discussion under "Foreign Currency Notes" for a summary of other federal income
tax principles that may apply to United States Holders of PERLS, Reverse PERLS
and Multicurrency PERLS.
Notes Linked to Commodity Prices, Single Securities, Baskets of
Securities or Indices
The United States federal income tax consequences to a United States
Holder of the ownership and disposition of Notes that have principal or interest
determined by reference to commodity prices, securities of entities unaffiliated
with the Company, baskets of such securities or indices will vary depending upon
the exact terms of the Notes and related factors. Unless otherwise noted in the
applicable Pricing Supplement, such Notes will be subject to the same United
States federal income tax treatment as Optionally Exchangeable Notes.
Units
The following discussion addresses the treatment of a Unit consisting
of (i) a Note and one or more Universal Warrants entitling the holder thereof to
purchase securities of an entity unaffiliated with the Company, a basket of such
securities, an index or indices of such securities or any combination of the
above or commodities (each, a "Warrant Unit"), or (ii) a Note and one or more
Purchase Contracts requiring the holder thereof to purchase securities of an
entity unaffiliated with the Company, a basket of such securities, an index or
indices of
S-41
<PAGE>
such securities or any combination of the above or commodities (each, a
"Purchase Unit"). Other Units and certain Warrant Units and Purchase Units with
special terms and conditions may be subject to United States federal income tax
consequences that differ from those described below. United States Holders
intending to purchase such Units should refer to the discussion relating to
United States federal income taxation in the applicable Pricing Supplement.
Warrant Units
While not free from doubt, based on certain representations made by the
Company it is the opinion of Shearman & Sterling that, in the case of a Warrant
Unit, the Note and the Universal Warrants should be treated as separate
instruments and, pursuant to the terms of the Unit Agreement, the Company and
each United States Holder will be obligated (in the absence of an applicable
administrative ruling or judicial determination to the contrary) to follow this
treatment. Except as otherwise stated, the following discussion assumes that the
Notes and Universal Warrants comprising Warrant Units will be respected as
separate instruments. Under this treatment, the issue price of the Warrant Unit
(determined in a similar manner as the issue price of a Note) will be allocated
between the Note and the Universal Warrants based on their relative fair market
values. This allocation will be set forth in the applicable Pricing Supplement
and will be based on the Company's judgment as to the relative value of the Note
and the Universal Warrants at the time of original issue. No assurance can be
given, however, that the Internal Revenue Service will not challenge the
Company's allocation. Unless otherwise noted in the applicable Pricing
Supplement, the Note component of a Warrant Unit will be treated as having been
issued with OID.
The determination by the Company of the issue price of a Note and one
or more Universal Warrants comprising a Warrant Unit will be binding on a holder
thereof, unless such holder discloses the use of a different allocation on a
statement attached to such holder's Federal income tax return for the taxable
year that includes the acquisition date of the Warrant Unit. If a holder
acquires a Warrant Unit at a price different from that on which the Company's
allocation is based, such holder may be treated as having acquired the Note
component thereof for an amount greater or less than the amount allocated to the
Note by the Company as set forth above, thereby potentially resulting in
"acquisition premium" or "market discount."
Upon the exercise of a Universal Warrant, a United States Holder will
not recognize gain or loss (except with respect to cash, if any, received on
such exercise) and will have a tax basis in the property acquired pursuant to
such exercise equal to such holder's tax basis in the Universal Warrant (as
described above) plus the exercise price of the Universal Warrant. The holding
period for any property so acquired will commence on the day after the date of
exercise of the Universal Warrant. If any cash is received in lieu of the right
to receive a fractional interest in property pursuant to a Universal Warrant, a
United States Holder will recognize gain or loss the amount and character of
which will be determined as if such holder had received such property and then
immediately sold it for cash. If cash is received in full settlement of the
right to receive property pursuant to a Universal Warrant, a United States
Holder will recognize gain or loss in the same manner as on a sale or exchange
of a Universal Warrant (see discussion below). On the sale of property received
upon exercise of a Universal Warrant, a United States Holder will recognize gain
or loss equal to the difference between the amount realized upon the sale and
such holder's tax basis in the property (which will generally equal the exercise
price of the Universal Warrant plus the portion of the issue price of the
Warrant Unit that was allocated to the Universal Warrant). Such gain or loss
will generally be capital gain or loss and will be long-term capital gain or
loss if, at the time of sale or exchange, the property was held for more than
one year.
A United States Holder of a Universal Warrant will recognize gain or
loss on the sale or exchange of the Universal Warrant (including if the
Universal Warrant expires unexercised or is settled entirely in cash) in an
amount equal to the difference between the amount realized and such holder's tax
basis in the Universal Warrant (as described above). Such gain or loss will
generally be capital gain or loss and will be long-term capital gain or loss if,
at the time of sale or exchange, the Universal Warrant was held for more than
one year. On a sale or exchange of a Warrant Unit, the amount realized on the
sale or exchange will be allocated between the Note and the Universal Warrants
comprising the Warrant Unit based on the relative fair market value of the Note
and the Universal Warrants.
S-42
<PAGE>
Unless otherwise noted in the applicable Pricing Supplement, a Note
issued as part of a Warrant Unit will be taxable in the same manner as if it had
been issued separately. See discussion under "Notes" above.
It is also possible that a Warrant Unit could be characterized as a
single debt instrument. Under that characterization, the Warrant Unit would
constitute a contingent payment debt instrument and would be subject to the OID
provisions of the Code and the Treasury regulations issued thereunder. For a
description of the treatment of contingent payment debt instruments, see
discussion under "Optionally Exchangeable Notes" above.
Purchase Unit
Under current United States federal income tax law, it is unclear
whether a Purchase Unit will be treated, in whole or in part, as a forward
contract, as indebtedness of the Company, as one or more options or other
derivative instruments, or as a combination thereof. No statutory, judicial or
administrative authority definitively addresses the characterization for United
States federal income tax purposes of a Purchase Unit or instruments similar to
a Purchase Unit. As a result, significant aspects of the United States federal
income tax treatment of an investment in a Purchase Unit are uncertain. No
ruling has been or will be requested from the Internal Revenue Service with
respect to the Purchase Units and no assurance can be given that the Internal
Revenue Service or a court will agree with the analysis set forth herein.
ACCORDINGLY, PROSPECTIVE INVESTORS IN A PURCHASE UNIT SHOULD CONSULT THEIR OWN
TAX ADVISORS IN DETERMINING THE TAX CONSEQUENCES OF INVESTMENTS IN THE PURCHASE
UNIT IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES.
Unless otherwise noted in the applicable Pricing Supplement, the
Company and each United States Holder, pursuant to the terms of the Unit
Agreement, will be obligated (in the absence of an applicable administrative
ruling or judicial determination to the contrary) to treat a Note and one or
more Purchase Contracts comprising the Purchase Unit as separate instruments.
Under this characterization, the issue price of the Purchase Unit (determined in
a similar manner as the issue price of a Note) will be allocated between the
Note and the Purchase Contracts based on their relative fair market values. This
allocation will be based on the Company's judgment as to the relative value of
the Note and the Purchase Contracts at the time of original issue. Unless
otherwise noted in the applicable Pricing Supplement, the Company will not
allocate any of the issue price of a Purchase Unit to the Purchase Contracts. No
assurance can be given, however, that the Internal Revenue Service will not
challenge the Company's allocation. In the event that a portion of the issue
price of a Purchase Unit is allocated to the Purchase Contracts, the applicable
Note may be treated as having been issued with OID.
The determination by the Company of the issue price of a Note and one
or more Purchase Contracts comprising a Purchase Unit will be binding on a
holder thereof, unless such holder discloses the use of a different allocation
on a statement attached to such holder's Federal income tax return for the
taxable year that includes the acquisition date of the Purchase Unit. If a
holder acquires a Purchase Unit at a price different from that on which the
Company's allocation is based, such holder may be treated as having acquired the
Note component thereof for an amount greater or less than the amount allocated
to the Note by the Company as set forth above, thereby potentially resulting in
"acquisition premium" or "market discount."
In addition, under this characterization of a Purchase Unit, a United
States Holder would recognize no gain or loss upon the performance of a Purchase
Contract, other than short-term capital gain or loss with respect to any cash
received in lieu of the right to receive a fractional interest in property, in
an amount equal to the difference between the cash received in lieu of the
property being purchased and the portion of the purchase price paid for such
property pursuant to the Purchase Contract. A United States Holder will
generally have a tax basis in the property received pursuant to a Purchase
Contract equal to the amount paid therefor. If cash is received in full
settlement of the right to receive property pursuant to a Purchase Contract, a
United States Holder will recognize gain or loss to the extent that the purchase
price under the Purchase Contract differs from the amount of cash received. For
these purposes, the purchase price under a Purchase Contract generally consists
of the portion, if any, of the United States Holder's original purchase price
for the Purchase Unit allocated to such Purchase Contract plus the amount
S-43
<PAGE>
of the additional payment to be made upon performance. The character of such
gain or loss will be determined in the same manner as on a sale or exchange of a
Purchase Contract (see discussion below).
If a United States Holder sells or otherwise disposes of a Purchase
Contract prior to maturity, such holder generally would, under the
characterization described above, recognize gain or loss equal to the difference
between the amount realized on the sale or other disposition and the United
States Holder's tax basis in the Purchase Contract (which generally would be
zero, as described above). Such gain or loss generally would be capital gain or
loss and would be long-term capital gain or loss if the United States Holder has
held the Purchase Contract for more than one year at the time of disposition. On
a sale or exchange of a Purchase Unit, the amount realized on the sale or
exchange will be allocated between the Note and the Purchase Contracts
comprising the Purchase Unit based on the relative fair market value of the Note
and the Purchase Contracts.
Under the above characterization, a Note issued as part of a Purchase
Unit would be taxable in the same manner as if it had been issued separately.
See discussion under "Notes" above.
Although counsel does not believe that it is more likely, it is
possible that a Purchase Unit would be treated as a single debt instrument, the
principal amount of which is wholly dependent upon the future value of the
property subject to the Purchase Contract. In such case, the Purchase Unit would
constitute a contingent payment debt instrument and would be subject to the OID
provisions of the Code and the Treasury regulations issued thereunder. For a
description of the treatment of contingent payment debt instruments, see
discussion under "Optionally Exchangeable Notes" above.
It is also possible that a Purchase Unit could be characterized in a
manner that results in tax consequences different from those described above.
Under such alternative characterizations, it is possible, for example, that (i)
a United States Holder could be taxable upon the receipt pursuant to the
Purchase Contract of property with a value in excess of the principal amount of
the Note, rather than upon the sale of such property, (ii) gain could be treated
as ordinary income, instead of capital gain, (iii) a portion of the issue price
of the Purchase Unit could be allocated to the forward Purchase Contract and a
United States Holder could be required to accrue OID equal to that amount, or
(iv) payments of stated interest could be viewed in part as an option premium or
other fee income.
Backup Withholding
Certain "backup" withholding and information reporting requirements may
apply to payments on, and to proceeds of the sale before maturity of, the Notes
and Units. The Company, its agent, a broker, the relevant Trustee or any paying
agent, as the case may be, will generally withhold tax at a rate of 31% from any
such payments to a United States Holder who fails to furnish his taxpayer
identification number (social security number or employer identification
number), to certify that such holder is not subject to backup withholding, or to
otherwise comply with the applicable requirements of the backup withholding
rules. Certain holders (including, among others, corporations) are generally not
subject to the backup withholding and information reporting requirements.
Any amounts withheld under the backup withholding rules from a payment
to a United States Holder would be allowed as a refund or a credit against such
holder's United States federal income tax provided that the required information
is furnished to the Internal Revenue Service.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR
GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S
PARTICULAR SITUATION. HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT
TO THE TAX CONSEQUENCES TO THEM OF THE OWNERSHIP AND DISPOSITION OF THE NOTES,
INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS
AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
S-44
<PAGE>
PLAN OF DISTRIBUTION
The Program Securities are being offered on a continuing basis by the
Company exclusively through the Agent, who has agreed to use reasonable efforts
to solicit offers to purchase such Program Securities. The Company will have the
sole right to accept offers to purchase Program Securities and may reject any
such offer in whole or in part. The Agent will have the right to reject any
offer to purchase Program Securities solicited by it in whole or in part.
Payment of the purchase price of the Program Securities will be required to be
made in immediately available funds. Unless otherwise specified in the
applicable Pricing Supplement, the Company will pay the Agent, in connection
with sales of Program Securities resulting from a solicitation made or an offer
to purchase received by the Agent, a commission ranging from .125% to .750% of
the initial offering price of the Program Securities to be sold, depending upon
the maturity of the Program Securities; provided, however, that commissions with
respect to Program Securities having a maturity of 30 years or greater will be
negotiated.
The Company may also sell Program Securities to the Agent as principal
for its own account at discounts to be agreed upon at the time of sale. Such
Program Securities may be resold to investors and other purchasers at a fixed
offering price or at prevailing market prices, or prices related thereto at the
time of such resale or otherwise, as determined by the Agent and specified in
the applicable Pricing Supplement. The Agent may offer the Program Securities it
has purchased as principal to other dealers. The Agent may sell the Program
Securities to any dealer at a discount and, unless otherwise specified in the
applicable Pricing Supplement, such discount allowed to any dealer will not be
in excess of the discount to be received by the Agent from the Company. After
the initial public offering of Program Securities that are to be resold by the
Agent to investors and other purchasers on a fixed public offering price basis,
the public offering price, concession and discount may be changed.
The Agent may be deemed to be an "underwriter" within the meaning of
the Securities Act of 1933 (the "Securities Act"). The Company and the Agent
have agreed to indemnify each other against certain liabilities, including
liabilities under the Securities Act, or to contribute to payments made in
respect thereof. The Company has also agreed to reimburse the Agent for certain
expenses.
Unless otherwise provided in the applicable Pricing Supplement, the
Company does not intend to apply for the listing of the Program Securities on a
national securities exchange, but has been advised by the Agent that the Agent
intends to make a market in the Program Securities (or, if separable, any other
securities comprised by Units), as permitted by applicable laws and regulations.
The Agent is not obligated to do so, however, and the Agent may discontinue
making a market at any time without notice. No assurance can be given as to the
liquidity of any trading market for the Program Securities (or, if separable,
any other securities comprised by any Units).
The Agent is a wholly owned subsidiary of the Company. Each offering of
Program Securities will be conducted in compliance with the requirements of Rule
2720 of the NASD regarding an NASD member firm's distributing the securities of
an affiliate. Following the initial distribution of any Program Securities, the
Agent may offer and sell such Program Securities (or, if separable, any other
securities comprised by any Units) in the course of its business as a
broker-dealer. The Agent may act as principal or agent in such transactions.
This Prospectus Supplement may be used by the Agent in connection with such
transactions. Such sales, if any, will be made at varying prices related to
prevailing market prices at the time of sale or otherwise. The Agent is not
obligated to make a market in any Program Securities (or any other securities
comprised by Units) and may discontinue any market-making activities at any time
without notice.
The Agent and any dealers utilized in the sale of Program Securities
will not confirm sales to accounts over which they exercise discretionary
authority.
