Subject to Completion, Pricing Supplement dated October 7, 1997
PROSPECTUS Dated June 2, 1997 Pricing Supplement No. 17 to
PROSPECTUS SUPPLEMENT Registration Statement No. 333-27919
Dated June 2, 1997 Dated , 1997
Rule 424(b)(3)
$25,000,000
Morgan Stanley, Dean Witter, Discover & Co.
MEDIUM-TERM NOTES, SERIES C
Senior Fixed Rate Notes
Reset Performance Equity-linked Redemption Quarterly-pay
Securities ("Reset PERQS")
% RESET PERQS DUE OCTOBER 29, 1999
Reset PERQS Mandatorily Exchangeable For Shares of Common Stock of
ASCEND COMMUNICATIONS, INC.
The % Reset PERQS due October 29, 1999 (the "Reset PERQS")
are Medium-Term Notes, Series C (Senior Fixed Rate Notes) of Morgan Stanley,
Dean Witter, Discover & Co. (the "Company"), as further described below and in
the Prospectus Supplement under "Description of Notes--Fixed Rate Notes" and
"--Exchangeable Notes."
The principal amount of each of the Reset PERQS being offered
hereby will be $ (the Market Price of the common stock, $0.001 par
value, of Ascend Communications, Inc. ("Ascend") on , 1997) (the
"Initial Price"). The Reset PERQS will mature on October 29, 1999. Interest
on the Reset PERQS, at the rate of % of the principal amount per annum
(equivalent to $ per annum per Reset PERQS), is payable quarterly in
arrears on each January 29, April 29, July 29 and October 29, beginning
January 29, 1998.
At maturity upon delivery of each Reset PERQS to the Trustee,
each $ principal amount of such Reset PERQS will be applied by the
Company as payment for a number of shares of the common stock of Ascend (the
"Ascend Stock") at the then applicable Exchange Ratio. The Exchange Ratio,
initially set at 1.0, is subject to adjustment on the First Year Determination
Date and at maturity in order to cap the value of the Ascend Stock to be
received upon delivery of the Reset PERQS at $ per $ principal
amount of each Reset PERQS ( % of the Initial Price). Solely for
purposes of adjustment upon the occurrence of certain corporate events, the
number of shares of Ascend Stock to be delivered will also be adjusted by an
Exchange Factor, initially set at 1.0. See "Exchange at Maturity," "Exchange
Factor" and "Antidilution Adjustments" in this Pricing Supplement.
If the First Year Closing Price is less than or equal to
% of the Initial Price (the "First Year Cap Price"), no adjustment to the
Exchange Ratio will be made at such time. If the First Year Closing Price
exceeds the First Year Cap Price, the Exchange Ratio will be adjusted so that
the new Exchange Ratio will equal the product of (i) the existing Exchange
Ratio and (ii) a fraction the numerator of which will be the First Year Cap
Price and the denominator of which will be the First Year Closing Price. In
addition, on the First Year Determination Date, the Calculation Agent will
establish the "Second Year Cap Price" that will be equal to the greater of (x)
% of the First Year Closing Price and (y) the First Year Cap Price. If
the Market Price at maturity (as defined herein, the "Maturity Price") is less
than or equal to the Second Year Cap Price, no further adjustment to the
Exchange Ratio will be made. If the Maturity Price exceeds the Second Year
Cap Price, the existing Exchange Ratio will be adjusted so that the final
Exchange Ratio will equal the product of (i) the existing Exchange Ratio and
(ii) a fraction the numerator of which will be the Second Year Cap Price and
the denominator of which will be the Maturity Price. See "Exchange at
Maturity" and "Hypothetical Payments on the Reset PERQS" in this Pricing
Supplement.
The opportunity for appreciation afforded by an investment in
the Reset PERQS is less than that afforded by an investment in the Ascend
Stock because at maturity a holder may receive less than one share of Ascend
Stock per Reset PERQS if the Exchange Ratio has been adjusted to cap the value
of the Ascend Stock to be received upon delivery of the Reset PERQS. The
value of the Ascend Stock received by a holder of the Reset PERQS upon
exchange at maturity, determined as described herein, may be more or less than
the principal amount of the Reset PERQS. See "Hypothetical Payments on the
Reset PERQS" in this Pricing Supplement.
Ascend is not affiliated with the Company, is not involved in
this offering of Reset PERQS and will have no obligations with respect to the
Reset PERQS. See "Historical Information" in this Pricing Supplement for
information on the range of Market Prices for Ascend Stock.
The Company will cause the Market Price, any adjustments to the
Exchange Ratio, the Exchange Factor and any other antidilution adjustments to
be determined by the Calculation Agent for The Chase Manhattan Bank, as
Trustee under the Senior Debt Indenture.
An investment in the Reset PERQS entails risks not associated
with similar investments in a conventional debt security, as described under
"Risk Factors" on PS-6 through PS-8 herein.
---------------------------
PRICE $ A RESET PERQS
---------------------------
Agent's Proceeds to
Price to Public(1) Commissions(2) Company(1)
------------------ -------------- -----------
Per Reset PERQS.. $ $ $
Total............ $ $ $
(1) Plus accrued interest, if any, from , 1997.
(2) The Company has agreed to indemnify the Agent against certain liabilities,
including liabilities under the Securities Act of 1933.
Information contained in this preliminary pricing supplement is subject to
completion or amendment. These securities may not be delivered prior to the
time a final pricing supplement is delivered. This pricing supplement and the
accompanying prospectus and prospectus supplement shall not constitute an offer
to sell or the solicitation of an offer to buy nor shall there be any sale of
these securities in any State in which such offer, solicitation or sale would
be unlawful prior to registration or qualification under the securities laws
of any such State.
MORGAN STANLEY DEAN WITTER
(This page intentionally left blank)
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE RESET PERQS OR THE
ASCEND STOCK. SPECIFICALLY, THE AGENT MAY OVERALLOT IN CONNECTION WITH THE
OFFERING, AND MAY BID FOR, AND PURCHASE, THE RESET PERQS OR THE ASCEND STOCK
IN THE OPEN MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "SUPPLEMENTAL
INFORMATION CONCERNING PLAN OF DISTRIBUTION" AND "USE OF PROCEEDS AND HEDGING."
Capitalized terms not defined herein have the meanings given to such terms in
the accompanying Prospectus Supplement.
Principal Amount.............. $25,000,000
Maturity Date................. October 29, 1999
Interest Rate................. % per annum (equivalent to $ per annum
per Reset PERQS)
Interest Payment Dates........ Each January 29, April 29, July 29 and
October 29, beginning January 29, 1998.