Concurrently with the offering of Program Securities through the Agent
as described herein, the Company may issue other Debt Securities pursuant to the
Indentures referred to herein or Units similar to those described herein. Such
Debt Securities may include medium-term notes ("Global Medium-Term Notes, Series
D," and "Global Medium-Term Notes, Series E," collectively referred to as "Euro
Medium-Term Notes") and units ("Global Units, Series D" and "Global Units,
Series E") that may have terms substantially similar to the terms of the Program
Securities offered hereby and that may be offered concurrently with the offering
of the Program
S-45
<PAGE>
Securities, on a continuing basis outside the United States by the Company
pursuant to a distribution agreement (the "Euro Distribution Agreement") with
Morgan Stanley & Co. International Limited and certain other affiliates of the
Company, as agents for the Company, the terms of which are substantially similar
to the terms of the distribution agreement (the "U.S. Distribution Agreement")
with the Agent, except for certain selling restrictions specified in the Euro
Distribution Agreement. Any Euro Medium-Term Notes, Global Units, Series D or
Global Units, Series E sold pursuant to such Euro Distribution Agreement, and
any Debt Securities, Debt Warrants, preferred stock or other securities sold by
the Company pursuant to the Prospectus, will reduce the aggregate offering price
of Program Securities that may be offered by this Prospectus Supplement and the
Prospectus.
LEGAL MATTERS
The validity of the Notes, Units, Universal Warrants and Purchase
Contracts will be passed upon for the Company by Jonathan M. Clark, Esq.,
General Counsel and Secretary of the Company and a Managing Director of Morgan
Stanley, Ralph L. Pellecchio, Assistant Secretary and Counsel of the Company and
a Managing Director of Morgan Stanley, or other counsel who is satisfactory to
the Agent and is an officer of the Company. Mr. Clark, Mr. Pellecchio 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 Notes, Units, Universal
Warrants and Purchase Contracts will be passed upon for the Agent by Davis Polk
& Wardwell. Davis Polk & Wardwell has in the past represented and continues to
represent the Company on a regular basis and in a variety of matters, including
in connection with its merchant banking and leveraged capital activities.
Shearman & Sterling, which is opining on the accuracy of the summary of certain
tax matters described under the caption "United States Federal Taxation,"
represents the Company on a regular basis and in a variety of matters, including
in connection with its merchant banking and leveraged capital activities.
S-46
<PAGE>
$6,000,000,000
Morgan Stanley Group Inc.
DEBT SECURITIES
WARRANTS
PREFERRED STOCK
PURCHASE CONTRACTS
UNITS
---------------------------
Morgan Stanley Group Inc. (the "Company") may offer and issue from time
to time its debt securities ("Debt Securities") in one or more series. Debt
Securities may be issuable in registered form without coupons or in bearer form
with or without coupons attached. The Company also may issue and sell warrants
to purchase Debt Securities ("Debt Warrants") or to purchase or sell (i)
securities of an entity unaffiliated with the Company, a basket of such
securities, an index or indices of such securities or any combination of the
above, (ii) currencies or composite currencies or (iii) commodities ("Universal
Warrants," and together with Debt Warrants, the "Warrants"), as set forth in the
applicable Prospectus Supplement on terms to be determined at the time of sale.
The Company also may offer and issue from time to time purchase contracts
("Purchase Contracts") requiring the holders thereof to purchase or sell (i)
securities of an entity unaffiliated with the Company, a basket of such
securities, an index or indices of such securities or any combination of the
above, (ii) currencies or composite currencies or (iii) commodities, as set
forth in the applicable Prospectus Supplement on terms to be determined at the
time of sale. The Company may satisfy its obligations, if any, with respect to
any Universal Warrants or Purchase Contracts by delivering the underlying
securities, currencies or commodities or, in the case of underlying securities
or commodities, the cash value thereof, as set forth in the applicable
Prospectus Supplement. Debt Securities, Purchase Contracts and Warrants or any
combination thereof may be offered in the form of Units ("Units").
Units may be issued as Definitive Units or Book-Entry Units.
The Company will offer Debt Securities, Warrants, Purchase Contracts
and Units to the public on terms determined by market conditions. Debt
Securities, Warrants, Purchase Contracts and Units may be sold for U.S. dollars,
foreign denominated currency or currency units; principal of and any interest on
Debt Securities and cash amounts payable with respect to Warrants or Purchase
Contracts may likewise be payable in U.S. dollars, foreign denominated currency
or currency units -- in each case, as the Company specifically designates.
The Company may also offer and issue from time to time in one or more
series its Preferred Stock, no par value, on terms to be determined at the time
of sale. The Debt Securities, Warrants, Purchase Contracts, Units and Preferred
Stock are hereinafter collectively referred to as the "Securities."
The accompanying Prospectus Supplement will set forth the specific
terms of the Securities, including (i) in the case of Debt Securities, the
ranking as senior or subordinated Debt Securities, the specific designation,
aggregate principal amount, purchase price, maturity, redemption terms, interest
rate (or manner of calculation thereof), time of payment of interest (if any),
terms for any conversion or exchange (including the terms relating to the
adjustment thereof), listing (if any) on a securities exchange and any other
specific terms of the Debt Securities, (ii) in the case of Warrants, whether
such Warrants are Debt Warrants or Universal Warrants, and in the case of
Universal Warrants, the (a) security, basket of securities, index or indices of
securities, (b) currencies or composite currencies or (c) commodities,
underlying such Universal Warrants and, in any case, the exercise price and
other specific terms of the Warrants, (iii) in the case of Purchase Contracts,
the (a) security, basket of securities, index or indices of securities, (b)
currencies or composite currencies or (c) commodities, underlying such Purchase
Contracts and other specific terms of such Purchase Contracts, (iv) in the case
of Units, the particular combination of Purchase Contracts, Warrants and Debt
Securities comprising such Units and any other specific terms of such Units and
(v) in the case of a particular series of Preferred Stock, the specific
designation, the aggregate number of shares offered, the dividend rate (or
manner of calculation thereof), the dividend periods (or manner of calculation
thereof), the stated value of the shares of such series, the voting rights of
the shares of such series, whether and on what terms the shares of such series
may be redeemed at the option of the Company, whether depositary shares
representing shares of such series of Preferred Stock will be offered and if so,
the fraction of a share of Preferred Stock represented by each depositary share,
listing (if any) on a securities exchange and any other specific terms of such
series of Preferred Stock being offered. The accompanying Prospectus Supplement
will also set forth the name of and compensation to each dealer, underwriter or
agent (if any) involved in the sale of the Securities being offered and the
managing underwriters with respect to any Securities sold to or through
underwriters. Any such underwriters (and any representative thereof), dealers or
agents in the United States will include Morgan Stanley & Co. Incorporated ("MS
& Co.") and any such underwriters (and any representative thereof), dealers or
agents outside the United States will include Morgan Stanley & Co. International
Limited ("MSIL") or other affiliates of the Company.
---------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------------
Securities may be offered through dealers, underwriters or agents designated
from time to time, as set forth in the accompanying Prospectus Supplement. Net
proceeds to the Company will be the purchase price in the case of sales to a
dealer, the public offering price less discount in the case of sales to an
underwriter or the purchase price less commission in the case of sales through
an agent -- in each case, less other expenses attributable to issuance and
distribution. See "Plan of Distribution" for possible indemnification
arrangements for dealers, underwriters and agents.
Following the initial distribution of a series of Securities, MS & Co., MSIL and
other affiliates of the Company, may offer and sell previously issued Securities
in the course of their businesses as broker-dealers (subject, in the case of
Preferred Stock and Depositary Shares, to obtaining any necessary approval of
The New York Stock Exchange for any such offers and sales by MS & Co.). MS &
Co., MSIL and such other affiliates may act as a principal or agent in such
transactions. This Prospectus and the accompanying Prospectus Supplement may be
used by MS & Co., MSIL and such other affiliates in connection with such
transactions. Such sales, if any, will be made at varying prices related to
prevailing market prices at the time of sale.
---------------------------
Morgan Stanley & Co.
Incorporated
January 27, 1997
<PAGE>
No dealer, salesman or any other person has been authorized to give any
information or to make any representations other than those contained or
incorporated by reference in this Prospectus and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Company or any underwriter, dealer or agent. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy Securities by
anyone in any jurisdiction in which such offer or solicitation is not authorized
or in which the person making such offer or solicitation is not qualified to do
so or to any person to whom it is unlawful to make such offer or solicitation.
---------------------------
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports and other information with the Securities and
Exchange Commission (the "Commission"). Reports, proxy statements and other
information filed by the Company with the Commission can be inspected and copied
at the public reference facilities maintained by the Commission at Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549 or at its Regional Offices
located at Suite 1400, Citicorp Center, 500 West Madison Street, Chicago,
Illinois 60661 and at Seven World Trade Center, 13th Floor, New York, New York
10048, and copies of such material can be obtained from the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. In addition, the Commission maintains a Website that contains
reports, proxy and other information regarding registrants that file
electronically, such as the Company. The address of the Commission's Website is
http:/www.sec.gov. The Company's Common Stock, par value $1.00 per share (the
"Common Stock"), is listed on the New York Stock Exchange, Inc. (the "NYSE"),
the Boston Stock Exchange, the Chicago Stock Exchange and the Pacific Stock
Exchange, Inc. Reports, proxy statements and other information concerning the
Company can be inspected at the offices of the NYSE, 20 Broad Street, New York,
New York 10005; the Boston Stock Exchange, One Boston Place, Boston,
Massachusetts 02108; the Chicago Stock Exchange, 440 South LaSalle Street,
Chicago, Illinois 60605; and the Pacific Stock Exchange, Inc., 301 Pine Street,
San Francisco, California 94104 or 618 South Spring Street, Los Angeles,
California 90014.
This Prospectus constitutes a part of a Registration Statement filed by
the Company with the Commission under the Securities Act of 1933, as amended
(the "Securities Act"). This Prospectus omits certain of the information
contained in the Registration Statement in accordance with the rules and
regulations of the Commission. Reference is hereby made to the Registration
Statement and related exhibits for further information with respect to the
Company and the Securities. Statements contained herein concerning the
provisions of any document are not necessarily complete and, in each instance,
reference is made to the copy of such document filed as an exhibit to the
Registration Statement or otherwise filed with the Commission. Each such
statement is qualified in its entirety by such reference.
---------------------------
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Annual Report on Form 10-K of the Company for the fiscal period
ended November 30, 1995, as amended, Quarterly Reports on Form 10-Q for the
quarters ended February 29, 1996, May 31, 1996 and August 31, 1996, and Current
Reports on Form 8-K of the Company dated January 4, 1996, January 5, 1996,
January 23, 1996, February 7, 1996, February 20, 1996 (two Current Reports),
February 23, 1996, February 28, 1996, March 7, 1996, March 15, 1996, March 27,
1996, April 8, 1996, May 6, 1996, May 9, 1996, May 23, 1996, May 30, 1996, June
14, 1996, June 24, 1996, June 26, 1996, July 2, 1996, July 17, 1996, July 24,
1996, August 12, 1996, August 23, 1996, October 2, 1996, December 18, 1996,
December 26, 1996 and January 7, 1997 have been filed with the Commission and
are incorporated herein by reference.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the later of (i) the termination of the offering of the Securities and (ii)
the date on which MS & Co., MSIL and other affiliates of the Company cease
offering and selling previously issued Securities shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such documents. Any document incorporated or deemed to be
incorporated by reference herein has not been nor shall be submitted for review
under the clearance procedures of the Commission des Operations de Bourse of the
Paris Bourse, except as required in connection with the listing of any
Securities on the Paris Bourse.
Any statement contained herein or in a document incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any subsequently filed document that also is or is deemed
to be incorporated by reference herein modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
Copies of the above documents (excluding exhibits) may be obtained upon
request without charge from the Company, 1585 Broadway, New York, New York
10036, Attention: Mailroom Manager (telephone number (212) 761-4000).
___________________________
IN CONNECTION WITH THE OFFERING OF CERTAIN SECURITIES, THE UNDERWRITERS
MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET
PRICES OF SUCH SECURITIES, OTHER SECURITIES OF THE COMPANY OR ANY SECURITIES THE
PRICES OF WHICH MAY BE USED TO DETERMINE PAYMENTS ON SUCH SECURITIES 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.
2
<PAGE>
THE COMPANY
Morgan Stanley Group Inc. is a holding company that, through its
subsidiaries, provides a wide range of financial services on a global basis. Its
businesses include securities underwriting, distribution and trading; merger,
acquisition, restructuring, real estate, project finance and other corporate
finance advisory activities; merchant banking and other principal investment
activities; brokerage and research services; asset management; the trading of
foreign exchange and commodities as well as derivatives on a broad range of
asset categories, rates and indices; and global custody, securities clearance
services and securities lending. These services are provided to a large and
diversified group of clients and customers, including corporations, governments,
financial institutions and individual investors. The Company, which was formed
in 1935, conducts business from its head office in New York City, international
offices in Beijing, Frankfurt, Geneva, Hong Kong, Johannesburg, London,
Luxembourg, Madrid, Melbourne, Milan, Montreal, Moscow, Mumbai, Osaka, Paris,
Sao Paulo, Seoul, Shanghai, Singapore, Sydney, Taipei, Tokyo, Toronto and
Zurich, and United States regional offices in Chicago, Houston, Los Angeles,
Philadelphia and San Francisco.
Morgan Stanley & Company, Incorporated was incorporated under the laws
of the State of New York in 1935 and was liquidated and reconstituted as Morgan
Stanley & Co., a partnership, in 1941. MS & Co. was incorporated under the laws
of the State of Delaware in 1969 and over a number of years assumed all of the
business of the partnership. Morgan Stanley Holdings Incorporated was
incorporated under the laws of the State of Delaware in 1975 to own all of the
stock of MS & Co. and other related entities, and changed its name to Morgan
Stanley Inc. in 1978 and to Morgan Stanley Group Inc. in 1985. The Company's
principal executive offices are at 1585 Broadway, New York, New York 10036, and
its telephone number is (212) 761-4000. Unless the context otherwise requires,
the term "Company" means Morgan Stanley Group Inc. and its consolidated
subsidiaries.
USE OF PROCEEDS
The net proceeds from the sale of the Securities offered hereby will be
used for general corporate purposes of the Company, which may include additions
to working capital, the redemption of outstanding preferred stock and the
repayment of indebtedness or for such other purposes set forth in the applicable
Prospectus Supplement. The Company anticipates that it will raise additional
funds from time to time through equity or debt financings, including borrowings
under revolving credit agreements, to finance its businesses worldwide.
CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES
AND EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
The following table sets forth the unaudited consolidated ratios of
earnings to fixed charges and earnings to fixed charges and preferred stock
dividends for the Company for the periods indicated.
<TABLE>
<CAPTION>
Fiscal Fiscal
(Unaudited) Period Ended Year Ended Year Ended
Nine Months Ended November 30, January 31, December 31,
------------------------------- ------------ ------------------------- ------------
August 31, August 31,
1996 1995 1995 1995 1994 1993 1993
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings
to fixed charges...... 1.2 1.1 1.2 1.1 1.2 1.2 1.2
Ratio of earnings
to fixed charges
and preferred stock
dividends............. 1.2 1.1 1.1 1.1 1.2 1.2 1.2
</TABLE>
3
<PAGE>
For the purpose of calculating the ratio of earnings to fixed charges
and the ratio of earnings to fixed charges and preferred stock dividends,
earnings consist of income before income taxes and fixed charges (exclusive of
preferred stock dividends). For the purposes of calculating both ratios, fixed
charges include interest expense, capitalized interest and that portion of
rentals representative of an interest factor. Additionally, for the purposes of
calculating the ratio of earnings to fixed charges and preferred stock
dividends, preferred stock dividends (on a pre-tax basis) are included in the
denominator of the ratio.
DESCRIPTION OF DEBT SECURITIES
The Debt Securities will constitute either senior or subordinated debt
of the Company and will be issued, in the case of Debt Securities that will be
senior debt, under a Senior Indenture dated as of April 15, 1989, as
supplemented by a First Supplemental Senior Indenture dated as of May 15, 1991
and a Second Supplemental Senior Indenture dated as of April 15, 1996 (as so
supplemented, the "Senior Debt Indenture"), between the Company and The Chase
Manhattan Bank (formerly known as Chemical Bank), as Trustee, and, in the case
of Debt Securities that will be subordinated debt, under a Subordinated
Indenture dated as of April 15, 1989, as supplemented by a First Supplemental
Subordinated Indenture dated as of May 15, 1991 and a Second Supplemental
Subordinated Indenture dated as of April 15, 1996 (as so supplemented, the
"Subordinated Debt Indenture"), between the Company and The First National Bank
of Chicago, as Trustee. The Senior Debt Indenture and Subordinated Debt
Indenture are sometimes hereinafter referred to individually as an "Indenture"
and collectively as the "Indentures." The Chase Manhattan Bank and The First
National Bank of Chicago are hereinafter referred to individually as a "Trustee"
and collectively as the "Trustees."
The following summaries of certain provisions of the Indentures and the
Debt Securities do not purport to be complete and such summaries are subject to
the detailed provisions of the applicable Indenture to which reference is hereby
made for a full description of such provisions, including the definition of
certain terms used herein, and for other information regarding the Debt
Securities. Numerical references in parentheses below are to sections in the
applicable Indenture. Wherever particular sections or defined terms of the
applicable Indenture are referred to, such sections or defined terms are
incorporated herein by reference as part of the statement made, and the
statement is qualified in its entirety by such reference. The Indentures are
substantially identical, except for the provisions relating to subordination and
the Company's negative pledge. See "Subordinated Debt" and "Certain Covenants."
The Debt Securities offered by this Prospectus and the accompanying Prospectus
Supplement are referred to herein as the "Offered Debt Securities." As used
under this caption and the captions "Description of Warrants," "Description of
Capital Stock," "Description of Purchase Contracts" and "Description of Units,"
the term "Company" means Morgan Stanley Group Inc.
General
Neither of the Indentures limits the amount of additional indebtedness
that the Company or any of its subsidiaries may incur. The Debt Securities will
be unsecured senior or subordinated obligations of the Company. Most of the
assets of the Company are owned by its subsidiaries. Therefore, the Company's
rights and the rights of its creditors, including holders of Debt Securities, to
participate in the assets of any subsidiary upon such subsidiary's liquidation
or recapitalization will be subject to the prior claims of such subsidiary's
creditors, except to the extent that the Company may itself be a creditor with
recognized claims against the subsidiary. In addition, dividends, loans and
advances from certain of the Company's subsidiaries, including MS & Co., to the
Company are restricted by net capital requirements under the Exchange Act and
under rules of certain exchanges and various domestic and foreign regulatory
bodies.
The Indentures provide that Debt Securities may be issued from time to
time in one or more series and may be denominated and payable in foreign
currencies or units based on or relating to foreign currencies, including
European Currency Units ("ECUs"). Special United States federal income tax
considerations applicable to any Debt Securities so denominated are described in
the relevant Prospectus Supplement.
Reference is made to the Prospectus Supplement for the following terms
of and information relating to the Offered Debt Securities (to the extent such
terms are applicable to such Debt Securities): (i) classification as senior
4
<PAGE>
or subordinated Debt Securities, the specific designation, aggregate principal
amount, purchase price and denomination; (ii) currency or units based on or
relating to currencies in which such Debt Securities are denominated and/or in
which principal (and premium, if any) and/or interest will or may be payable;
(iii) any date of maturity; (iv) interest rate or rates (or the method by which
such rate or rates will be determined), if any; (v) the dates on which any such
interest will be payable; (vi) the place or places where the principal of,
premium, if any, and interest, if any, on the Offered Debt Securities will be
payable; (vii) any repayment, redemption, prepayment or sinking fund provisions;
(viii) whether the Offered Debt Securities will be issuable in registered form
or bearer form ("Bearer Securities") or both and, if Bearer Securities are
issuable, any restrictions applicable to the exchange of one form for another
and to the offer, sale and delivery of Bearer Securities; (ix) the terms, if
any, on which such Debt Securities may be converted into or exchanged for stock
or other securities of the Company or other entities, any specific terms
relating to the adjustment thereof and the period during which such Debt
Securities may be so converted or exchanged; (x) any applicable United States
federal income tax consequences, including whether and under what circumstances
the Company will pay additional amounts on Offered Debt Securities held by a
person who is not a U.S. person (as defined in the Prospectus Supplement) in
respect of any tax, assessment or governmental charge withheld or deducted and,
if so, whether the Company will have the option to redeem such Debt Securities
rather than pay such additional amounts; and (xi) any other specific terms of
the Offered Debt Securities, including any additional events of default or
covenants provided for with respect to such Debt Securities, and any terms which
may be required by or advisable under applicable laws or regulations.
Debt Securities may be presented for exchange and registered Debt
Securities may be presented for transfer in the manner, at the places and
subject to the restrictions set forth in the Debt Securities and the Prospectus
Supplement. Such services will be provided without charge, other than any tax or
other governmental charge payable in connection therewith, but subject to the
limitations provided in the applicable Indenture. Debt Securities in bearer form
and the coupons, if any, appertaining thereto will be transferable by delivery.
Debt Securities will bear interest at a fixed rate (a "Fixed Rate
Security") or a floating rate (a "Floating Rate Security"). Debt Securities
bearing no interest or interest at a rate that at the time of issuance is below
the prevailing market rate will be sold at a discount below their stated
principal amount. Special United States federal income tax considerations
applicable to any such discounted Debt Securities or to certain Debt Securities
issued at par which are treated as having been issued at a discount for United
States federal income tax purposes will be described in the relevant Prospectus
Supplement.
Debt Securities may be issued, from time to time, with the principal
amount payable on any principal payment date, or the amount of interest payable
on any interest payment date, to be determined by reference to one or more
currency exchange rates, securities or baskets of securities, commodity prices
or indices. Holders of such Debt Securities may receive a payment of principal
on any principal payment date, or a payment of interest on any interest payment
date, that is greater than or less than the amount of principal or interest
otherwise payable on such dates, depending upon the value on such dates of the
applicable currency, security or basket of securities, commodity or index.
Information as to the methods for determining the amount of principal or
interest payable on any date, the currencies, securities or baskets of
securities, commodities or indices to which the amount payable on such date is
linked and certain additional tax considerations will be set forth in the
applicable Prospectus Supplement.
Senior Debt
The Debt Securities and, in the case of Bearer Securities, any coupons
appertaining thereto (the "Coupons"), that will constitute part of the senior
debt of the Company will be issued under the Senior Debt Indenture and will rank
pari passu with all other unsecured and unsubordinated debt of the Company.
Subordinated Debt
The Debt Securities and Coupons that will constitute part of the
subordinated debt of the Company will be issued under the Subordinated Debt
Indenture and will be subordinate and junior in right of payment, to the extent
and in the manner set forth in the Subordinated Debt Indenture, to all "Senior
Indebtedness" of the Company. The
5
<PAGE>
Subordinated Debt Indenture defines "Senior Indebtedness" as obligations (other
than nonrecourse obligations, the subordinated Debt Securities or any other
obligations specifically designated as being subordinate in right of payment to
Senior Indebtedness) of, or guaranteed or assumed by, the Company for borrowed
money or evidenced by bonds, debentures, notes or other similar instruments, and
amendments, renewals, extensions, modifications and refundings of any such
indebtedness or obligations. (Subordinated Debt Indenture, Section 1.1)
In the event (a) of any insolvency or bankruptcy proceedings, or any
receivership, liquidation, reorganization or other similar proceedings in
respect of the Company or a substantial part of its property, or (b) that (i) a
default shall have occurred with respect to the payment of principal of (and
premium, if any) or any interest on or other monetary amounts due and payable on
any Senior Indebtedness or (ii) there shall have occurred an event of default
(other than a default in the payment of principal, premium, if any, or interest,
or other monetary amounts due and payable) with respect to any Senior
Indebtedness, as defined therein or in the instrument under which the same is
outstanding, permitting the holder or holders thereof to accelerate the maturity
thereof (with notice or lapse of time, or both), and such event of default shall
have continued beyond the period of grace, if any, in respect thereof, and such
default or event of default shall not have been cured or waived or shall not
have ceased to exist, or (c) that the principal of and accrued interest on the
subordinated Debt Securities shall have been declared due and payable upon an
Event of Default pursuant to Section 5.1 of the Subordinated Debt Indenture and
such declaration shall not have been rescinded and annulled as provided therein,
then the holders of all Senior Indebtedness shall first be entitled to receive
payment of the full amount unpaid thereon, or provision shall be made for such
payment in money or money's worth, before the holders of any of the subordinated
Debt Securities or Coupons are entitled to receive a payment on account of the
principal of (and premium, if any) or any interest on the indebtedness evidenced
by such subordinated Debt Securities or such Coupons. (Subordinated Debt
Indenture, Section 13.1) If this Prospectus is being delivered in connection
with a series of subordinated Debt Securities, the accompanying Prospectus
Supplement or the information incorporated herein by reference will set forth
the approximate amount of Senior Indebtedness outstanding as of the end of the
most recent fiscal quarter.
Certain Covenants
Negative Pledge. The Senior Debt Indenture provides that the Company
and any successor corporation will not, and will not permit any Subsidiary (as
defined in such Indenture) to, create, assume, incur or guarantee any
indebtedness for borrowed money secured by a pledge, lien or other encumbrance
(except for certain liens specifically permitted by such Indenture) on the
Voting Securities (as defined in such Indenture) of either MS & Co. or MSIL
without making effective provision whereby the Debt Securities issued under such
Indenture will be secured equally and ratably with such secured indebtedness.
(Senior Debt Indenture, Section 3.6)
Merger, Consolidation, Sale, Lease or Conveyance. Each Indenture
provides that the Company will not merge or consolidate with any other
corporation and will not sell, lease or convey all or substantially all its
assets to any person, unless the Company shall be the continuing corporation, or
the successor corporation or person that acquires all or substantially all the
assets of the Company shall be a corporation organized under the laws of the
United States or a state thereof or the District of Columbia and shall expressly
assume all obligations of the Company under such Indenture and the Debt
Securities issued thereunder, and immediately after such merger, consolidation,
sale, lease or conveyance, the Company, such person or such successor
corporation shall not be in default in the performance of the covenants and
conditions of such Indenture to be performed or observed by the Company.
(Indentures, Section 9.1) This covenant would not apply to a recapitalization
transaction, a change of control of the Company or a highly leveraged
transaction unless such transactions or change of control were structured to
include a merger or consolidation or sale, lease or conveyance of all or
substantially all of the assets of the Company.
Except as may be described in a Prospectus Supplement applicable to a
particular series of Debt Securities, there are no covenants or other provisions
in the Indentures providing for a put or increased interest or otherwise that
would afford holders of Debt Securities additional protection in the event of a
recapitalization transaction, a change of control of the Company or a highly
leveraged transaction.
6
<PAGE>
Events of Default
An Event of Default is defined under each Indenture with respect to
Debt Securities of any series issued under such Indenture as being: (a) default
in payment of any principal of the Debt Securities of such series, either at
maturity (or upon any redemption), by declaration or otherwise; (b) default for
30 days in payment of any interest on any Debt Securities of such series; (c)
default for 60 days after written notice in the observance or performance of any
other covenant or agreement in the Debt Securities of such series or such
Indenture other than a covenant included in such Indenture solely for the
benefit of a series of Debt Securities other than such series; (d) certain
events of bankruptcy, insolvency or reorganization; (e) failure by the Company
to make any payment at maturity, including any applicable grace period, in
respect of indebtedness, which term as used in each of the Indentures means
obligations (other than nonrecourse obligations or the Debt Securities of such
series issued under such Indenture) of, or guaranteed or assumed by, the Company
for borrowed money or evidenced by bonds, debentures, notes or other similar
instruments ("Indebtedness") in an amount in excess of $10,000,000 and
continuance of such failure for a period of 30 days after written notice thereof
to the Company by the Trustee, or to the Company and the Trustee by the holders
of not less than 25% in principal amount of such outstanding Debt Securities
(treated as one class) issued under such Indenture; or (f) default with respect
to any Indebtedness, which default results in the acceleration of Indebtedness
in an amount in excess of $10,000,000 without such Indebtedness having been
discharged or such acceleration having been cured, waived, rescinded or annulled
for a period of 30 days after written notice thereof to the Company by the
Trustee, or to the Company and the Trustee by the holders of not less than 25%
in principal amount of such outstanding Debt Securities (treated as one class)
issued under such Indenture; provided, however, that if any such failure,
default or acceleration referred to in clause (e) or clause (f) above shall
cease or be cured, waived, rescinded or annulled, then the Event of Default by
reason thereof shall be deemed likewise to have been thereupon cured.
(Indentures, Section 5.1)
Each Indenture provides that (a) if an Event of Default due to the
default in payment of principal of, premium, if any, or interest on, any series
of Debt Securities issued under such Indenture or due to the default in the
performance or breach of any other covenant or warranty of the Company
applicable to the Debt Securities of such series but not applicable to all
outstanding Debt Securities issued under such Indenture shall have occurred and
be continuing, either the Trustee or the holders of not less than 25% in
principal amount of such Debt Securities of each such affected series (treated
as one class) issued under such Indenture and then outstanding may then declare
the principal of all Debt Securities of each such affected series and interest
accrued thereon to be due and payable immediately; and (b) if an Event of
Default due to a default in the performance of any other of the covenants or
agreements in such Indenture applicable to all outstanding Debt Securities
issued under such Indenture and then outstanding or due to certain events of
bankruptcy, insolvency or reorganization of the Company shall have occurred and
be continuing, either the Trustee or the holders of not less than 25% in
principal amount of all Debt Securities issued under such Indenture and then
outstanding (treated as one class) may declare the principal of all such Debt
Securities and interest accrued thereon to be due and payable immediately, but
upon certain conditions such declarations may be annulled and past defaults may
be waived (except a continuing default in payment of principal of (or premium,
if any) or interest on such Debt Securities) by the holders of a majority in
principal amount of the Debt Securities of all such affected series then
outstanding. (Indentures, Sections 5.1 and 5.10)
Each Indenture contains a provision entitling the Trustee, subject to
the duty of the Trustee during a default to act with the required standard of
care, to be indemnified by the holders of Debt Securities (treated as one class)
issued under such Indenture before proceeding to exercise any right or power
under such Indenture at the request of such holders. (Indentures, Section 6.2)
Subject to such provisions in each Indenture for the indemnification of the
Trustee and certain other limitations, the holders of a majority in principal
amount of the outstanding Debt Securities (treated as one class) issued under
such Indenture may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee, or exercising any trust or
power conferred on the Trustee. (Indentures, Section 5.9)
Each Indenture provides that no holder of Debt Securities issued under
such Indenture may institute any action against the Company under such Indenture
(except actions for payment of overdue principal or interest) unless such holder
previously shall have given to the Trustee written notice of default and
continuance thereof and unless the holders of not less than 25% in principal
amount of the Debt Securities of each affected series (treated as one class)
issued under such Indenture and then outstanding shall have requested the
Trustee to institute such action and shall have offered the Trustee reasonable
indemnity, the Trustee shall not have instituted such action within 60 days
7
<PAGE>
of such request and the Trustee shall not have received direction inconsistent
with such written request by the holders of a majority in principal amount of
the Debt Securities of each affected series (treated as one class) issued under
such Indenture and then outstanding. (Indentures, Sections 5.6 and 5.9)
Each Indenture contains a covenant that the Company will file annually
with the Trustee a certificate of no default or a certificate specifying any
default that exists. (Indentures, Section 3.5)
Discharge, Defeasance and Covenant Defeasance
The Company can discharge or defease its obligations under an Indenture
as set forth below. (Indentures, Section 10.1)
Under terms satisfactory to the Trustee, the Company may discharge
certain obligations to holders of any series of Debt Securities issued under
such Indenture which have not already been delivered to the Trustee for
cancellation and which have either become due and payable or are by their terms
due and payable within one year (or scheduled for redemption within one year) by
irrevocably depositing with the Trustee cash or, in the case of Debt Securities
payable only in U.S. dollars, U.S. Government Obligations (as defined in such
Indenture), as trust funds in an amount certified to be sufficient to pay at
maturity (or upon redemption) the principal of and interest on such Debt
Securities.