Specified Currency............ U.S. Dollars
Issue Price................... $ a Reset PERQS
Original Issue Date
(Settlement Date)............. , 1997
CUSIP......................... 617446430
Book Entry Note or
Certificated Note............. Book Entry
Senior Note or
Subordinated Note............. Senior
Denominations................. $ and integral multiples thereof
Trustee....................... The Chase Manhattan Bank
Agent......................... Morgan Stanley & Co. Incorporated
First Year Determination Date. October 29, 1998 (or if such date is not a
Trading Day on which no Market Disruption
Event occurs, the immediately succeeding
Trading Day on which no Market Disruption
Event occurs)
Exchange at Maturity.......... At maturity (including as a result of
acceleration or otherwise), upon delivery of
each Reset PERQS to the Trustee, each $
principal amount of such Reset PERQS will be
applied by the Company as payment for a
number of shares of Ascend Stock at the
Exchange Ratio. The Exchange Ratio,
initially set at 1.0, is subject to
adjustment on the First Year Determination
Date and at maturity in order to cap the
value of the Ascend Stock to be received upon
delivery of the Reset PERQS at $ per
principal amount of each Reset PERQS (
% of the Initial Price). Solely for
purposes of adjustment upon the occurrence of
certain corporate events, the number of
shares of Ascend Stock to be delivered at
maturity will also be adjusted by an Exchange
Factor, initially set at 1.0. See "Exchange
Factor" and "Antidilution Adjustments" below.
If the First Year Closing Price is less than
or equal to % of the Initial Price
(the "First Year Cap Price"), no adjustment
to the Exchange Ratio will be made at such
time. If the First Year Closing Price
exceeds the First Year Cap Price, the
Exchange Ratio will be adjusted so that the
new Exchange Ratio will equal the product of
(i) the existing Exchange Ratio and (ii) a
fraction the numerator of which will be the
First Year Cap Price and the denominator of
which will be the First Year Closing Price.
In addition, on the First Year Determination
Date, the Calculation Agent will establish
the "Second Year Cap Price" that will be
equal to the greater of (x) % of the
First Year Closing Price and (y) the First
Year Cap Price. Notice of the Second Year
Cap Price and of any such adjustment to the
Exchange Ratio shall promptly be sent by
first-class mail to The Depository Trust
Company, New York, New York (the
"Depositary"). If the Maturity Price is less
than or equal to the Second Year Cap Price,
no further adjustment to the Exchange Ratio
will be made. If the Maturity Price exceeds
the Second Year Cap Price, the existing
Exchange Ratio will be adjusted so that the
final Exchange Ratio will equal the product
of (i) the existing Exchange Ratio and (ii) a
fraction the numerator of which will be the
Second Year Cap Price and the denominator of
which will be the Maturity Price. See
"Hypothetical Payments on the Reset PERQS"
below.
All percentages resulting from any
calculation with respect to the Reset PERQS
(and the First Year Cap Price and the Second
Year Cap Price) will be rounded to the
nearest one hundred-thousandth of a
percentage point, with five one-millionths of
a percentage point rounded upwards (e.g.,
9.876545% (or .09876545) would be rounded to
9.87655% (or .0987655)), and all dollar
amounts related to payments at maturity
resulting from such calculation will be
rounded to the nearest cent with one-half
cent being rounded upwards.
The Company shall, or shall cause the
Calculation Agent to, (i) provide written
notice to the Trustee and to the Depositary,
on or prior to 10:30 a.m. on the Trading Day
immediately prior to maturity of the Reset
PERQS, of the amount of Ascend Stock to be
delivered with respect to each $
principal amount of each Reset PERQS and (ii)
deliver such shares of Ascend Stock (and cash
in respect of interest and any fractional
shares of Ascend Stock) to the Trustee for
delivery to the holders. The Calculation
Agent shall determine the Exchange Ratio
applicable at the maturity of the Reset PERQS
and calculate the Exchange Factor. References
to payment "per Reset PERQS" refer to each $
principal amount of any Reset PERQS.
No Fractional Shares.......... Upon delivery of the Reset PERQS to the
Trustee at maturity (including as a result of
acceleration or otherwise), the Company will
pay cash in lieu of issuing fractional shares
of Ascend Stock in an amount equal to the
corresponding fractional Market Price of such
fraction of a share of Ascend Stock as
determined by the Calculation Agent as of the
second scheduled Trading Day prior to
maturity of the Reset PERQS.
Initial Price................. $
First Year Closing Price...... First Year Closing Price means the product of
(i) the Market Price of one share of Ascend
Stock and (ii) the Exchange Factor, each
determined as of the First Year Determination
Date.
Maturity Price................ Maturity Price means the product of (i) the
Market Price of one share of Ascend Stock and
(ii) the Exchange Factor, each determined as
of the second scheduled Trading Day
immediately prior to maturity.
First Year Cap Price.......... $ ( % of the Initial Price)
Second Year Cap Price......... Second Year Cap Price means the greater of
(x) % of the First Year Closing Price
and (y) the First Year Cap Price. See
"Exchange at Maturity" above.
Exchange Factor............... The Exchange Factor will be set initially at
1.0, but will be subject to adjustment upon
the occurrence of certain corporate events
through and including the second scheduled
Trading Day immediately prior to maturity.
See "Antidilution Adjustments" below.
Market Price.................. If Ascend Stock (or any other security for
which a Market Price must be determined) is
listed on a national securities exchange, is a
security of The Nasdaq National Market
("NASDAQ NMS") or is included in the OTC
Bulletin Board Service ("OTC Bulletin Board")
operated by the National Association of
Securities Dealers, Inc. (the "NASD"), the
Market Price for one share of Ascend Stock
(or one unit of any such other security) on
any Trading Day means (i) the last reported
sale price, regular way, on such day on the
principal United States securities exchange
registered under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), on
which Ascend Stock (or such other security)
is listed or admitted to trading or (ii) if
not listed or admitted to trading on any such
securities exchange or if such last reported
sale price is not obtainable, the last
reported sale price on the over-the-counter
market as reported on the NASDAQ NMS or OTC
Bulletin Board on such day. If the last
reported sale price is not available pursuant
to clause (i) or (ii) of the preceding
sentence, the Market Price for any Trading
Day shall be the mean, as determined by the
Calculation Agent, of the bid prices for
Ascend Stock (or such other security)
obtained from as many dealers in such stock,
but not exceeding three, as will make such bid
prices available to the Calculation Agent.
The term "NASDAQ NMS security" shall include
a security included in any successor to such
system and the term "OTC Bulletin Board
Service" shall include any successor service
thereto.