The Company may also discharge any and all of the obligations to
holders of any series of Debt Securities issued under an Indenture at any time
("defeasance"), but may not thereby avoid any duty to register the transfer or
exchange of such series of Debt Securities, to replace any mutilated, destroyed,
lost, or stolen Debt Securities of such series or to maintain an office or
agency in respect of such series of Debt Securities. Under terms satisfactory to
the relevant Trustee, the Company may instead be released with respect to any
outstanding series of Debt Securities issued under the relevant Indenture from
the obligations imposed by Sections 3.6 (in the case of the Senior Debt
Indenture) and 9.1 (which Sections contain the covenants described above
limiting liens and consolidations, mergers, asset sales and leases), and elect
not to comply with such Sections without creating an Event of Default ("covenant
defeasance"). Defeasance or covenant defeasance may be effected only if, among
other things: (i) the Company irrevocably deposits with the relevant Trustee
cash or, in the case of Debt Securities payable only in U.S. dollars, U.S.
Government Obligations, as trust funds in an amount certified to be sufficient
to pay at maturity (or upon redemption) the principal of and interest on all
outstanding Debt Securities of such series issued under such Indenture; (ii) the
Company delivers to the relevant Trustee an opinion of counsel to the effect
that the holders of such series of Debt Securities will not recognize income,
gain or loss for United States federal income tax purposes as a result of such
defeasance or covenant defeasance and that defeasance or covenant defeasance
will not otherwise alter such holders' United States federal income tax
treatment of principal and interest payments on such series of Debt Securities
(in the case of a defeasance, such opinion must be based on a ruling of the
Internal Revenue Service or a change in United States federal income tax law
occurring after the date of such Indenture, since such a result would not occur
under current tax law); and (iii) in the case of the Subordinated Debt Indenture
(a) no event or condition shall exist that, pursuant to certain provisions
described under "Subordinated Debt" above, would prevent the Company from making
payments of principal of (and premium, if any) and interest on the subordinated
Debt Securities at the date of the irrevocable deposit referred to above or at
any time during the period ending on the 91st day after such deposit date and
(b) the Company delivers to the Trustee for the Subordinated Debt Indenture an
opinion of counsel to the effect that (1) the trust funds will not be subject to
any rights of holders of Senior Indebtedness and (2) after the 91st day
following the deposit, the trust funds will not be subject to the effect of any
applicable bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally, except that if a court were to rule under any such
law in any case or proceeding that the trust funds remained property of the
Company, then the relevant Trustee and the holders of the subordinated Debt
Securities would be entitled to certain rights as secured creditors in such
trust funds.
Modification of the Indentures
Each Indenture provides that the Company and the Trustee may enter into
supplemental indentures without the consent of the holders of Debt Securities
to: (a) secure any Debt Securities, (b) evidence the assumption by a successor
corporation of the obligations of the Company, (c) add covenants for the
protection of the holders of Debt
8
<PAGE>
Securities, (d) cure any ambiguity or correct any inconsistency in such
Indenture, (e) establish the forms or terms of Debt Securities of any series and
(f) evidence the acceptance of appointment by a successor trustee. (Indentures,
Section 8.1)
Each Indenture also contains provisions permitting the Company and the
Trustee, with the consent of the holders of not less than a majority in
principal amount of Debt Securities of all series issued under such Indenture
then outstanding and affected (voting as one class), to add any provisions to,
or change in any manner or eliminate any of the provisions of, such Indenture or
modify in any manner the rights of the holders of the Debt Securities of each
series so affected; provided that the Company and the Trustee may not, without
the consent of the holder of each outstanding Debt Security affected thereby,
(a) extend the stated maturity of the principal of any Debt Security, or reduce
the principal amount thereof or reduce the rate or extend the time of payment of
interest thereon, or reduce any amount payable on redemption thereof or change
the currency in which the principal thereof (including any amount in respect of
original issue discount), premium, if any, or interest thereon is payable or
reduce the amount of any original issue discount security payable upon
acceleration or provable in bankruptcy or alter certain provisions of such
Indenture relating to the Debt Securities issued thereunder not denominated in
U.S. dollars or impair the right to institute suit for the enforcement of any
payment on any Debt Security when due or (b) reduce the aforesaid percentage in
principal amount of Debt Securities of any series issued under such Indenture,
the consent of the holders of which is required for any such modification.
(Indentures, Section 8.2)
The Subordinated Debt Indenture may not be amended to alter the
subordination of any outstanding subordinated Debt Securities without the
consent of each holder of Senior Indebtedness then outstanding that would be
adversely affected thereby. (Subordinated Debt Indenture, Section 8.6)
Concerning the Trustees
The Chase Manhattan Bank and The First National Bank of Chicago are two
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 WARRANTS
The Company may issue, together with Debt Securities or separately,
Debt Warrants for the purchase of Debt Securities on terms to be determined at
the time of sale. The Company may also issue Universal Warrants to purchase or
sell (i) securities of an entity unaffiliated with the Company, a basket of such
securities, an index or indices of such securities or any combination of the
above, (ii) currencies or composite currencies or (iii) commodities, on terms to
be determined at the time of sale. The Company may satisfy its obligations, if
any, with respect to any Universal Warrants by delivering the underlying
securities, currencies or commodities or, in the case of underlying securities
or commodities, the cash value thereof, as set forth in the applicable
Prospectus Supplement. Warrants may be offered separately or together with one
or more additional Warrants, Purchase Contracts or Debt Securities or any
combination thereof in the form of Units, as set forth in the applicable
Prospectus Supplement. If Warrants are issued as part of a Unit, the
accompanying Prospectus Supplement will specify whether such Warrants may be
separated from the other Securities in such Unit prior to the Warrants'
expiration date. The Warrants offered by this Prospectus and the accompanying
Prospectus Supplement are referred to herein as the "Offered Warrants."
The Offered Warrants are to be issued under one or more Warrant
Agreements (each, a "Warrant Agreement") to be entered into between the Company
and a bank or trust company, as Warrant Agent (the "Warrant Agent"), and may be
issued in one or more series, all as shall be set forth in the Prospectus
Supplement relating thereto. Reference is made to the Prospectus Supplement for
any further description of the terms of any Warrant Agreement governing the
Offered Warrants. The forms of Warrant Agreement for the Warrants are filed as
exhibits to the Registration Statement of which this Prospectus is a part. The
following summaries of certain provisions of the applicable Warrant Agreement
and the Warrants do not purport to be complete and such summaries are subject to
the detailed provisions of such Warrant Agreement to which reference is hereby
made for a full description of such provisions, including the definition of
certain terms used herein, and for other information regarding the
9
<PAGE>
Warrants. Wherever particular provisions of the Warrant Agreement are referred
to, such provisions are incorporated by reference as a part of the statements
made, and the statements are qualified in their entirety by such reference.
General
Reference is made to the Prospectus Supplement for the following terms
of and information relating to the Offered Warrants: (i) the specific
designation and the aggregate number of and the price at which the Offered
Warrants will be issued; (ii) the currency or composite currency for which the
Offered Warrants may be purchased; (iii) the date on which the right to exercise
the Offered Warrants shall commence and the date (the "Warrant Expiration Date")
on which such right shall expire or, if the Offered Warrants are not
continuously exercisable throughout such period, the specific date or dates on
which they will be exercisable (each, a "Warrant Exercise Date," which term
shall also mean, with respect to Offered Warrants continuously exercisable for a
period of time, every date during such period); (iv) whether the Warrant
certificates representing the Offered Warrants (the "Warrant Certificates") will
be in registered form ("Registered Warrants") or bearer form ("Bearer Warrants")
or both; (v) whether any Offered Warrants will be issued in global or definitive
form or both; (vi) any applicable United States federal income tax consequences;
(vii) the identity of the Warrant Agent in respect of the Offered Warrants and
of any other depositaries, execution or paying agents, transfer agents,
registrars or determination or other agents; (viii) the proposed listing, if
any, of the Offered Warrants or the securities purchasable upon exercise thereof
on any securities exchange; (ix) whether the Offered Warrants are to be sold
separately or with other Offered Securities as part of Units; and (x) any other
terms of the Offered Warrants.
Reference is made to the Prospectus Supplement for the following terms
of and information relating to any Offered Debt Warrants: (i) the designation,
aggregate principal amount, currency or composite currency and terms of the Debt
Securities that may be purchased upon exercise of the Offered Debt Warrants,
(ii) if applicable, the designation and terms of the Debt Securities with which
the Offered Debt Warrants are issued and the number of the Offered Debt Warrants
issued with each of such Debt Securities, (iii) if applicable, the date on and
after which the Offered Securities and the related Debt Securities will be
separately transferable and (iv) the principal amount of Debt Securities
purchasable upon exercise of each Offered Debt Warrant, the price at which and
the currency or composite currency in which such principal amount of Debt
Securities may be purchased upon such exercise and the method of such exercise.
Reference is made to the Prospectus Supplement for the following terms
of and information relating to any Offered Universal Warrants: (i) whether such
Offered Universal Warrants are put Warrants or call Warrants (ii)(a) the
specific security, basket of securities, index or indices of securities or
combination of the above and the amount thereof, (b) currencies or composite
currencies or (c) commodities (and, in each case, the amount thereof or the
method for determining the same) purchasable or saleable upon exercise of each
Offered Universal Warrant; (iii) the price at which and the currency or
composite currency with which such underlying securities, currencies or
commodities may be purchased or sold upon such exercise (or the method of
determining the same); (iv) whether such exercise price may be paid in cash, by
the exchange of any other Security offered with such Offered Universal Warrants
or both and the method of such exercise and (v) whether the exercise of such
Offered Universal Warrants is to be settled in cash or by delivery of the
underlying securities or commodities or both.
Registered Warrants of each series will be evidenced by Warrant
Certificates in registered form, which may be global Registered Warrants or
definitive Registered Warrants, as specified in the applicable Prospectus
Supplement. Bearer Warrants of each series will be evidenced by one or more
global Warrant Certificates in bearer form and, if specified in the applicable
Prospectus Supplement, in definitive form. Bearer Debt Warrants will not be
issued in definitive form. See "Global Securities" herein.
At the option of the holder upon request confirmed in writing, and
subject to the terms of the applicable Warrant Agreement, Registered Warrants in
definitive form may be presented for exchange and for registration of transfer
(with the form of transfer endorsed thereon duly executed) at the corporate
trust office of the Warrant Agent for such series of Warrants (or any other
office indicated in the Prospectus Supplement relating to such series of
Warrants) without service charge and upon payment of any taxes and other
governmental charges as described in such Warrant Agreement. Such transfer or
exchange will be effected only if the Warrant Agent for such series of Warrants
is satisfied with the documents of title and identity of the person making the
request.
10
<PAGE>
Modifications
Each Warrant Agreement and the terms of the Warrants and the Warrant
Certificates may be amended by the Company and the Warrant Agent, without the
consent of the holders, for the purpose of curing any ambiguity, or of curing,
correcting or supplementing any defective or inconsistent provision therein or
in any other manner which the Company may deem necessary or desirable and which
will not adversely affect the interests of the affected holders in any material
respect.
The Company and any Warrant Agent may also modify or amend the Warrant
Agreement between them and the terms of the Warrants issued thereunder, with the
consent of the owners of not less than a majority in number of the then
outstanding unexercised Warrants affected, provided that no such modification or
amendment that changes the exercise price of the Warrants, reduces the amount
receivable upon exercise, cancellation or expiration, shortens the period of
time during which the Warrants may be exercised or otherwise materially and
adversely affects the rights of the owners of the Warrants or reduces the
percentage of outstanding Warrants, the consent of whose owners is required for
modification or amendment of the applicable Warrant Agreement or the terms of
the Warrants issued thereunder, may be made without the consent of the owners
affected thereby.
Merger, Consolidation, Sale or Other Disposition
If at any time there shall be a merger or consolidation of the Company
or a transfer of substantially all of its assets, as permitted under the
applicable Indentures, the successor corporation thereunder shall succeed to and
assume all obligations of the Company under each Warrant Agreement and the
Warrant Certificates. The Company shall notify the Warrantholders of the
occurence of any such event. See "Description of Debt Securities -- Certain
Covenants."
Enforceability of Rights of Warrantholders; Governing Law
The Warrant Agents will act solely as agents of the Company in
connection with the Warrant Certificates and will not assume any obligation or
relationship of agency or trust for or with any holders of Warrant Certificates
or beneficial owners of Warrants. Any holder of Warrant Certificates and any
beneficial owner of Warrants may, without the consent of the Warrant Agent, any
other holder or beneficial owner, the relevant Trustee, the holder of any Debt
Securities or other securities issuable upon exercise of Warrants or, if
applicable, the common depositary for the Euroclear System currently operated by
Morgan Guaranty Trust Company of New York, Brussels Office, or its successor as
operator of the Euroclear System ("Euroclear") and Cedel Bank, societe anonyme
or its successor ("Cedel Bank"), enforce by appropriate legal action, on its own
behalf, its right to exercise the Warrants evidenced by such Warrant
Certificates, in the manner provided therein and in the applicable Warrant
Agreement. No holder of any Warrant Certificate or beneficial owner of any
Warrants shall be entitled to any of the rights of a holder of the Debt
Securities or other securities purchasable upon exercise of such Warrants,
including, without limitation, the right to receive the payment of dividends,
principal of or premium, if any, or interest, if any, on such Debt Securities or
other securities or to enforce any of the covenants or rights in the relevant
Indenture or any other similar agreement. The Warrants and each Warrant
Agreement will be governed by, and construed in accordance with, the laws of the
State of New York.
Unsecured Oblications of the Company
The Warrants are unsecured contractual obligations of the Company and
will rank pari passu with the Company's other unsecured contractual obligations
and with the Company's unsecured and unsubordinated debt. Most of the assets of
the Company are owned by its subsidiaries. Therefore, the Company's rights and
the rights of its creditors, including Warrantholders, to participate in the
distribution of assets of any subsidiary upon such subsidiary's liquidation or
recapitalization will be subject to the prior claims of such subsidiary's
creditors, except to the extent that the Company may itself be a creditor with
recognized claims against the subsidiary. In addition,
11
<PAGE>
dividends, loans and advances from certain of the Company's subsidiaries,
including MS & Co., to the Company are restricted by net capital requirements
under the Exchange Act and under rules of certain exchanges and various domestic
and foreign regulatory bodies.
DESCRIPTION OF PURCHASE CONTRACTS
The Company may issue Purchase Contracts for the purchase or sale of
(i) securities of an entity unaffiliated with the Company, a basket of such
securities, an index or indices of such securities or any combination of the
above as specified in the applicable Prospectus Supplement, (ii) currencies or
composite currencies or (iii) commodities. Each Purchase Contract will entitle
the holder thereof to purchase or sell, and obligate the Company to sell or
purchase, on specified dates, such securities, currencies or commodities at a
specified purchase price, all as set forth in the applicable Prospectus
Supplement. The applicable Prospectus Supplement will also specify the methods
by which the holders may purchase or sell such securities, currencies or
commodities and any acceleration, cancellation or termination provisions or
other provisions relating to the settlement of a Purchase Contract.