Trading Day................... A day, as determined by the Calculation
Agent, on which trading is generally
conducted (i) on the New York Stock Exchange
("NYSE"), the AMEX and the NASDAQ NMS, (ii)
on the Chicago Mercantile Exchange, (iii) on
the Chicago Board of Options Exchange and (iv)
in the over-the-counter market for equity
securities in the United States.
Acceleration Event............ If on any date the product of the Market
Price per share of Ascend Stock and the
Exchange Factor is less than $2.00, the
maturity date of the Reset PERQS will be
deemed to be accelerated to such date, and
each $ principal amount of each Reset
PERQS will be applied by the Company as
payment for a number of shares of Ascend
Stock at the then current Exchange Ratio, as
adjusted by the then current Exchange Factor.
See also "Antidilution Adjustments" below.
Calculation Agent............. Morgan Stanley & Co. Incorporated and its
successors ("MS & Co.")
Because the Calculation Agent is an affiliate
of the Company, potential conflicts of
interest may exist between the Calculation
Agent and the holders of the Reset PERQS,
including with respect to certain
determinations and judgments that the
Calculation Agent must make in making
adjustments to the Exchange Factor or other
antidilution adjustments or determining any
Market Price or whether a Market Disruption
Event has occurred. MS & Co. is obligated to
carry out its duties as Calculation Agent in
good faith using its reasonable judgment.
See "Antidilution Adjustments" and "Market
Disruption Event" below.
Risk Factors.................. An investment in the Reset PERQS entails
significant risks not associated with similar
investments in a conventional debt security,
including those set forth below. In
accordance with AMEX requirements, the Agent
and any dealer may only sell Reset PERQS to
investors whose accounts have been
specifically approved by such Agent or dealer
for trading equity-linked securities.
The Reset PERQS combine features of equity
and debt instruments. For example, the terms
of the Reset PERQS differ from those of debt
securities in that the value of the Ascend
Stock that a holder of the Reset PERQS will
receive upon mandatory exchange of the
principal amount thereof at maturity is not
fixed, but is based on the price of the
Ascend Stock on the First Year Determination
Date and at maturity of the Reset PERQS.
Because the price of the Ascend Stock is
subject to market fluctuations and because
the Exchange Ratio will be adjusted to cap
the value of the Ascend Stock to be received
upon delivery of the Reset PERQS, the value
of the Ascend Stock received by a holder of
Reset PERQS upon exchange at maturity,
determined as described herein, may be more
or less than the principal amount of the
Reset PERQS. The amount receivable upon
exchange will be less than the principal
amount of the Reset PERQS if the Maturity
Price of the Ascend Stock is (x) less than the
Initial Price or (y) not sufficiently above
the Initial Price following any adjustment of
the Exchange Ratio on the First Year
Determination Date. In either case, an
investment in the Reset PERQS would result in
a loss. See "Hypothetical Payments on the
Reset PERQS" below.
The opportunity for capital appreciation
afforded by an investment in the Reset PERQS
is less than that afforded by an investment in
Ascend Stock because of the First and Second
Year Cap Prices and because at maturity a
holder may receive less than one share of
Ascend Stock per Reset PERQS if the Exchange
Ratio has been adjusted to cap the value of
the Ascend Stock to be received upon delivery
of the Reset PERQS. In addition, because the
Exchange Ratio and the Maturity Price are
determined as of the second scheduled Trading
Day prior to maturity of the Reset PERQS and
because the price of Ascend Stock may
fluctuate after such Trading Day and prior to
its delivery at maturity, the value of any
Ascend Stock delivered at maturity may be
less than the value of such Ascend Stock on
such Trading Day. The amount payable at
maturity with respect to each Reset PERQS,
determined as of the second scheduled Trading
Day prior to maturity, will not under any
circumstances exceed $ per Reset
PERQS.
Although the amount that holders of the Reset
PERQS are entitled to receive at maturity is
subject to adjustment for certain corporate
events, such adjustments do not cover all
events that could affect the Market Price of
the Ascend Stock, including, without
limitation, the occurrence of a partial
tender or exchange offer for the Ascend Stock
by Ascend or any third party. Such other
events may adversely affect the market value
of the Reset PERQS.
The Notes are not currently listed on any
exchange. The Company is not obligated to
list the Notes; however, it may do so in the
future. There can be no assurance as to how
the Reset PERQS will trade in the secondary
market or whether such market will be liquid
or illiquid. Securities with characteristics
similar to the Reset PERQS are novel
securities, and there is currently no
secondary market for the Reset PERQS. The
market value for the Reset PERQS will be
affected by a number of factors in addition
to the creditworthiness of the Company and
the value of Ascend Stock, including, but not
limited to, the volatility of Ascend Stock,
the dividend rate on Ascend Stock, market
interest and yield rates and the time
remaining to the maturity of the Reset PERQS.
In addition, the value of Ascend Stock
depends on a number of interrelated factors,
including economic, financial and political
events, that can affect the capital markets
generally and the market segment of which
Ascend is a part and over which the Company
has no control. The market value of the
Reset PERQS is expected to depend primarily
on changes in the Market Price of Ascend
Stock. The price at which a holder will be
able to sell Reset PERQS prior to maturity
may be at a discount, which could be
substantial, from the principal amount
thereof, if, at such time, the Market Price
of Ascend Stock is below, equal to or not
sufficiently above the Initial Price. The
historical Market Prices of Ascend Stock
should not be taken as an indication of
Ascend Stock's future performance during the
term of any Reset PERQS.
The Company is not affiliated with Ascend
and, although the Company as of the date of
this Pricing Supplement does not have any
material non-public information concerning
Ascend, corporate events of Ascend, including
those described below in "Antidilution
Adjustments," are beyond the Company's
ability to control and are difficult to
predict.
Ascend is not involved in the offering of the
Reset PERQS and has no obligations with
respect to the Reset PERQS, including any
obligation to take the interests of the
Company or of holders of Reset PERQS into
consideration for any reason. Ascend will
not receive any of the proceeds of the
offering of the Reset PERQS made hereby and
is not responsible for, and has not
participated in, the determination of the
timing of, prices for or quantities of, the
Reset PERQS offered hereby.
Holders of the Reset PERQS will not be
entitled to any rights with respect to the
Ascend Stock (including, without limitation,
voting rights, the rights to receive any
dividends or other distributions in respect
thereof and the right to tender or exchange
Ascend Stock in any partial tender or
exchange offer by Ascend or any third party)
until such time as the Company shall deliver
shares of Ascend Stock to holders of the
Reset PERQS at maturity.