Purchase Contracts may require holders to satisfy their obligations
thereunder when such Purchase Contracts are issued ("Pre-paid Purchase
Contracts"). The Company's obligation to settle such Pre-paid Purchase Contracts
on the relevant settlement date will constitute Senior Indebtedness or
subordinated indebtedness of the Company. Accordingly, such Pre-paid Purchase
Contracts will be issued under the Senior Debt Indenture or the Subordinated
Debt Indenture, as specified in the applicable Prospectus Supplement.
DESCRIPTION OF UNITS
As specified in the applicable Prospectus Supplement, Units will
consist of one or more Purchase Contracts, Warrants and Debt Securities or any
combination thereof. Reference is made to the applicable Prospectus Supplement
for (i) all terms of Units and of the Purchase Contracts, Warrants and Debt
Securities, or any combination thereof, comprising such Units, including whether
and under what circumstances the Securities comprising such Units may or may not
be traded separately, (ii) a description of the terms of any Unit Agreement
governing the Units and (iii) a description of the provisions for the payment,
settlement, transfer or exchange of the Units.
LIMITATIONS ON ISSUANCE OF BEARER SECURITIES AND BEARER DEBT WARRANTS
In compliance with United States federal income tax laws and
regulations, Bearer Securities (including Bearer Securities in global form) and
Bearer Debt Warrants will not be offered, sold, resold or delivered, directly or
indirectly, in the United States or its possessions or to United States persons
(as defined below), except as otherwise permitted by United States Treasury
Regulations Section 1.163-5(c)(2)(i)(D). Any underwriters, agents or dealers
participating in the offerings of Bearer Securities or Bearer Debt Warrants,
directly or indirectly, must agree that (i) they will not, in connection with
the original issuance of any Bearer Securities or during the restricted period
(as defined in United States Treasury Regulations Section
1.163-5(c)(2)(i)(D)(7)) (the "restricted period"), offer, sell, resell or
deliver, directly or indirectly, any Bearer Securities in the United States or
its possessions or to United States persons (other than as permitted by the
applicable Treasury Regulations described above) and (ii) they will not, at any
time, offer, sell, resell or deliver, directly or indirectly, any Bearer Debt
Warrants in the United States or its possessions or to United States persons
(other than as permitted by the applicable Treasury Regulations described
above). In addition, any such underwriters, agents or dealers must have
procedures reasonably designed to ensure that its employees or agents who are
directly engaged in selling Bearer Securities or Bearer Debt Warrants are aware
of the above restrictions on the offering, sale, resale or delivery of Bearer
Securities or Bearer Debt Warrants. Moreover, Bearer Securities (other than
temporary global Debt Securities and Bearer Securities that satisfy the
requirements of United States Treasury Regulations Section
1.163-5(c)(2)(i)(D)(3)(iii)) and any Coupons appertaining thereto will not be
delivered in definitive form, and no interest will be paid thereon, unless the
Company has received a signed certificate in writing (or an electronic
certificate described in United States Treasury Regulations Section
1.163-5(c)(2)(i)(D)(3)(ii)) stating that on such
12
<PAGE>
date such Bearer Security (i) is owned by a person that is not a United States
person, (ii) is owned by a United States person that (a) is a foreign branch of
a United States financial institution (as defined in United States Treasury
Regulations Section 1.165-12(c)(1)(v)) (a "financial institution") purchasing
for its own account or for resale, or (b) is acquiring such Bearer Security
through a foreign branch of a United States financial institution and who holds
the Bearer Security through such financial institution through such date (and in
either case (a) or (b) above, each such United States financial institution
agrees, on its own behalf or through its agent, that the Company may be advised
that it will comply with the requirements of Section 165(j)(3)(A), (B) or (C) of
the Internal Revenue Code of 1986, as amended, and the regulations thereunder)
or (iii) is owned by a United States or foreign financial institution for the
purposes of resale during the restricted period and, in addition, if the owner
of such Bearer Security is a United States or foreign financial institution
described in clause (iii) above (whether or not also described in clause (i) or
clause (ii) above), such financial institution certifies that it has not
acquired the Bearer Security for purposes of resale directly or indirectly to a
United States person or to a person within the United States or its possessions.
Bearer Debt Warrants will not be issued in definitive form. Payments on Bearer
Securities and Bearer Debt Warrants will be made only outside the United States
and its possessions except as permitted by the above regulations.
As used in the preceding two paragraphs, the term Bearer Securities
includes Bearer Securities that are parts of Units and the term Bearer Debt
Warrants includes Bearer Debt Warrants that are parts of Units Bearer Securities
(other than temporary global Securities) and any Coupons appertaining thereto
will bear the following legend: "Any United States person who holds this
obligation will be subject to limitations under the United States federal income
tax laws, including the limitations provided in Sections 165(j) and 1287(a) of
the United States Internal Revenue Code." The sections referred to in such
legend provide that, with certain exceptions, a United States person will not be
permitted to deduct any loss, and will not be eligible for capital gain
treatment with respect to any gain, realized on the sale, exchange or redemption
of such Bearer Security or Coupon.
As used herein, "United States person" means, for United States federal
income tax purposes, a citizen or resident of the United States, a corporation,
partnership or other entity created or organized in or under the laws of the
United States or any political subdivision thereof, or an estate the income of
which is subject to United States federal income taxation regardless of its
source, or a trust if both: (A) a United States court is able to exercise
primary supervision over the administration of the trust, and (B) one or more
United States trustees or fiduciaries have the authority to control all
substantial decisions of the trust.
DESCRIPTION OF CAPITAL STOCK
As of the date of this Prospectus, the Company's authorized capital
stock consists of 600,000,000 shares of Common Stock, par value $1.00 per share,
and 30,000,000 shares of Preferred Stock, no par value per share ("Preferred
Stock"). The Board of Directors of the Company has the power, without further
action by the stockholders unless action is required by applicable laws or
regulations or by the terms of outstanding Preferred Stock, to issue Preferred
Stock in one or more series and to fix the voting rights, designations,
preferences and relative, participating, optional and other special rights, and
the qualifications, limitations and restrictions applicable thereto.
The rights of holders of the Preferred Stock offered hereby (the
"Offered Preferred Stock") will be subject to, and may be adversely affected by,
the rights of holders of any Preferred Stock that may be issued in the future.
The Board of Directors may cause shares of Preferred Stock to be issued to
obtain additional financing, in connection with acquisitions, to officers,
directors or employees of the Company and its subsidiaries pursuant to benefit
plans or otherwise and for other proper corporate purposes. Shares of Preferred
Stock issued by the Company may have the effect, under certain circumstances,
alone or in combination with certain other provisions of the Company's Restated
Certificate of Incorporation described below, of rendering more difficult or
discouraging an acquisition of the Company deemed undesirable by the Board of
Directors.
As of August 31, 1996, there were 152,419,789 shares of Common Stock
outstanding. On August 31, 1996, the Company also had outstanding the following
series of Preferred Stock: 3,711,165 shares of ESOP Convertible Preferred Stock,
with a liquidation value of $35.88 per share (the "ESOP Preferred Stock"),
issued in connection with the Company's Employee Stock Ownership Plan (the
"ESOP"), 975,000 shares of 8.88% Cumulative Preferred Stock, with a stated value
of $200.00 per share (the "8.88% Preferred Stock"), 750,000
13
<PAGE>
shares of 8 3/4% Cumulative Preferred Stock, with a stated value of $200.00 per
share (the "8 3/4% Preferred Stock"), 1,000,000 shares of 7 3/8% Cumulative
Preferred Stock, with a stated value of $200.00 per share (the "7 3/8% Preferred
Stock") and 1,000,000 shares of 7 3/4% Cumulative Preferred Stock, with a stated
value of $200.00 per share (the "7 3/4% Preferred Stock"). All 975,000 shares of
the 8.88% Preferred Stock were redeemed on January 3, 1997. Subsequent to August
31, 1996 the Company issued 1,725,000 shares of Series A Fixed/Adjustable Rate
Cumulative Preferred Stock, with a stated value of $200.00 per share (the
"Series A Fixed/Adjustable Rate Preferred Stock"). The 8 3/4% Preferred Stock,
the 7 3/8% Preferred Stock, the 7 3/4% Preferred Stock and the Series A
Fixed/Adjustable Rate Preferred Stock are collectively referred to herein as the
"Existing Cumulative Preferred Stock". In addition, the Company and its wholly
owned subsidiary Morgan Stanley Finance plc currently have outstanding Capital
Units that may result in up to 611,237 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 996,775
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, up to
847,500 shares of the Company's 8.20% Cumulative Preferred Stock, with a stated
value of $200.00 per share (the "8.20% Preferred Stock"), being issued at any
time and up to 670,000 shares of the Company's 8.03% Cumulative Preferred Stock,
with a stated value of $200.00 per share (the "8.03% Preferred Stock"), being
issued at any time on or after February 28, 1998. The following summary does not
purport to be complete and is qualified by the Company's Restated Certificate of
Incorporation, by a Certificate of Designation of Preferences and Rights of the
ESOP Preferred Stock, by a Certificate of Designation of Preferences and Rights
for each of the 7.82% Preferred Stock, the 7.80% Preferred Stock, the 9.00%
Preferred Stock, the 8.40% Preferred Stock, the 8.20% Preferred Stock and the
8.03% Preferred Stock and by a Certificate of Designation of Preferences and
Rights of each series of Existing Cumulative Preferred Stock.
Offered Preferred Stock
The Board of Directors of the Company has authorized the issuance in
series of additional shares of Preferred Stock and has authorized a committee of
the Board of Directors (the "Committee") to establish and designate series and
to fix the number of shares and the relative rights, preferences and limitations
of the respective series of the Offered Preferred Stock (except for the voting
rights of the Offered Preferred Stock, which will be established by the Board of
Directors). The shares of Offered Preferred Stock, when issued and sold, will be
fully paid and nonassessable.
The following description of the terms of the Offered Preferred Stock
sets forth certain general terms and provisions of the Offered Preferred Stock
to which a Prospectus Supplement relates. The number of shares and all of the
terms and conditions of the relative rights, preferences and limitations of the
respective series of Offered Preferred Stock as established by the Board of
Directors or the Committee will be set forth in the Prospectus Supplement
accompanying this Prospectus relating to the particular series of Offered
Preferred Stock being offered thereby. The terms of particular series of Offered
Preferred Stock may differ, among other things, in (i) the number of shares that
constitute such series, (ii) the dividend rate (or the method of calculation
thereof) on the shares of such series, (iii) the dividend periods (or the method
of calculation thereof), (iv) the stated value of the shares of such series, (v)
the voting rights of the shares of such series, (vi) the preferences and rights
of the shares of such series upon any liquidation or winding-up of the Company,
(vii) whether or not and on what terms the shares of such series will be subject
to redemption at the option of the Company, (viii) whether depositary shares
representing shares of such series of Offered Preferred Stock will be offered
and, if so, the fraction or multiple of a share of such series of Offered
Preferred Stock represented by each depositary share and (ix) the other rights
and privileges and any qualifications, limitations or restrictions of such
rights or privileges of such series.
As described under "Depositary Shares" below, the Company may, at its
option, elect to offer depositary shares (the "Depositary Shares") evidenced by
depositary receipts, each representing a fraction or a multiple (to be specified
in the Prospectus Supplement relating to the particular series of Offered
Preferred Stock) of a share of the particular series of Offered Preferred Stock
issued and deposited with a depositary, in lieu of offering individual shares of
such series of Offered Preferred Stock.
14
<PAGE>
The following statements are brief summaries of certain provisions that
will be contained in the Certificate of Designation authorizing the issuance of
a series of Offered Preferred Stock, do not purport to be complete and are
qualified in their entirety by reference to such Certificate of Designation, the
form of which has been filed as an exhibit to the Registration Statement of
which this Prospectus is a part, and by the Company's Restated Certificate of
Incorporation. The resolutions to be set forth in the Certificate of Designation
will be adopted by the Board of Directors or the Committee prior to the issuance
of a series of Offered Preferred Stock (except for the voting rights of the
Offered Preferred Stock, which will be established by the Board of Directors),
and such Certificate of Designation will be filed with the Secretary of State of
the State of Delaware as soon thereafter as reasonably practicable. In the event
the Company elects to issue Depositary Shares, each representing a fraction or a
multiple of a share of a particular series of Offered Preferred Stock, subject
to the terms of the Deposit Agreement (as defined below), each such Depositary
Share will be entitled, in proportion to the applicable fraction or multiple of
a share of Offered Preferred Stock represented by such Depositary Share, to all
the rights and preferences of the Offered Preferred Stock represented thereby
(including dividend, voting, redemption and liquidation rights). See "Depositary
Shares" below. The following statements concerning Depositary Shares, Depositary
Receipts (as defined below) and the Deposit Agreement do not purport to be
complete and are qualified in their entirety by reference to the forms of such
documents, which have been filed as exhibits to the Registration Statement of
which this Prospectus is a part.
Rank. Each series of Offered Preferred Stock will rank, with respect to
voting powers, preferences or relative, participating, optional and other
special rights and the qualifications, limitations and restrictions thereof,
including with respect to the payment of dividends and the distribution of
assets, whether upon liquidation or otherwise, junior to any series of capital
stock of the Company expressly stated to be senior to such series of the Offered
Preferred Stock, senior to any class of capital stock expressly stated to be
junior to such series of the Offered Preferred Stock, and on a parity with each
other series of Offered Preferred Stock and all other classes of capital stock
of the Company. The Offered Preferred Stock will rank, as to payment of
dividends and amounts payable on liquidation, prior to the Common Stock (see
"Common Stock" below) and on a parity with the ESOP Preferred Stock, each series
of the Existing Cumulative Preferred Stock and, if issued, the 7.82% Preferred
Stock, the 7.80% Preferred Stock, the 9.00% Preferred Stock, the 8.40% Preferred
Stock, the 8.20% Preferred Stock and the 8.03% Preferred Stock.
Dividends. Holders of shares of the Offered Preferred Stock will be
entitled to receive, when and as declared by the Board of Directors or the
Committee out of funds legally available for payment, cumulative cash dividends
at an annual rate set forth in, or determined or calculated in accordance with
the method or formula set forth in, and on the dates, for the periods and
otherwise in the manner set forth in, the Prospectus Supplement. Dividends on
the Offered Preferred Stock 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 days
nor less than 10 days preceding the payment dates thereof, as shall be fixed by
the Board of Directors or the Committee. Dividends will be cumulative from the
date of original issue of such series. The Offered Preferred Stock will be
junior as to dividends to any Preferred Stock that may be issued in the future
that is expressly senior as to dividends to the Offered Preferred Stock. If at
any time the Company has failed to pay accrued dividends on any such senior
shares at the time such dividends are payable, the Company may not pay any
dividend on any series of Offered Preferred Stock or redeem or otherwise
repurchase any shares of any series of Offered Preferred Stock until such
accumulated but unpaid dividends on such senior shares have been paid (or set
aside for payment) in full by the Company.
No dividends may be declared or paid or set apart for payment on any
Preferred Stock ranking on a parity as to dividends with the Offered Preferred
Stock unless there shall also be or have been declared and paid or set apart for
payment on the outstanding shares of Offered Preferred Stock dividends for all
dividend payment periods of each series of the Offered Preferred Stock ending on
or before the dividend payment date of such parity stock, ratably in proportion
to the respective amounts of dividends (i) accumulated and unpaid or payable on
such parity stock, on the one hand, and (ii) accumulated and unpaid or payable
through the dividend payment period or periods of each series of the Offered
Preferred Stock next preceding such dividend payment date, on the other hand.