Because the Calculation Agent is an affiliate
of the Company, potential conflicts of
interest may exist between the Calculation
Agent and the holders of the Reset PERQS,
including with respect to certain adjustments
to the Exchange Factor and other antidilution
adjustments that may influence the
determination of the amount of Ascend Stock
or other property receivable at the maturity
of the Reset PERQS. See "Antidilution
Adjustments" and "Market Disruption Event."
It is suggested that prospective investors
who consider purchasing the Reset PERQS
should reach an investment decision only after
carefully considering the suitability of the
Reset PERQS in light of their particular
circumstances.
Investors should also consider the tax
consequences of investing in the Reset PERQS.
No statutory, judicial or administrative
authority definitively addresses the
characterization for U.S. federal income tax
purposes of the Reset PERQS or instruments
similar to the Reset PERQS. As a result,
significant aspects of the U.S. federal income
tax treatment of an investment in the Reset
PERQS are uncertain. No ruling has been or
will be requested from the Internal Revenue
Service ("IRS") with respect to the Reset
PERQS and no assurance can be given that the
IRS or a court will agree with the analysis
set forth herein. See "United States Federal
Income Taxation" below.
Antidilution Adjustments...... The Exchange Factor will be adjusted as
follows:
1. If Ascend Stock is subject to a
stock split or reverse stock split, then
once such split has become effective, the
Exchange Factor will be adjusted to equal
the product of the prior Exchange Factor
and the number of shares issued in such
stock split or reverse stock split with
respect to one share of Ascend Stock.
2. If Ascend Stock is subject to a
stock dividend (issuance of additional
shares of Ascend Stock) that is given
ratably to all holders of shares of Ascend
Stock, then once the dividend has become
effective and Ascend Stock is trading ex-
dividend, the Exchange Factor will be
adjusted so that the new Exchange Factor
shall equal the prior Exchange Factor plus
the product of (i) the number of shares
issued with respect to one share of Ascend
Stock and (ii) the prior Exchange Factor.
3. There will be no adjustments to the
Exchange Factor to reflect cash dividends
or other distributions paid with respect
to Ascend Stock other than distributions
described in clause (v) of paragraph 5
below and Extraordinary Dividends as
described below. A cash dividend or other
distribution with respect to Ascend Stock
will be deemed to be an "Extraordinary
Dividend" if such dividend or other
distribution exceeds the immediately
preceding non-Extraordinary Dividend for
Ascend Stock by an amount equal to at
least 10% of the Market Price of Ascend
Stock on the Trading Day preceding the ex-
dividend date for the payment of such
Extraordinary Dividend (the "ex-dividend
date"). If an Extraordinary Dividend
occurs with respect to Ascend Stock, the
Exchange Factor with respect to Ascend
Stock will be adjusted on the ex-dividend
date with respect to such Extraordinary
Dividend so that the new Exchange Factor
will equal the product of (i) the then
current Exchange Factor and (ii) a
fraction, the numerator of which is the
Market Price on the Trading Day preceding
the ex-dividend date, and the denominator
of which is the amount by which the Market
Price on the Trading Day preceding the ex-
dividend date exceeds the Extraordinary
Dividend Amount. The "Extraordinary
Dividend Amount" with respect to an
Extraordinary Dividend for Ascend Stock
will equal (i) in the case of cash
dividends or other distributions that
constitute quarterly dividends, the amount
per share of such Extraordinary Dividend
minus the amount per share of the
immediately preceding non-Extraordinary
Dividend for Ascend Stock or (ii) in the
case of cash dividends or other
distributions that do not constitute
quarterly dividends, the amount per share
of such Extraordinary Dividend. To the
extent an Extraordinary Dividend is not
paid in cash, the value of the non-cash
component will be determined by the
Calculation Agent, whose determination
shall be conclusive. A distribution on
the Ascend Stock described in clause (v)
of paragraph 5 below that also constitutes
an Extraordinary Dividend shall cause an
adjustment to the Exchange Factor pursuant
only to clause (v) of paragraph 5.
4. If Ascend issues rights or warrants
to all holders of Ascend Stock to
subscribe for or purchase Ascend Stock at
an exercise price per share less than the
Market Price of the Ascend Stock on both
(i) the date the exercise price of such
rights or warrants is determined and (ii)
the expiration date of such rights or
warrants, and if the expiration date of
such rights or warrants precedes the
maturity of the Reset PERQS, then the
Exchange Factor will be adjusted to equal
the product of the prior Exchange Factor
and a fraction, the numerator of which
shall be the number of shares of Ascend
Stock outstanding immediately prior to the
issuance of such rights or warrants plus
the number of additional shares of Ascend
Stock offered for subscription or purchase
pursuant to such rights or warrants and
the denominator of which shall be the
number of shares of Ascend Stock
outstanding immediately prior to the
issuance of such rights or warrants plus
the number of additional shares of Ascend
Stock which the aggregate offering price
of the total number of shares of Ascend
Stock so offered for subscription or
purchase pursuant to such rights or
warrants would purchase at the Market
Price on the expiration date of such
rights or warrants, which shall be
determined by multiplying such total
number of shares offered by the exercise
price of such rights or warrants and
dividing the product so obtained by such
Market Price.
5. If (i) there occurs any
reclassification of Ascend Stock, (ii)
Ascend or any surviving entity or
subsequent surviving entity of Ascend (a
"Ascend Successor") has been subject to a
merger, combination or consolidation and
is not the surviving entity, (iii) any
statutory exchange of securities of Ascend
or any Ascend Successor with another
corporation occurs (other than pursuant to
clause (ii) above), (iv) Ascend is
liquidated, (v) Ascend issues to all of
its shareholders equity securities of an
issuer other than Ascend (other than in a
transaction described in clauses (ii),
(iii) or (iv) above) (a "Spin-off Event")
or (vi) a tender or exchange offer is
consummated for all the outstanding shares
of Ascend Stock (any such event in clauses
(i) through (vi) a "Reorganization
Event"), the method of determining the
amount payable upon exchange at maturity
for each Reset PERQS will be adjusted to
provide that each holder of Reset PERQS
will receive at maturity, in respect of
each $ principal amount of each Reset
PERQS, securities, cash or any other
assets distributed in any such
Reorganization Event, including, in the
case of a Spin-off Event, the share of
Ascend Stock with respect to which the
spun-off security was issued
(collectively, the "Exchange Property") in
an amount with a value equal to (a) if the
Exchange Ratio has not been adjusted prior
to maturity, the Transaction Value or (b)
if the Exchange Ratio has been adjusted,
an amount equal to the product of the
final Exchange Ratio and the Transaction
Value. In addition, following a
Reorganization Event, the method of
determining the Maturity Price will be
adjusted so that the Maturity Price will
mean the Transaction Value as of the
second scheduled Trading Day immediately
prior to maturity, and if the
Reorganization Event occurs prior to the
First Year Determination Date, the First
Year Closing Price will mean the
Transaction Value determined as of the
First Year Determination Date.
Notwithstanding the above, if the Exchange
Property received in any such
Reorganization Event consists only of
cash, the maturity date of the Reset PERQS
will be deemed to be accelerated to the
date on which such cash is distributed to
holders of Ascend Stock and holders will
receive in lieu of any Ascend Stock and as
liquidated damages in full satisfaction of
the Company's obligations under the Reset
PERQS the product of (i) the Transaction
Value as of such date and (ii) the then
current Exchange Ratio adjusted as if such
date were the next to occur of either the
First Year Determination Date or the
second scheduled Trading Day prior to
maturity. If Exchange Property consists
of more than one type of property, holders
of Reset PERQS will receive at maturity a
pro rata share of each such type of
Exchange Property. "Transaction Value" at
any date means (i) for any cash received
in any such Reorganization Event, the
amount of cash received per share of
Ascend Stock, as adjusted by the Exchange
Factor, (ii) for any property other than
cash or securities received in any such
Reorganization Event, the market value, as
determined by the Calculation Agent, as of
the date of receipt, of such Exchange
Property received for each share of Ascend
Stock, as adjusted by the Exchange Factor
and (iii) for any security received in any
such Reorganization Event, an amount equal
to the Market Price, as of the date on
which the Transaction Value is determined,
per share of such security multiplied by
the quantity of such security received for
each share of Ascend Stock, as adjusted by
the Exchange Factor.
For purposes of paragraph 5 above, in the
case of a consummated tender or exchange
offer for all Exchange Property of a
particular type, Exchange Property shall be
deemed to include the amount of cash or other
property paid by the offeror in the tender or
exchange offer with respect to such Exchange
Property (in an amount determined on the
basis of the rate of exchange in such tender
or exchange offer). In the event of a tender
or exchange offer with respect to Exchange
Property in which an offeree may elect to
receive cash or other property, Exchange
Property shall be deemed to include the kind
and amount of cash and other property received
by offerees who elect to receive cash.
No adjustments to the Exchange Factor will be
required unless such adjustment would require
a change of at least 0.1% in the Exchange
Factor then in effect. The Exchange Factor
resulting from any of the adjustments
specified above will be rounded to the
nearest one thousandth with five
ten-thousandths being rounded upward.
No adjustments to the Exchange Factor or
method of calculating the Exchange Ratio will
be made other than those specified above. The
adjustments specified above do not cover all
events that could affect the Market Price of
the Ascend Stock, including, without
limitation, a partial tender or exchange
offer for the Ascend Stock.
NOTWITHSTANDING THE FOREGOING, THE AMOUNT
PAYABLE BY THE COMPANY AT MATURITY WITH
RESPECT TO EACH RESET PERQS, DETERMINED AS OF
THE SECOND SCHEDULED TRADING DAY PRIOR TO
MATURITY, WILL NOT UNDER ANY CIRCUMSTANCES
EXCEED $ PER RESET PERQS OR AN AMOUNT
OF ASCEND STOCK HAVING AN EQUIVALENT VALUE AS
OF SUCH SECOND SCHEDULED TRADING DAY.
The Calculation Agent shall be solely
responsible for the determination and
calculation of any adjustments to the Exchange
Factor or method of calculating the Exchange
Ratio and of any related determinations and
calculations with respect to any
distributions of stock, other securities or
other property or assets (including cash) in
connection with any corporate event described
in paragraph 5 above, and its determinations
and calculations with respect thereto shall
be conclusive.
The Calculation Agent will provide
information as to any adjustments to the
Exchange Factor or method of calculating the
Exchange Ratio upon written request by any
holder of the Reset PERQS.
Market Disruption Event....... "Market Disruption Event" means, with respect
to Ascend Stock:
(i) a suspension, absence or material
limitation of trading of Ascend Stock on
the primary market for Ascend Stock for
more than two hours of trading or during
the one-half hour period preceding the
close of trading in such market; or the
suspension or material limitation on the
primary market for trading in options
contracts related to Ascend Stock, if
available, during the one-half hour period
preceding the close of trading in the
applicable market, in each case as
determined by the Calculation Agent in its
sole discretion; and
(ii) a determination by the Calculation
Agent in its sole discretion that the
event described in clause (i) above
materially interfered with the ability of
the Company or any of its affiliates to
unwind all or a material portion of the
hedge with respect to the Reset PERQS.
For purposes of determining whether a Market
Disruption Event has occurred: (1) a
limitation on the hours or number of days of
trading will not constitute a Market
Disruption Event if it results from an
announced change in the regular business
hours of the relevant exchange, (2) a
decision to permanently discontinue trading
in the relevant option contract will not
constitute a Market Disruption Event, (3)
limitations pursuant to New York Stock
Exchange Rule 80A (or any applicable rule or
regulation enacted or promulgated by the New
York Stock Exchange, any other self-regulatory
organization or the Securities and Exchange
Commission of similar scope as determined by
the Calculation Agent) on trading during
significant market fluctuations shall
constitute a suspension, absence or material
limitation of trading, (4) a suspension of
trading in an options contract on Ascend
Stock by the primary securities market
trading in such options, if available, by
reason of (x) a price change exceeding limits
set by such securities exchange or market,
(y) an imbalance of orders relating to such
contracts or (z) a disparity in bid and ask
quotes relating to such contracts will
constitute a suspension or material
limitation of trading in options contracts
related to Ascend Stock and (5) a suspension,
absence or material limitation of trading on
the primary securities market on which
options contracts related to Ascend Stock are
traded will not include any time when such
securities market is itself closed for
trading under ordinary circumstances.
Ascend Stock; Public
Information.................... Ascend develops, manufactures and markets,
sells and supports a broad range of
high-speed integrated remote networking
products that enable its customers to build:
(i) Internet access systems consisting of
point-of-presence termination equipment for
Internet service providers and remote site
Internet access equipment for Internet
subscribers; (ii) high speed Internet
Protocol switches for application in
telecommunications carriers and Internet
service provider backbone networks; (iii)
extensions and enhancements to corporate
backbone networks that facilitate access to
these networks by remote offices,
telecommuters and mobile computer users; and
(iv) videoconferencing and multimedia access
facilities. Ascend Stock is registered under
the Exchange Act. Companies with securities
registered under the Exchange Act are
required to file periodically certain
financial and other information specified by
the Securities and Exchange Commission (the
"Commission"). Information provided to or
filed 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, information provided to or filed
with the Commission electronically can be
accessed through a Website maintained by the
Commission. The address of the Commission's
Website is http:/www.sec.gov. Information
provided to or filed with the Commission by
Ascend pursuant to the Exchange Act of 1934
can be located by reference to Commission
file number 000-23774. In addition,
information regarding Ascend may be obtained
from other sources including, but not limited
to, press releases, newspaper articles and
other publicly disseminated documents. The
Company makes no representation or warranty
as to the accuracy or completeness of such
reports.