Except as set forth above, unless full cumulative dividends on the
outstanding shares of Offered Preferred Stock have been paid, dividends (other
than in Common Stock) may not be paid or declared and set aside for payment and
other distributions may not be made upon the Common Stock or on any other
Preferred Stock of the Company ranking junior to or on a parity with the Offered
Preferred Stock as to dividends (which parity Preferred
15
<PAGE>
Stock currently includes the ESOP Preferred Stock and the Existing Cumulative
Preferred Stock and, if issued, would include the 7.82% Preferred Stock, the
7.80% Preferred Stock, the 9.00% Preferred Stock, the 8.40% Preferred Stock, the
8.20% Preferred Stock and the 8.03% Preferred Stock), nor may any Common Stock
or such other Preferred Stock of the Company be redeemed, purchased or otherwise
acquired by the Company for any consideration or any payment be made to or
available for a sinking fund for the redemption of any shares of such stock;
provided, however, that any monies theretofore deposited in any sinking fund
with respect to any Preferred Stock in compliance with the provisions of such
sinking fund may thereafter be applied to the purchase or redemption of such
Preferred Stock in accordance with the terms of such sinking fund, regardless of
whether at the time of such application full cumulative dividends upon shares of
the Offered Preferred Stock outstanding on the last dividend payment date for
any series of Offered Preferred Stock shall have been paid or declared and set
apart for payment; and provided further that any such junior or parity Preferred
Stock or Common Stock may be converted into or exchanged for stock of the
Company ranking junior to the Offered Preferred Stock as to dividends.
The amount of dividends payable for the initial dividend period or any
period shorter than a full dividend period shall be computed on the basis of a
360-day year of twelve 30-day months. Accrued but unpaid dividends will not bear
interest.
The ability of the Company, as a holding company, to pay dividends on
the Offered Preferred Stock will be dependent upon, among other factors, the
Company's earnings, financial condition and cash requirements at the time such
payment is considered, and the payment to it of dividends or principal and
interest by, or the availability of other funds from, its subsidiaries.
Dividends, loans and advances from certain subsidiaries, including MS & Co., to
the Company are restricted by net capital requirements under the Exchange Act
and under rules of certain exchanges and various domestic and foreign regulatory
bodies. Such restrictions could limit the ability of the Company to pay
dividends to its stockholders.
Liquidation Rights. In the event of any liquidation, dissolution or
winding up of the Company, the holders of shares of Offered 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 Offered 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 an
amount equal to the stated value per share of each series of Offered Preferred
Stock, as set forth in the applicable Prospectus Supplement, plus accrued and
accumulated but unpaid dividends to the date of final distribution; but the
holders of the shares of Offered 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 Offered
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. If upon any liquidation, dissolution or winding up of the Company, the
amounts payable with respect to the Offered Preferred Stock and any other
Preferred Stock ranking as to rights upon liquidation, dissolution or winding up
on a parity with the Offered Preferred Stock are not paid in full, the holders
of the Offered Preferred Stock and of such other Preferred Stock will share
ratably in any such distribution in proportion to the full respective
preferential amounts to which they are entitled. After payment of the full
amount of the liquidating distribution to which they are entitled, the holders
of the Offered Preferred Stock will not be entitled to any further participation
in any distribution of assets by the Company. Neither a consolidation or merger
of the Company with or into another corporation nor a merger of another
corporation with or into the Company nor a sale or transfer of all or part of
the Company's assets for cash or securities shall be considered a liquidation,
dissolution or winding up of the Company.
Because the Company is a holding company, its rights and the rights of
its creditors and its stockholders, including the holders of the shares of
Offered Preferred Stock, to participate in the assets of any subsidiary upon the
latter's liquidation or recapitalization may be subject to the prior claims of
the subsidiary's creditors, except to the extent that the Company may itself be
a creditor with recognized claims against the subsidiary.
Optional Redemption. The Prospectus Supplement will indicate whether,
and if so on what terms, shares of a series of the Offered Preferred Stock will
be subject to any mandatory redemption or sinking fund provision. The Prospectus
Supplement will also indicate whether, and if so on what terms (including the
date on or after which redemption may occur), shares of a series of the Offered
Preferred Stock will be redeemable. Any such redemption would be effected upon
not less than 30 days' notice at a redemption price of not less than the stated
value per share of the applicable series of Offered Preferred Stock plus accrued
and accumulated but unpaid dividends to but
16
<PAGE>
excluding the date fixed for redemption. If full cumulative dividends on all
outstanding shares of Offered Preferred Stock have not been paid, no shares of
Offered Preferred Stock may be redeemed in part and the Company may not purchase
or acquire any shares of Offered Preferred Stock otherwise than pursuant to a
purchase or exchange offer made on the same terms to all holders of the Offered
Preferred Stock. If fewer than all the outstanding shares of a series of Offered
Preferred Stock are to be redeemed, the Company will select those to be redeemed
by lot or a substantially equivalent method.
Voting Rights. Unless otherwise determined by the Board of Directors of
the Company and indicated in the Prospectus Supplement, holders of the Offered
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 any shares of
Offered Preferred Stock or any other class or series of stock ranking on a
parity with the Offered 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 each series of Offered Preferred Stock (voting separately
as a class with all other series of Preferred Stock (including the Existing
Cumulative 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
such series of Offered 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. Each holder of shares of the
Offered Preferred Stock will have one vote for each share of Offered Preferred
Stock held.
So long as any shares of the Offered Preferred Stock remain
outstanding, the Company shall not, without the consent of the holders of at
least two-thirds of the shares of Offered Preferred Stock outstanding at the
time, voting separately as a class with all other series of Preferred Stock
(including the Existing Cumulative Preferred Stock and, if issued, the 7.82%
Preferred Stock, the 7.80% Preferred Stock, the 9.00% Preferred Stock, the 8.40%
Preferred Stock, the 8.20% Preferred Stock and the 8.03% Preferred Stock) upon
which like voting rights have been conferred and are exercisable, (i) issue or
increase the authorized amount of any class or series of stock ranking prior to
the outstanding Offered Preferred Stock as to dividends or upon liquidation or
(ii) amend, alter or repeal the provisions of the Company's Restated Certificate
of Incorporation or of the resolutions contained in the Certificate of
Designation, whether by merger, consolidation or otherwise, so as to materially
and adversely affect any power, preference or special right of the outstanding
Offered Preferred Stock or the holders thereof; provided, however, that any
increase in the amount of the authorized Common Stock or authorized Preferred
Stock or the creation and issuance of other series of Common Stock or Preferred
Stock ranking on a parity with or junior to the Offered Preferred Stock as to
dividends and upon liquidation shall not be deemed to materially and adversely
affect such powers, preferences or special rights.
The transfer agent, dividend disbursing agent and registrar for each
series of Offered Preferred Stock will be The Bank of New York.
Depositary Shares
General. The Company may, at its option, elect to offer fractional
shares or some multiple of shares of Offered Preferred Stock, rather than
individual shares of Offered Preferred Stock. In the event such option is
exercised, the Company will issue receipts for Depositary Shares, each of which
will represent a fraction or a multiple (to be set forth in the Prospectus
Supplement relating to a particular series of Offered Preferred Stock) of a
share of a particular series of Offered Preferred Stock as described below.
The shares of any series of Offered Preferred Stock represented by
Depositary Shares will be deposited under a Deposit Agreement (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 will be entitled, in proportion to the applicable
fraction or multiple of a share of Offered Preferred Stock represented by such
Depositary Share, to all the rights and preferences of the Offered Preferred
Stock represented thereby (including dividend, voting and liquidation rights).
17
<PAGE>
The Depositary Shares will be evidenced by depositary receipts issued
pursuant to the Deposit Agreement ("Depositary Receipts"). Depositary Receipts
will be distributed to those persons purchasing the fractional or multiple
shares of the related series of Offered Preferred Stock. Copies of the forms of
Deposit Agreement and Depositary Receipt are filed as exhibits to the
Registration Statement of which this Prospectus is a part, and the following
summary is qualified in its entirety by reference to such exhibits. Immediately
following the issuance of shares of a series of Offered Preferred Stock by the
Company, the Company will deposit such shares with the Preferred Stock
Depositary, which will then issue and deliver the Depositary Receipts to the
purchasers thereof. Depositary Receipts will only be issued evidencing whole
Depositary Shares. A Depositary Receipt may evidence any number of whole
Depositary Shares.
Pending the preparation of definitive engraved Depositary Receipts, the
Preferred Stock Depositary may, upon the written order of the Company, issue
temporary Depositary Receipts substantially identical to (and entitling the
holders thereof to all the rights pertaining to) the definitive Depositary
Receipts but not in definitive form. Definitive Depositary Receipts will be
prepared thereafter without unreasonable delay, and such temporary Depositary
Receipts will be exchangeable for definitive Depositary Receipts at the
Company's expense.
Dividends and Other Distributions. The Preferred Stock Depositary will
distribute all cash dividends or other cash distributions received in respect of
the related series of Offered Preferred Stock to the record holders of
Depositary Shares relating to such series of Offered Preferred Stock in
proportion to the number of such Depositary Shares owned by such holders.
In the event of a distribution other than in cash, the Preferred Stock
Depositary will distribute property received by it to the record holders of
Depositary Shares entitled thereto in proportion to the number of Depositary
Shares owned by such holders, unless the Preferred Stock Depositary determines
that such distribution cannot be made proportionately among such holders or that
it is not feasible to make such distribution, in which case the Preferred Stock
Depositary may, with the approval of the Company, sell such property and
distribute the net proceeds from such sale to such holders in proportion to the
number of Depositary Shares owned by such holders.
The amount distributed in any of the foregoing cases 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 the related series of Offered 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 the related series of Offered
Preferred Stock, but holders of such whole shares of Offered Preferred Stock
will not thereafter be entitled to deposit such shares of Offered Preferred
Stock with the Preferred Stock Depositary or to receive Depositary Shares
therefor. If the Depositary Receipts delivered by the holder evidence a number
of Depositary Shares in excess of the number of Depositary Shares representing
the number of whole shares of the related series of Offered Preferred Stock to
be withdrawn, the Preferred Stock Depositary will deliver to such holder, or
upon his or her order, at the same time a new Depositary Receipt evidencing such
excess number of Depositary Shares.
Voting the Offered Preferred Stock. Upon receipt of notice of any
meeting at which the holders of any series of the Offered Preferred Stock are
entitled to vote, the Preferred Stock Depositary will mail the information
contained in such notice of meeting to the record holders of the Depositary
Shares relating to such series of Offered Preferred Stock. Each record holder of
such Depositary Shares on the record date (which will be the same date as the
record date for the related series of Offered Preferred Stock) will be entitled
to instruct the Preferred Stock Depositary as to the exercise of the voting
rights pertaining to the number of shares of the series of Offered Preferred
Stock represented by such holder's Depositary Shares. The Preferred Stock
Depositary will endeavor, insofar as practicable, to vote or cause to be voted
the number of shares of the Offered Preferred Stock represented by such
Depositary Shares in accordance with such instructions, provided the Preferred
Stock Depositary receives such instructions sufficiently in advance of such
meeting to enable it to so vote or cause to be voted the shares of Offered
Preferred Stock, and the Company will agree to take all reasonable action that
may be deemed necessary by the Preferred Stock Depositary in order to enable the
Preferred Stock Depositary to do so. The Preferred Stock
18
<PAGE>
Depositary will abstain from voting shares of the Offered Preferred Stock to the
extent it does not receive specific instructions from the holders of Depositary
Shares representing such Offered Preferred Stock.
Redemption of Depositary Shares. If a series of the Offered Preferred
Stock underlying the Depositary Shares is subject to redemption, the Depositary
Shares will be redeemed from the proceeds received by the Preferred Stock
Depositary resulting from any redemption, in whole or in part, of such series of
the Offered Preferred Stock held by the Preferred Stock Depositary. The
redemption price per Depositary Share will be equal to the applicable fraction
or multiple of the redemption price per share payable with respect to such
series of the Offered Preferred Stock. If the Company redeems shares of a series
of Offered 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 Offered Preferred Stock so
redeemed. If less 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.
After the date fixed for redemption, the Depositary Shares so called
for redemption will no longer be deemed to be outstanding and all rights of the
holders of the Depositary Shares will cease, except the right to receive the
moneys payable upon such redemption and any money or other property to which the
holders of such Depositary Shares were entitled upon such redemption, upon
surrender to the Preferred Stock Depositary of the Depositary Receipts
evidencing such Depositary Shares. Any funds deposited by the Company with the
Preferred Stock Depositary for any Depositary Shares that the holders thereof
fail to redeem will be returned to the Company after a period of two years from
the date such funds are so deposited.
Amendment and Termination of the Deposit Agreement. The form of
Depositary Receipt evidencing the Depositary Shares and any provision of the
Deposit Agreement may at any time and from time to time be amended by agreement
between the Company and the Preferred Stock Depositary. However, any amendment
that materially and adversely alters the rights of the holders of Depositary
Shares will not be effective unless such amendment has been approved by the
holders of at least a majority of the Depositary Shares then outstanding.
Notwithstanding the foregoing, in no event may any amendment impair the right of
any holder of any Depositary Shares, upon surrender of the Depositary Receipts
evidencing such Depositary Shares and subject to any conditions specified in the
Deposit Agreement, to receive shares of the related series of Offered Preferred
Stock and any money or other property represented thereby, except in order to
comply with mandatory provisions of applicable law. The Deposit Agreement may be
terminated by the Company at any time upon not less than 60 days' prior written
notice to the Depositary, in which case, on a date that is not later than 30
days after the date of such notice, the Preferred Stock Depositary shall deliver
or make available for delivery to holders of Depositary Shares, upon surrender
of the Depositary Receipts evidencing such Depositary Shares, such number of
whole or fractional shares of the related series of Offered Preferred Stock as
are represented by such Depositary Shares. The Deposit Agreement shall
automatically terminate after there has been a final distribution in respect of
the related series of Offered Preferred Stock in connection with any
liquidation, dissolution or winding up of the Company and such distribution has
been distributed to the holders of Depositary Shares.
Charges of Preferred Stock Depositary. The Company will pay all
transfer and other taxes and governmental charges arising solely from the
existence of the depositary arrangements. The Company will pay charges of the
Preferred Stock Depositary, including charges in connection with the initial
deposit of the related series of Offered Preferred Stock and the initial
issuance of the Depositary Shares and all withdrawals of shares of the related
series of Offered Preferred Stock, except that holders of Depositary Shares will
pay other transfer and other taxes and governmental charges and such other
charges as are expressly provided in the Deposit Agreement to be for their
accounts.
Miscellaneous. The Preferred Stock Depositary will forward to the
holders of Depositary Shares all reports and communications from the Company
that are delivered to the Preferred Stock Depositary and which the Company is
required to furnish to the holders of the Offered Preferred Stock.
Neither the Preferred Stock Depositary nor the Company will be liable
if it is prevented or delayed by law or any circumstance beyond its control in
performing its obligations under the Deposit Agreement. The obligations of the
Company and the Preferred Stock Depositary under the Deposit Agreement will be
limited to performance with best judgment and in good faith of their duties
thereunder, except that they are liable for negligence and willful misconduct in
the performance of their duties thereunder, and they will not be obligated to
appear in, prosecute or
19
<PAGE>
defend any legal proceeding in respect of any Depositary Receipts, Depositary
Shares or series of Offered Preferred Stock unless satisfactory indemnity is
furnished. The Preferred Stock Depositary and the Company may rely on advice of
legal counsel or accountants of their choice, or information provided by persons
presenting Offered Preferred Stock for deposit, holders of Depositary Shares or
other persons believed in good faith to be competent and on documents believed
to be genuine.