THIS PRICING SUPPLEMENT RELATES ONLY TO THE
RESET PERQS OFFERED HEREBY AND DOES NOT
RELATE TO ASCEND STOCK OR OTHER SECURITIES OF
ASCEND. ALL DISCLOSURES CONTAINED IN THIS
PRICING SUPPLEMENT REGARDING ASCEND ARE
DERIVED FROM THE PUBLICLY AVAILABLE DOCUMENTS
DESCRIBED IN THE PRECEDING PARAGRAPH.
NEITHER THE COMPANY NOR THE AGENT HAS
PARTICIPATED IN THE PREPARATION OF SUCH
DOCUMENTS OR MADE ANY DUE DILIGENCE INQUIRY
WITH RESPECT TO ASCEND IN CONNECTION WITH THE
OFFERING OF THE RESET PERQS. NEITHER THE
COMPANY NOR THE AGENT MAKES ANY
REPRESENTATION THAT SUCH PUBLICLY AVAILABLE
DOCUMENTS OR ANY OTHER PUBLICLY AVAILABLE
INFORMATION REGARDING ASCEND ARE ACCURATE OR
COMPLETE. FURTHERMORE, THERE CAN BE NO
ASSURANCE THAT ALL EVENTS OCCURRING PRIOR TO
THE DATE HEREOF (INCLUDING EVENTS THAT WOULD
AFFECT THE ACCURACY OR COMPLETENESS OF THE
PUBLICLY AVAILABLE DOCUMENTS DESCRIBED IN THE
PRECEDING PARAGRAPH) THAT WOULD AFFECT THE
TRADING PRICE OF ASCEND (AND THEREFORE THE
INITIAL PRICE, THE FIRST YEAR CAP PRICE AND
THE MAXIMUM APPRECIATION AMOUNT) HAVE BEEN
PUBLICLY DISCLOSED. SUBSEQUENT DISCLOSURE OF
ANY SUCH EVENTS OR THE DISCLOSURE OF OR
FAILURE TO DISCLOSE MATERIAL FUTURE EVENTS
CONCERNING ASCEND COULD AFFECT THE VALUE
RECEIVED AT MATURITY WITH RESPECT TO THE
RESET PERQS AND THEREFORE THE TRADING PRICES
OF THE RESET PERQS.
NEITHER THE COMPANY NOR ANY OF ITS AFFILIATES
MAKES ANY REPRESENTATION TO ANY PURCHASER OF
RESET PERQS AS TO THE PERFORMANCE OF ASCEND
STOCK.
The Company or its affiliates may presently
or from time to time engage in business with
Ascend including extending loans to, or
making equity investments in, Ascend or
providing advisory services to Ascend,
including merger and acquisition advisory
services. In the course of such business,
the Company or its affiliates may acquire
non-public information with respect to Ascend
and, in addition, one or more affiliates of
the Company may publish research reports with
respect to Ascend. The statement in the
preceding sentence is not intended to affect
the right of holders of the Reset PERQS under
the securities laws. Any prospective
purchaser of a Reset PERQS should undertake
an independent investigation of Ascend as in
its judgment is appropriate to make an
informed decision with respect to an
investment in Ascend Stock.
Historical Information........ The following table sets forth the high and
low Market Price during 1994, 1995, 1996 and
1997 through October 6, 1997. The Market
Price on October 6, 1997 was $32(1)/(4). The
Market Prices listed below were obtained from
Bloomberg Financial Markets and the Company
believes such information to be accurate.
The historical prices of Ascend Stock should
not be taken as an indication of future
performance, and no assurance can be given
that the price of Ascend Stock will not
decrease so that the beneficial owners of the
Reset PERQS will receive at maturity shares
of Ascend Stock worth less than the principal
amount of the Reset PERQS. Nor can assurance
be given that the price of Ascend Stock will
increase above the Initial Price so that at
maturity the beneficial owners of the Reset
PERQS will receive an amount in excess of the
principal amount of the Reset PERQS.
Ascend High Low
------ ---- ---
(CUSIP 043491109)
1994
First Quarter............... N/A N/A
Second Quarter.............. 1(31)/(32) 1(29)/(64)
Third Quarter............... 3(11)/(32) 1(11)/(16)
Fourth Quarter.............. 5(17)/(32) 2(27)/(32)
1995
First Quarter............... 8(1)/(8) 5(1)/(32)
Second Quarter.............. 12(11)/(16) 7(61)/(64)
Third Quarter............... 21(5)/(16) 12(11)/(16)
Fourth Quarter.............. 40(9)/(16) 18(7)/(16)
1996
First Quarter............... 57 32(1)/(4)
Second Quarter.............. 70(5)/(8) 51(3)/(4)
Third Quarter............... 67(13)/(16) 41(3)/(4)
Fourth Quarter.............. 73(7)/(8) 60(1)/(8)
1997
First Quarter............... 78(3)/(4) 40(3)/(4)
Second Quarter.............. 59(1)/(2) 38
Third Quarter............... 55 32(3)/(8)
Fourth Quarter (through
October 6, 1997).......... 33 32(1)/(4)
Ascend has not paid cash dividends on the
Ascend Stock to date. The Company makes no
representation as to the amount of dividends,
if any, that Ascend will pay in the future.
In any event, holders of the Reset PERQS will
not be entitled to receive dividends, if any,
that may be payable on Ascend Stock.
Use of Proceeds and Hedging... The net proceeds to be received by the
Company from the sale of the Reset PERQS will
be used for general corporate purposes and, in
part, by the Company or one or more of its
affiliates in connection with hedging the
Company's obligations under the Reset PERQS.
See also "Use of Proceeds" in the
accompanying Prospectus.
On or prior to the date of this Pricing
Supplement, the Company, through its
subsidiaries or others, may hedge its
anticipated exposure in connection with the
Reset PERQS by taking positions in Ascend
Stock, in options contracts on Ascend Stock
listed on major securities markets or
positions in any other instruments that it may
wish to use in connection with such hedging.
In the event that the Company pursues such a
hedging strategy, the price at which the
Company is able to purchase such positions
may be a factor in determining the pricing of
the Reset PERQS. Purchase activity could
potentially increase the price of Ascend
Stock, and therefore effectively increase the
level to which Ascend Stock must rise before
a holder of a Reset PERQS would receive at
maturity an amount of Ascend Stock worth as
much as or more than the principal amount of
the Reset PERQS. Although the Company has no
reason to believe that its hedging activity
will have a material impact on the price of
Ascend Stock, there can be no assurance that
the Company will not affect such price as a
result of its hedging activities. The
Company, through its subsidiaries, is likely
to modify its hedge position throughout the
life of the Reset PERQS by purchasing and
selling the securities and instruments listed
above and any other available securities and
instruments.
Supplemental Information
Concerning Plan of
Distribution.................. In order to facilitate the offering of the
Reset PERQS, the Agent may engage in
transactions that stabilize, maintain or
otherwise affect the price of the Reset PERQS
or the Ascend Stock. Specifically, the Agent
may overallot in connection with the
offering, creating a short position in the
Reset PERQS for its own account. In
addition, to cover allotments or to stabilize
the price of the Reset PERQS, the Agent may
bid for, and purchase, the Reset PERQS or the
Ascend Stock in the open market. See "Use of
Proceeds and Hedging" above.
United States Federal Income
Taxation...................... This summary addresses certain U.S.
federal income tax consequences to holders
who are initial holders of the Reset PERQS
purchasing the Reset PERQS at the Issue
Price, and who will hold the Reset PERQS as
capital assets within the meaning of Section
1221 of the Internal Revenue Code of 1986, as
amended (the "Code"). This summary is based
on the Code, administrative pronouncements,
judicial decisions and existing and proposed
Treasury Regulations, changes to any of which
subsequent to the date of this Pricing
Supplement may affect the tax consequences
described herein. This summary does not
address all aspects of the U.S. federal
income taxation that may be relevant to a
particular holder in light of its individual
circumstances or to certain types of holders
subject to special treatment under the U.S.
federal income tax laws (e.g., certain
financial institutions, insurance companies,
tax-exempt organizations, dealers in
options or securities, or persons who hold
a Reset PERQS as a part of a hedging
transaction, straddle, conversion or other
integrated transaction). As the law
applicable to the U.S. federal income
taxation of instruments such as the Reset
PERQS is technical and complex, the
discussion below necessarily represents
only a general summary. Moreover, the
effect of any applicable state, local or
foreign tax laws is not discussed.
As used herein, the term "Holder" means a
beneficial owner of a Reset PERQS that is,
for U.S. federal income tax purposes, (i) a
citizen or resident of the U.S., (ii) a
corporation created or organized under the
laws of the U.S. or any political subdivision
thereof or (iii) an estate or trust the
income of which is subject to U.S. federal
income taxation regardless of its source.
General
Pursuant to the terms of the Reset PERQS, the
Company and every Holder of a Reset PERQS
agree (in the absence of an administrative
determination or judicial ruling to the
contrary) to characterize a Reset PERQS for
all tax purposes as an investment unit
consisting of the following components (the
"Components"): (i) a contract (the "Forward
Contract") that entitles the Holder of the
Reset PERQS to purchase, and the Company to
sell, for an amount equal to the Issue Price
of the Reset PERQS, the Ascend Stock at the
maturity (or, alternatively, upon an earlier
redemption of the Reset PERQS) that pays the
Holder a quarterly contract fee of %
per annum (the "Contract Fee"), and (ii) a
deposit with the Company of a fixed amount of
cash to secure the Holder's purchase
obligation under the Forward Contract (the
"Deposit"), which Deposit is bearing quarterly
interest (the "Deposit Interest") at a rate
of % per annum. Furthermore, based on
the Company's determination of the relative
fair market values of the Components at the
time of issuance of the Reset PERQS, the
Company will allocate 100% of the Issue Price
of the Reset PERQS to the Deposit and none to
the Forward Contract. The Company's
allocation of the Issue Price among the
Components will be binding on a Holder of the
Reset PERQS, unless such Holder timely and
explicitly discloses to the Internal Revenue
Service (the "IRS") that its allocation is
different from the Company's. The treatment
of the Reset PERQS described above and the
Company's allocation are not, however,
binding on the IRS or the courts. No
statutory, judicial or administrative
authority directly addresses the
characterization of the Reset PERQS or
instruments similar to the Reset PERQS for
U.S. federal income tax purposes, and no
ruling is being requested from the IRS with
respect to the Reset PERQS. Due to the
absence of authorities that directly address
instruments that are similar to the Reset
PERQS, Davis Polk & Wardwell, special tax
counsel to the Company ("Tax Counsel"), is
unable to render an opinion as to the proper
U.S. federal income tax characterization of
the Reset PERQS. AS A RESULT, SIGNIFICANT
ASPECTS OF THE U.S. FEDERAL INCOME TAX
CONSEQUENCES OF AN INVESTMENT IN THE RESET
PERQS ARE NOT CERTAIN, AND NO ASSURANCE CAN
BE GIVEN THAT THE IRS OR THE COURTS WILL
AGREE WITH THE CHARACTERIZATION DESCRIBED
ABOVE. ACCORDINGLY, PROSPECTIVE PURCHASERS
ARE URGED TO CONSULT THEIR TAX ADVISORS
REGARDING THE U.S. FEDERAL INCOME TAX
CONSEQUENCES OF AN INVESTMENT IN THE RESET
PERQS (INCLUDING ALTERNATIVE
CHARACTERIZATIONS OF THE RESET PERQS) AND
WITH RESPECT TO ANY TAX CONSEQUENCES ARISING
UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN
TAXING JURISDICTION. UNLESS OTHERWISE STATED,
THE FOLLOWING DISCUSSION IS BASED ON THE
TREATMENT AND THE ALLOCATION DESCRIBED ABOVE.
Tax Treatment of the Reset PERQS
Assuming the characterization of the Reset
PERQS and the allocation of the Issue Price
as set forth above, Tax Counsel believes that
the following U.S. federal income tax
consequences should result.
Deposit Interest and Contract Fee. The
Deposit Interest and Contract Fee will
generally be taxable to a Holder as ordinary
income at the time it accrues or is received
in accordance with the Holder's method of
accounting for U.S. federal income tax
purposes.
Tax Basis. Based on the Company's
determination set forth above, the Holder's
tax basis in the Deposit would be 100% of the
Issue Price, and the Holder's tax basis in
the Forward Contract will be zero.