The Preferred Stock Depositary's corporate trust office is currently
located at 101 Barclay Street, New York, New York 10286. The Preferred Stock
Depositary will act as transfer agent and registrar for Depositary Receipts and
if shares of a series of Offered Preferred Stock are redeemable, the Preferred
Stock Depositary will act as redemption agent for the corresponding Depositary
Receipts.
Resignation and Removal of Preferred Stock Depositary. The Preferred
Stock Depositary may resign at any time by delivering to the Company written
notice of its election to do so, and the Company may at any time remove the
Preferred Stock Depositary, any such resignation or removal to take effect upon
the appointment of a successor Preferred Stock Depositary, which successor
Preferred Stock Depositary must be appointed within 60 days after delivery of
the notice of resignation or removal and must be a bank or trust company having
its principal office in the United States and having a combined capital and
surplus of at least $50,000,000.
Common Stock
Each holder of Common Stock is entitled to one vote per share for the
election of directors and for all other matters to be voted on by the Company's
stockholders. Except as otherwise provided by law, the holders of shares of
Common Stock vote as one class, together with the ESOP Preferred Stock and any
other class or series of stock conferred with general class voting rights by the
Company's Restated Certificate of Incorporation. Holders of Common Stock may not
cumulate their votes in the election of directors, which means that the holders
of Common Stock, together with the holders of ESOP Preferred Stock, who are
entitled to exercise more than 50% of the voting rights generally are able to
elect all of the directors to be elected at each annual meeting and to cast a
sufficient number of votes to control the affairs of the Company subject to a
vote of stockholders. As of February 7, 1996, certain current and former
Managing Directors and Principals of MS & Co. owned, in the aggregate,
47,650,342 shares of Common Stock subject to voting restrictions contained in
certain agreements (the "Voting Agreements"). As of such date, such shares
constituted approximately 29% of the votes that are entitled to be cast by the
Common Stock and ESOP Preferred Stock at any meeting of the Company's
stockholders.
The holders of the Common Stock are entitled to share equally in such
dividends as may be declared by the Board of Directors out of funds legally
available therefor, but only after payment of dividends required to be paid on
outstanding shares of Offered Preferred Stock, ESOP Preferred Stock, Existing
Cumulative Preferred Stock and any other class or series of stock having
preference over the Common Stock as to dividends, including, if issued, the
7.82% Preferred Stock, the 7.80% Preferred Stock, the 9.00% Preferred Stock, the
8.40% Preferred Stock, the 8.20% Preferred Stock and the 8.03% Preferred Stock.
The ability of the Company, as a holding company, to pay dividends on its Common
Stock will be dependent upon, among other factors, the Company's earnings,
financial condition and cash requirements at the time such payment is
considered, and payment to it of dividends or principal and interest by, or the
availability of other funds from, its subsidiaries. Dividends, loans and
advances from certain subsidiaries, including MS & Co., to the Company are
restricted by net capital requirements under the Exchange Act and under rules of
certain exchanges and various domestic and foreign regulatory bodies. Such
restrictions could limit the ability of the Company to pay dividends to its
stockholders.
Upon voluntary or involuntary liquidation, dissolution or winding up of
the Company, the holders of the Common Stock share pro rata in the assets
remaining after payments to creditors and provision for the preference of any
Offered Preferred Stock, ESOP Preferred Stock, Existing Cumulative Preferred
Stock and any other class or series of stock having preference over the Common
Stock upon liquidation, dissolution or winding up that may be then outstanding,
including, if issued, the 7.82% Preferred Stock, the 7.80% Preferred Stock, the
9.00% Preferred Stock, the 8.40% Preferred Stock, the 8.20% Preferred Stock and
the 8.03% Preferred Stock. There are no preemptive or other subscription rights,
conversion rights or redemption or sinking fund provisions with respect to
shares of Common Stock.
All of the outstanding shares of Common Stock are fully paid and
nonassessable.
20
<PAGE>
The transfer agent and registrar for the Common Stock is First Chicago
Trust Company of New York.
ESOP Convertible Preferred Stock
The ESOP Preferred Stock is senior to the Company's Common Stock and
ranks on a parity with the Offered Preferred Stock and the Existing Cumulative
Preferred Stock (and, if issued, the 7.82% Preferred Stock, the 7.80% Preferred
Stock, the 9.00% Preferred Stock, the 8.40% Preferred Stock, the 8.20% Preferred
Stock and the 8.03% Preferred Stock) as to the payment of dividends and upon
liquidation. The holders of shares of the ESOP Preferred Stock are entitled to
receive, when declared out of funds legally available therefor, cash dividends
in the amount of $2.78 per share per annum, subject to adjustment, payable
either annually or semiannually, at the election of the Board of Directors of
the Company. Holders of ESOP Preferred Stock are entitled to receive $35.88 per
share, subject to adjustment (the "ESOP Preferred Stock Liquidation Price"),
upon dissolution or liquidation of the Company.
So long as any shares of ESOP Preferred Stock shall be outstanding, no
dividend shall be declared or paid or set apart for payment on any other series
of stock ranking on a parity with the ESOP Preferred Stock as to dividends
(which parity Preferred Stock currently includes the Offered Preferred Stock and
the Existing Cumulative Preferred Stock and, if issued, would include the 7.82%
Preferred Stock, the 7.80% Preferred Stock, the 9.00% Preferred Stock, the 8.40%
Preferred Stock, the 8.20% Preferred Stock and the 8.03% Preferred Stock),
unless there shall also be or have been declared and paid or set apart for
payment on the ESOP Preferred Stock like dividends for all dividend payment
periods of the ESOP Preferred Stock ending on or before the dividend payment
date of such parity stock, ratably in proportion to the respective amounts of
dividends (i) accumulated and unpaid or payable on such parity stock, on the one
hand, and (ii) accumulated and unpaid through the dividend payment period or
periods of the ESOP Preferred Stock next preceding such dividend payment date,
on the other hand.
Holders of ESOP Preferred Stock are entitled to vote on all matters
submitted to a vote of the holders of shares of Common Stock, voting together
with the holders of shares of Common Stock as one class. Each share of ESOP
Preferred Stock is entitled to the number of votes equal to 1.35 times the
number of shares of Common Stock into which such share of ESOP Preferred Stock
could be converted on the record date for such vote. Shares of ESOP Preferred
Stock are allocated to each participant in the ESOP on December 31 in each year.
Each share of ESOP Preferred Stock is convertible into shares of Common
Stock by the trustee of the ESOP at any time prior to the date fixed for
redemption of the ESOP Preferred Stock at a conversion rate of one share of ESOP
Preferred Stock to two shares of Common Stock, which rate is subject to
adjustment. The conversion price per share at which shares of Common Stock will
be issued upon conversion of any shares of ESOP Preferred Stock is $35.88,
subject to adjustment.
The ESOP Preferred Stock is redeemable at the Company's option at the
ESOP Preferred Stock Liquidation Price plus accrued dividends at any time after
September 19, 2000 and prior thereto under certain circumstances at specified
prices. The Company may pay the redemption price of the ESOP Preferred Stock in
cash, in shares of Common Stock or a combination thereof. Neither ESOP Preferred
Stock nor shares of Common Stock issued to participants in the ESOP are subject
to the restrictions on voting and disposition contained in the Voting
Agreements.
Existing Cumulative Preferred Stock
Other than as described below, the terms of the 8 3/4% Preferred Stock,
the 7 3/8% Preferred Stock, the 7 3/4% Preferred Stock and the Series A
Fixed/Adjustable Rate Preferred Stock are identical. Unless otherwise indicated,
the terms and provisions described below relate to each of the 8 3/4% Preferred
Stock, the 7 3/8% Preferred Stock, the 7 3/4% Preferred Stock and the Series A
Fixed/Adjustable Rate Preferred Stock, which are collectively referred to as the
"Existing Cumulative Preferred Stock." Unless otherwise indicated below, the
terms and provisions described below for the Existing Cumulative Preferred Stock
also relate to each of the 7.82% Preferred Stock, the 7.80% Preferred Stock, the
9.00% Preferred Stock, the 8.40% Preferred Stock, the 8.20% Preferred Stock and
the 8.03% Preferred Stock, if issued.
21
<PAGE>
Each series of the Existing Cumulative Preferred Stock and, if issued,
the 7.82% Preferred Stock, the 7.80% Preferred Stock, the 9.00% Preferred Stock,
the 8.40% Preferred Stock, the 8.20% Preferred Stock and the 8.03% Preferred
Stock ranks on a parity with each other and with the Offered Preferred Stock and
the ESOP Preferred Stock and prior to the Common Stock as to payment of
dividends and amounts payable on liquidation. The shares of Existing Cumulative
Preferred Stock are fully paid and nonassessable, are not convertible into
Common Stock of the Company and have no preemptive rights.
Dividends. Holders of the shares of Existing Cumulative Preferred Stock
(except for the Series A Fixed/Adjustable Rate Preferred Stock) are entitled to
receive, when and as declared by the Board of Directors of the Company out of
funds legally available therefor, cumulative cash dividends payable quarterly at
the rate of 8 3/4% per annum, 7 3/8% per annum, 7 3/4% per annum, 7.82% per
annum (if the 7.82% Preferred Stock is issued), 7.80% per annum (if the 7.80%
Preferred Stock is issued), 9.00% per annum (if the 9.00% Preferred Stock is
issued), 8.40% per annum (if the 8.40% Preferred Stock is issued), 8.20% per
annum (if the 8.20% Preferred Stock is issued) and the 8.03% Preferred Stock (if
the 8.03% Preferred Stock is issued), as the case may be. Holders of the shares
of Series A Fixed/Adjustable Rate Preferred Stock are entitled to receive, when
and as declared by the Board of Directors of the Company out of funds legally
available therefor, cumulative cash dividends payable quarterly at a rate of
5.91% per annum through November 30, 2001 and thereafter at a rate of .37% plus
the highest of the Treasury Bill Rate, the Ten-Year Constant Maturity Rate and
the Thirty-Year Constant Maturity Rate (each as defined in the applicable
Certificate of Designation). The amount of dividends payable in respect of the 7
3/4% Preferred Stock and the Series A Fixed/Adjustable Rate Preferred Stock will
be adjusted in the event of certain amendments to the Code in respect of the
dividends received deduction. The Existing Cumulative Preferred Stock will be
junior as to dividends to any preferred stock that may be issued in the future
that is expressly senior as to dividends to the Existing Cumulative Preferred
Stock. If at any time the Company has failed to pay accrued dividends on any
such senior shares at the time such dividends are payable, the Company may not
pay any dividend on the Existing Cumulative Preferred Stock or redeem or
otherwise repurchase any shares of Existing Cumulative Preferred Stock until
such accumulated but unpaid dividends on such senior shares have been paid (or
set aside for payment) in full by the Company.
No dividends may be declared or paid or set apart for payment on any
preferred stock ranking on a parity as to dividends with the Existing Cumulative
Preferred Stock unless there shall also be or have been declared and paid or set
apart for payment on each series of the Existing Cumulative Preferred Stock
dividends for all dividend payment periods of the Existing Cumulative Preferred
Stock ending on or before the dividend payment date of such parity stock,
ratably in proportion to the respective amounts of dividends (i) accumulated and
unpaid or payable on such parity stock, on the one hand, and (ii) accumulated
and unpaid or payable through the dividend payment period or periods of the
Existing Cumulative Preferred Stock next preceding such dividend payment date,
on the other hand.
Except as set forth above, unless full cumulative dividends on the
Existing Cumulative Preferred Stock have been paid, dividends (other than in
Common Stock) may not be paid or declared and set aside for payment and other
distributions may not be made upon the Common Stock or on any other preferred
stock of the Company ranking junior to or on a parity with the Existing
Cumulative Preferred Stock as to dividends (which parity preferred stock
currently includes the Offered Preferred Stock and the ESOP Preferred Stock),
nor may any Common Stock or such other preferred stock of the Company be
redeemed, purchased or otherwise acquired by the Company for any consideration
or any payment be made to or available for a sinking fund for the redemption of
any shares of such stock; provided, however, that any monies theretofore
deposited in any sinking fund with respect to any preferred stock in compliance
with the provisions of such sinking fund may thereafter be applied to the
purchase or redemption of such preferred stock in accordance with the terms of
such sinking fund regardless of whether at the time of such application full
cumulative dividends upon shares of each series of the Existing Cumulative
Preferred Stock outstanding on the last dividend payment date shall have been
paid or declared and set apart for payment; and provided further that any such
junior or parity preferred stock or Common Stock may be converted into or
exchanged for stock of the Company ranking junior to the Existing Cumulative
Preferred Stock as to dividends.
Optional Redemption. The Existing Cumulative Preferred Stock is not
subject to any mandatory redemption or sinking fund provision. The 8 3/4%
Preferred Stock is not redeemable prior to May 30, 1997, the 7 3/8% Preferred
Stock is not redeemable prior to August 30, 1998, the 7 3/4% Preferred Stock is
not redeemable prior to August 30, 2001, the Series A Fixed/Adjustable Rate
Preferred Stock is not redeemable prior to November 30,
22
<PAGE>
2001, if issued, the 7.82% Preferred Stock will not be redeemable prior to
November 30, 1998, if issued, the 7.80% Preferred Stock will not be redeemable
prior to February 28, 1999, if issued, the 9.00% Preferred Stock will not be
redeemable prior to February 28, 2000, if issued, the 8.40% Preferred Stock will
not be redeemable prior to August 30, 2000, if issued, the 8.20% Preferred Stock
will not be redeemable prior to November 30, 2000 and, if issued, the 8.03%
Preferred Stock will not be redeemable prior to February 28, 2007. On or after
such dates, the applicable series of Existing 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 a redemption price equal to $200.00 per share in the case of
each of the series of Existing Cumulative Preferred Stock and, if issued, the
7.82% Preferred Stock, the 7.80% Preferred Stock, the 9.00% Preferred Stock, the
8.40% Preferred Stock, the 8.20% Preferred Stock and the 8.03% Preferred Stock,
in each case plus accrued and accumulated but unpaid dividends to but excluding
the date fixed for redemption.
Liquidation Rights. In the event of any liquidation, dissolution or
winding up of the Company, the holders of shares of Existing 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
Existing Cumulative Preferred Stock as to rights upon liquidation, dissolution
or winding up which may be issued in the future and (ii) Common Stock,
liquidating distributions in the amount of $200.00 per share in the case of each
of the series of Existing Cumulative Preferred Stock and, if issued, the 7.82%
Preferred Stock, the 7.80% Preferred Stock, the 9.00% Preferred Stock, the 8.40%
Preferred Stock, the 8.20% Preferred Stock and the 8.03% Preferred Stock, in
each case plus accrued and accumulated but unpaid dividends to the date of final
distribution, but the holders of the shares of Existing 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 Existing 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. If upon any liquidation,
dissolution or winding up of the Company, the amounts payable with respect to
the Existing Cumulative Preferred Stock and any other preferred stock ranking as
to rights upon liquidation, dissolution or winding up on a parity with the
Existing Cumulative Preferred Stock (including the Offered Preferred Stock) are
not paid in full, the holders of the Existing Cumulative Preferred Stock and of
such other preferred stock will share ratably in any such distribution in
proportion to the full respective preferential amounts to which they are
entitled. After payment of the full amount of the liquidating distribution to
which they are entitled, the holders of Existing Cumulative Preferred Stock will
not be entitled to any further participation in any distribution of assets by
the Company.
Voting Rights. Holders of Existing Cumulative Preferred Stock do not
have any voting rights except as set forth below or as otherwise from time to
time required by law. Whenever dividends on any series of Existing Cumulative
Preferred Stock or any other class or series of stock ranking on a parity with
such series of Existing 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 such series of Existing 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 such series of Existing
Cumulative Preferred Stock have been fully paid or set aside 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. Each holder of shares of Existing
Cumulative Preferred Stock will have one vote for each share of Existing
Cumulative Preferred Stock held.