Settlement of the Forward Contract. Upon the
final settlement of the Forward Contract, a
Holder would, pursuant to the Forward
Contract, be deemed to have applied the
Deposit toward the purchase of Ascend Stock,
and a Holder would not recognize any gain or
loss with respect to any Ascend Stock
received thereon. With respect to any cash
received upon settlement, a Holder would
recognize gain or loss. The amount of such
gain or loss would be the extent to which the
amount of such cash received differs from the
pro rata portion of the Holder's tax basis in
the Deposit allocable to the cash. Any such
gain or loss would generally be capital gain
or loss, as the case may be. With respect to
any Ascend Stock received upon settlement, the
Holder would have an adjusted tax basis in
such Ascend Stock equal to the pro rata
portion of the Holder's tax basis in the
Deposit allocable thereto. The allocation of
the Holder's tax basis in the Deposit between
cash and Ascend Stock should be based on the
amount of the cash received and the relative
fair market value, as of the settlement date,
of the Ascend Stock. The Holder's holding
period of any Ascend Stock received would
start on the day after the settlement date.
Sale or Exchange of the Components. Upon a
sale or exchange of a Reset PERQS prior to
the maturity of the Reset PERQS, a Holder
would recognize taxable gain or loss equal to
the difference between the amount realized on
such sale or exchange and such Holder's tax
basis in the Components so sold or exchanged.
Any such gain or loss would generally be
capital gain or loss, as the case may be.
For these purposes, the amount realized does
not include any amount attributable to
accrued but unpaid Deposit Interest, which
would be taxed as described under "--Deposit
Interest and Contract Fee" above.
Possible Alternative Tax Treatments of an
Investment in the Reset PERQS
Due to the absence of authorities that
directly address the proper characterization
of the Reset PERQS, no assurance can be given
that the IRS will accept, or that a court
will uphold, the characterization and tax
treatment described above. In particular,
the IRS could seek to analyze the U.S.
federal income tax consequences of owning a
Reset PERQS under Treasury regulations
governing contingent payment debt instruments
(the "Contingent Payment Regulations").
The Company will take the position that the
Reset PERQS are not single debt instruments,
and therefore, that the Contingent Payment
Regulations do not apply to the Reset PERQS.
If the IRS were successful in asserting that
the Contingent Payment Regulations applied to
the Reset PERQS, the timing and character of
income thereon would be significantly
affected. Among other things, a Holder would
be required to accrue as original issue
discount income, subject to the adjustments
described below, at a "comparable yield" on
the Issue Price, which would likely be lower
than the sum of the Contract Fee and the
Deposit Interest. In addition, the
Contingent Payment Regulations require that a
projected payment schedule, which must result
in such a "comparable yield," be determined,
and that adjustments to income accruals be
made to account for differences between
actual payments and projected amounts.
Furthermore, any gain realized with respect
to the Reset PERQS will generally be treated
as ordinary income, and any loss realized
will generally be treated as ordinary loss to
the extent of the Holder's prior ordinary
income inclusion (which were not previously
reversed) with respect to the Reset PERQS.
Even if the Contingent Payment Regulations do
not apply to the Reset PERQS, other
alternative U.S. federal income
characterizations or treatments of the Reset
PERQS are also possible, which may also
affect the timing and the character of the
income or loss with respect to the Reset
PERQS. It is possible, for example, that a
Reset PERQS could be treated as constituting
a pre-paid forward contract. Accordingly,
prospective purchasers are urged to consult
their tax advisors regarding the U.S. federal
income tax consequences of an investment in
the Reset PERQS.
Backup Withholding and Information Reporting
A Holder of a Reset PERQS may be subject to
information reporting and to backup
withholding at a rate of 31 percent of the
amounts paid (or property delivered) to the
Holder, unless such Holder provides proof of
an applicable exemption or a correct taxpayer
identification number, and otherwise complies
with applicable requirements of the
information reporting and backup withholding
rules. The amounts withheld under the backup
withholding rules are not an additional tax
and may be refunded, or credited against the
Holder's U.S. federal income tax liability,
provided the required information is
furnished to the IRS.
HYPOTHETICAL PAYMENTS ON THE RESET PERQS
Based on an Initial Price of $34 per share of Ascend Stock and
a first year cap of 141% and a second year cap of 141%, the following table
illustrates, for a range of First Year Closing Prices and Maturity Prices, the
consequent adjustments to the Exchange Ratio, Second Year Cap Prices, the
Payments at Maturity Based on Ascend Stock for each $34 principal amount of
Reset PERQS and the total return including interest payments, based on a
hypothetical interest rate of 8.00% per annum, for each $34 principal amount
of Reset PERQS. For purposes of this table only, all Adjusted Exchange Ratios
are rounded to the nearest one-hundredth of a percentage point with five
one-hundredths of a percentage point being rounded upwards.
<TABLE>
<CAPTION>
Initial 9/30/98
Exchange First Year Cap First Year Adjusted Second Year Cap
Initial Price Ratio Price Closing Price Exchange Ratio Price
- ------------- -------- -------------- ------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
$ 34.00 1.00 $47.94 $ 80.00 0.5993 $112.80
$ 34.00 1.00 $47.94 $ 70.00 0.6849 $ 98.70
$ 34.00 1.00 $47.94 $ 45.00 1.0000 $ 63.45
$ 34.00 1.00 $47.94 $ 65.00 0.7375 $ 91.65
$ 34.00 1.00 $47.94 $ 45.00 1.0000 $ 63.45
$ 34.00 1.00 $47.94 $ 60.00 0.7990 $ 84.60
$ 34.00 1.00 $47.94 $ 70.00 0.6849 $ 98.70
$ 34.00 1.00 $47.94 $ 30.00 1.0000 $ 47.94
$ 34.00 1.00 $47.94 $ 15.00 1.0000 $ 47.94
$ 34.00 1.00 $47.94 $100.00 0.4794 $141.00
141% of Greater of (x)
Initial Price 141% of First
Year Closing
Price and (y)
First Year Cap
Price
Reset PERQS
Reset PERQS Payment at
Payment at Maturity plus
9/30/99 Adjusted Maturity Based 8.00% Coupon
Maturity Price Exchange Ratio on Ascend Stock ("Total Payment")
-------------- ---------------- --------------- ----------------
<C> <C> <C> <C>
$125.00 0.5408 $67.60 $73.04
$110.00 0.6145 $67.60 $73.04
$ 75.00 0.8460 $63.45 $68.89
$ 85.00 0.7375 $62.69 $68.13
$ 60.00 1.0000 $60.00 $65.44
$ 75.00 0.7990 $59.93 $65.37
$ 55.00 0.6849 $37.67 $43.11
$ 25.00 1.0000 $25.00 $30.44
$ 10.00 1.0000 $10.00 $15.44
$ 15.00 0.4794 $ 7.19 $12.63
Maturity Price
times Adjusted
Exchange Ratio
</TABLE>