So long as any shares of Existing Cumulative Preferred Stock remain
outstanding, the Company shall not, without the consent of the holders of at
least two-thirds of the shares of each series of Existing Cumulative Preferred
Stock outstanding at the time, voting separately as a class with all other
series of preferred stock upon which like voting rights have been conferred and
are exercisable, (i) issue or increase the authorized amount of any class or
series of stock ranking prior to the Existing Cumulative Preferred Stock as to
dividends or upon liquidation or (ii) amend, alter or repeal the provisions of
the Company's Restated Certificate of Incorporation or of the resolutions
contained in the Certificate of Designation relating to such series of Existing
Cumulative Preferred Stock, whether by merger, consolidation or otherwise, so as
to materially and adversely affect any power, preference or special right of
such series of Existing Cumulative Preferred Stock or the holders thereof;
provided, however, that any
23
<PAGE>
increase in the amount of the authorized Common Stock or authorized preferred
stock or the creation and issuance of other series of Common Stock or preferred
stock ranking on a parity with or junior to the Existing Cumulative Preferred
Stock as to dividends and upon liquidation shall not be deemed to materially and
adversely affect such powers, preferences or special rights.
The transfer agent and registrar for each series of Existing Cumulative
Preferred Stock is The Bank of New York.
Additional Provisions of the Company's Restated Certificate of Incorporation
Size of the Board of Directors, Removal of Directors and Filling
Vacancies on the Board of Directors. The Company's Restated Certificate of
Incorporation provides that the number of directors shall be not fewer than four
nor greater than fifteen persons, as shall be established from time to time by a
majority of the Board of Directors. The Company currently has ten directors. The
Company's Restated Certificate of Incorporation also provides that directors may
be removed, with or without cause, only with the approval of the holders of at
least 80% of the voting power of the outstanding shares of capital stock of the
Company entitled to be voted generally in the election of directors (the "Voting
Stock"), voting together as a single class. Furthermore, any vacancy on the
Board of Directors or newly created directorship shall be filled by a majority
of the remaining directors then in office, though less than a quorum, and such
newly elected director shall serve the balance of the term of the replaced
director or, if there is no replaced director, until the next annual election of
directors.
Calling Special Meetings of Stockholders. The Company's Restated
Certificate of Incorporation provides that special meetings of stockholders may
be called at any time and for any purpose by the Chairman of the Board, by the
President or by order of the Board of Directors, and shall be called by the
Secretary of the Company upon the written request of the holders of at least 80%
of the voting power of the Voting Stock, setting forth the purpose of such
meeting.
Amendment of Restated Certificate of Incorporation and By-laws. The
Company's Restated Certificate of Incorporation provides that the affirmative
vote of the holders of at least 80% of the voting power of the Voting Stock,
voting together as a single class, is required to amend, repeal or adopt any
By-laws, to adopt any amendment to the Restated Certificate of Incorporation
inconsistent with the By-laws of the Company or to amend or repeal, or to adopt
any provision inconsistent with, any provisions of the Restated Certificate of
Incorporation described above.
Limitation of Directors' Liability. Section 102 of the Delaware General
Corporation Law allows a corporation to eliminate the personal liability of
directors of a corporation to the corporation or to any of its stockholders for
monetary damages for a breach of fiduciary duty as a director, except in the
case where the director breached his duty of loyalty, failed to act in good
faith, engaged in intentional misconduct or knowingly violated a law, authorized
the payment of a dividend or approved a stock repurchase in violation of the
Delaware General Corporation Law or obtained an improper personal benefit. Under
the Company's Restated Certificate of Incorporation, a director of the Company
shall not be liable to the Company or its stockholders for monetary damages for
breach of fiduciary duty as a director, except to the extent such exemption from
liability or limitation thereof is not permitted under the General Corporation
Law of Delaware as in effect or as the same may be amended.
GLOBAL SECURITIES
The registered Debt Securities, Warrants, Purchase Contracts and Units
of any series may be issued in the form of one or more fully registered global
Securities (a "Registered Global Security") that will be deposited with a
depositary (a "Depositary") or with a nominee for a Depositary identified in the
Prospectus Supplement relating to such series and registered in the name of such
Depositary or nominee thereof. In such case, one or more Registered Global
Securities will be issued in a denomination or aggregate denominations equal to
the portion of the aggregate principal or face amount of outstanding registered
Securities of the series to be represented by such Registered Global Securities.
Unless and until it is exchanged in whole for Securities in definitive
registered form, a Registered Global Security may not be transferred except as a
whole by the Depositary for such Registered Global
24
<PAGE>
Security to a nominee of such Depositary or by a nominee of such Depositary to
such Depositary or another nominee of such Depositary or by such Depositary or
any such nominee to a successor of such Depositary or a nominee of such
successor.
The specific terms of the depositary arrangement with respect to any
portion of a series of Securities to be represented by a Registered Global
Security will be described in the Prospectus Supplement relating to such series.
The Company anticipates that the following provisions will apply to all
depositary arrangements.
Ownership of beneficial interests in a Registered Global Security will
be limited to persons that have accounts with the Depositary for such Registered
Global Security ("participants") or persons that may hold interests through
participants. Upon the issuance of a Registered Global Security, the Depositary
for such Registered Global Security will credit, on its book-entry registration
and transfer system, the participants' accounts with the respective principal or
face amounts of the Securities represented by such Registered Global Security
beneficially owned by such participants. The accounts to be credited shall be
designated by any dealers, underwriters or agents participating in the
distribution of such Securities. Ownership of beneficial interests in such
Registered Global Security will be shown on, and the transfer of such ownership
interests will be effected only through, records maintained by the Depositary
for such Registered Global Security (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 beneficial interests in Registered Global Securities.
So long as the Depositary for a Registered Global Security, or its
nominee, is the registered owner of such Registered Global Security, such
Depositary or such nominee, as the case may be, will be considered the sole
owner or holder of the Securities represented by such Registered Global Security
for all purposes under the applicable Indenture, Warrant Agreement, Purchase
Contract or Unit Agreement. Except as set forth below, owners of beneficial
interests in a Registered Global Security will not be entitled to have the
Securities represented by such Registered Global Security registered in their
names, will not receive or be entitled to receive physical delivery of such
Securities in definitive form and will not be considered the owners or holders
thereof under the applicable Indenture, Warrant Agreement, Purchase Contract or
Unit Agreement. Accordingly, each person owning a beneficial interest in a
Registered Global Security must rely on the procedures of the Depositary for
such Registered Global Security and, if such person is not a participant, on the
procedures of the participant through which such person owns its interest, to
exercise any rights of a holder under the applicable Indenture, Warrant
Agreement, Purchase Contract or Unit Agreement. The Company understands that
under existing industry practices, if it requests any action of holders or if an
owner of a beneficial interest in a Registered Global Security desires to give
or take any action which a holder is entitled to give or take under the
applicable Indenture, Warrant Agreement, Purchase Contract or Unit Agreement,
the Depositary for such Registered Global Security would authorize the
participants holding the relevant beneficial interests 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.
Principal, premium, if any, and interest payments on Debt Securities,
and any payments to holders with respect to Warrants, Purchase Contracts or
Units, represented by a Registered Global Security registered in the name of a
Depositary or its nominee will be made to such Depositary or its nominee, as the
case may be, as the registered owner of such Registered Global Security. None of
the Company, the Trustees, the Warrant Agents, the Unit Agents or any other
agent of the Company, agent of the Trustees or agent of the Warrant Agents or
Unit Agents will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests in such Registered Global Security or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests.
The Company expects that the Depositary for any Securities represented
by a Registered Global Security, upon receipt of any payment of principal,
premium, interest or other distribution of underlying securities or commodities
to holders in respect of such Registered Global Security, will immediately
credit participants' accounts in amounts proportionate to their respective
beneficial interests in such Registered Global Security as shown on the records
of such Depositary. The Company also expects that payments by participants to
owners of beneficial interests in such Registered Global Security held through
such participants will be governed by standing customer
25
<PAGE>
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.
If the Depositary for any Securities represented by a Registered Global
Security 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 Depositary registered as a clearing agency under the Exchange Act is
not appointed by the Company within 90 days, the Company will issue such
Securities in definitive form in exchange for such Registered Global Security.
In addition, the Company may at any time and in its sole discretion determine
not to have any of the Securities of a series represented by one or more
Registered Global Securities and, in such event, will issue Securities of such
series in definitive form in exchange for all of the Registered Global Security
or Securities representing such Securities. Any Securities issued in definitive
form in exchange for a Registered Global Security will be registered in such
name or names as the Depositary shall instruct the relevant Trustee, Warrant
Agent or other relevant agent of the Company, the Trustees or the Warrant
Agents. It is expected that such instructions will be based upon directions
received by the Depositary from participants with respect to ownership of
beneficial interests in such Registered Global Security.
The Securities of a series may also be issued in the form of one or
more bearer global Securities (a "Bearer Global Security") that will be
deposited with a common depositary for Euroclear and Cedel Bank, or with a
nominee for such depositary identified in the Prospectus Supplement relating to
such series. The specific terms and procedures, including the specific terms of
the depositary arrangement, with respect to any portion of a series of
Securities to be represented by a Bearer Global Security will be described in
the Prospectus Supplement relating to such series.
PLAN OF DISTRIBUTION
The Company may sell the Securities being offered hereby in three ways:
(i) through agents, (ii) through underwriters and (iii) through dealers. Any
such underwriters, dealers or agents in the United States will include MS & Co.,
and any such underwriters, dealers or agents outside the United States will
include MSIL or other affiliates of the Company.
Offers to purchase Securities may be solicited by agents designated by
the Company from time to time. Any such agent, who may be deemed to be an
underwriter as that term is defined in the Securities Act, involved in the offer
or sale of the Securities in respect of which this Prospectus is delivered will
be named, and any commissions payable by the Company to such agent set forth, in
the Prospectus Supplement. Any such agent will be acting on a reasonable efforts
basis for the period of its appointment or, if indicated in the applicable
Prospectus Supplement, on a firm commitment basis. Agents may be entitled under
agreements which may be entered into with the Company to indemnification by the
Company against certain civil liabilities, including liabilities under the
Securities Act, and may be customers of, engage in transactions with or perform
services for the Company in the ordinary course of business.
If any underwriters are utilized in the sale of the Securities in
respect of which this Prospectus is delivered, the Company will enter into an
underwriting agreement with such underwriters at the time of sale to them and
the names of the underwriters and the terms of the transaction will be set forth
in the Prospectus Supplement, which will be used by the underwriters to make
resales of the Securities in respect of which this Prospectus is delivered to
the public. The underwriters may be entitled, under the relevant underwriting
agreement, to indemnification by the Company against certain liabilities,
including liabilities under the Securities Act, and may be customers of, engage
in transactions with or perform services for the Company in the ordinary course
of business.
If a dealer is utilized in the sale of the Securities in respect of
which the Prospectus is delivered, the Company will sell such Securities to the
dealer, as principal. The dealer may then resell such Securities to the public
at varying prices to be determined by such dealer at the time of resale. Dealers
may be entitled to indemnification by the Company against certain liabilities,
including liabilities under the Securities Act, and may be customers of, engage
in transactions with or perform services for the Company in the ordinary course
of business.
Securities may also be offered and sold, if so indicated in the
Prospectus Supplement, in connection with a remarketing upon their purchase, in
accordance with their terms, by one or more firms, including MS & Co. and
26
<PAGE>
MSIL ("remarketing firms"), acting as principals for their own accounts or as
agents for the Company. Any remarketing firm will be identified and the terms of
its agreement, if any, with the Company and its compensation will be described
in the Prospectus Supplement. Remarketing firms may be entitled under agreements
which may be entered into with the Company to indemnification by the Company
against certain civil liabilities, including liabilities under the Securities
Act, and may be customers of, engage in transactions with or perform services
for the Company in the ordinary course of business.
If so indicated in the Prospectus Supplement, the Company will
authorize agents, underwriters or dealers to solicit offers by certain
purchasers to purchase Offered Debt Securities or Offered Warrants, Purchase
Contracts or Units, as the case may be, from the Company at the public offering
price set forth in the Prospectus Supplement pursuant to delayed delivery
contracts providing for payment and delivery on a specified date in the future.
Such contracts will be subject to only those conditions set forth in the
Prospectus Supplement, and the Prospectus Supplement will set forth the
commission payable for solicitation of such offers.
Any underwriters, agents or dealers utilized in the sale of Securities
will not confirm sales to accounts over which they exercise discretionary
authority.
MS & Co. and MSIL are wholly owned subsidiaries of the Company. Each
offering of Securities and any market-making activities by MS & Co. with respect
to Securities will be conducted in compliance with the requirements of Rule 2720
of the National Association of Securities Dealers, Inc. (the "NASD") regarding a
NASD member firm's distributing the securities of an affiliate. Following the
initial distribution of any Securities, MS & Co., MSIL and other affiliates of
the Company may offer and sell such Securities in the course of their business
as broker-dealers (subject, in the case of Preferred Stock and Depositary
Shares, to obtaining any necessary approval of the NYSE for any such offers and
sales by MS & Co.). MS & Co., MSIL and such other affiliates may act as
principals or agents in such transactions. This Prospectus may be used by MS &
Co., MSIL and such other affiliates in connection with such transactions. Such
sales, if any, will be made at varying prices related to prevailing market
prices at the time of sale or otherwise. Neither MS & Co., MSIL nor such other
affiliates are obligated to make a market in any Securities and may discontinue
any market-making activities at any time without notice.
27
<PAGE>
LEGAL MATTERS
The validity of the Securities 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., Ralph L. Pellecchio, Assistant Secretary and Counsel of
the Company and a Managing Director of MS & Co., or other counsel who is
satisfactory to MS & Co. or MSIL, as the case may be, and an officer of the
Company. Mr. Clark, Mr. Pellecchio 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 Securities will be passed upon for the Underwriters by
Davis Polk & Wardwell. Davis Polk & Wardwell has in the past represented and
continues to represent the Company on a regular basis and in a variety of
matters, including in connection with its merchant banking and leveraged capital
activities.
EXPERTS
The consolidated financial statements and financial statement schedule
of the Company incorporated by reference and included in the Company's Annual
Report on Form 10-K for the fiscal period ended November 30, 1995 have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
thereon included therein and incorporated herein by reference. Such consolidated
financial statements and financial statement schedule are, and audited
consolidated financial statements and financial statement schedules to be
included in subsequently filed documents will be, incorporated herein in
reliance upon the reports of Ernst & Young LLP pertaining to such financial
statements and financial statement schedules (to the extent covered by consents
filed with the Commission) given upon the authority of such firm as experts in
accounting and auditing.
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 Debt Securities, Warrants or Purchase
Contracts (or any Units including Debt Securities, Warrants or Purchase
Contracts) 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 Debt Securities, Warrants or Purchase Contracts
(or any Units including Debt Securities, Warrants or Purchase Contracts) 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. In addition, employee benefit plans
subject to ERISA (or insurance companies deemed to be investing ERISA plan
assets) purchasing Universal Warrants or Purchase Contracts should consider the
possible implications of owning the securities underlying such instruments in
the event of settlement by physical delivery. Any insurance company or pension
or employee benefit plan proposing to invest in the Debt Securities, Warrants or
Purchase Contracts (or any Units including Debt Securities, Warrants, or
Purchase Contracts) should consult with its legal counsel.
28
<PAGE>
MORGAN STANLEY GROUP INC.
