Subject to Completion, Pricing Supplement dated November 18, 1997
PROSPECTUS Dated June 2, 1997 Pricing Supplement No. 20 to
PROSPECTUS SUPPLEMENT Registration Statement No. 333-27919
Dated June 2, 1997 Dated , 1997
Rule 424(b)(3)
$
Morgan Stanley, Dean Witter, Discover & Co.
MEDIUM-TERM NOTES, SERIES C
Senior Fixed Rate Notes
% MANDATORILY EXCHANGEABLE NOTES DUE MAY 25, 1999
Mandatorily Exchangeable For the Cash Value of Shares of Common Stock of
UNUM CORPORATION
The % Mandatorily Exchangeable Notes due May 25, 1999
(the "Notes") 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 Notes being offered hereby
will be $ (the "Initial Price"). The Notes will mature on May 25,
1999. Interest on the Notes, at the rate of % of the principal amount
per annum, is payable quarterly in arrears on each February 25, May 25, August
25 and November 25, beginning February 25, 1998.
At maturity (including as a result of acceleration or
otherwise), the principal amount of each Note will be mandatorily exchanged by
the Company into cash with a value equal to the Maturity Price (as defined
herein) of a number of shares of the common stock, $0.10 par value per share
(the "UNUM Stock"), of UNUM Corporation ("UNUM") at the Exchange Rate. The
Exchange Rate is equal to, subject to certain adjustments, (a) if the Maturity
Price is greater than or equal to $ (the "Threshold Appreciation
Price"), of the product of the Exchange Factor (as defined
herein) and one share of UNUM Stock per Note, (b) if the Maturity Price is
less than the Threshold Appreciation Price but is greater than the Initial
Price, a fraction of the product of the Exchange Factor and one share of UNUM
Stock so that the value of such fraction (determined at the Maturity Price)
equals the Initial Price and (c) if the Maturity Price is less than or equal
to the Initial Price, the product of the Exchange Factor and one share of UNUM
Stock per Note. The Exchange Factor will be set initially at 1.0, but will be
subject to adjustment upon the occurrence of certain corporate events.
Because the Exchange Rate varies depending on the Maturity Price, holders of
the Notes will not necessarily receive at maturity an amount equal to the
principal amount thereof. See "Exchange at Maturity," "Exchange Factor" and
"Antidilution Adjustments" in this Pricing Supplement.
Interest on the Notes will accrue at a higher rate than the
rate at which dividends have been paid on the UNUM Stock. The opportunity for
equity appreciation afforded by an investment in the Notes is less than that
afforded by an investment in the UNUM Stock because at maturity a holder may
receive cash in an amount that is less than the Maturity Price of one share of
UNUM Stock per Note if the Maturity Price has appreciated above the Initial
Price. The amount of cash received by a holder of the Notes upon exchange at
maturity, determined as described herein, may be more or less than the
principal amount of the Notes.
UNUM is not affiliated with the Company, is not involved in
this offering of Notes and will have no obligations with respect to the Notes.
See "Historical Information" in this Pricing Supplement for information on the
range of Market Prices for UNUM Stock.
The Company will cause the Maturity Price, any adjustments to
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.
THIS NOTE IS SUBJECT TO RESTRICTIONS ON TRANSFER AND MAY ONLY
BE TRANSFERRED WITH THE PRIOR APPROVAL OF THE COMPANY. SEE "RESTRICTIONS ON
TRANSFER" ON PS-4 AND PS-5 IN THIS PRICING SUPPLEMENT.
An investment in the Notes entails risks not associated with
similar investments in a conventional debt security, as described under "Risk
Factors" on PS-5 through PS-7 herein.
------------
PRICE % AND ACCRUED INTEREST
------------
Agent's Proceeds to
Price to Public(1) Commissions(2) Company(1)
------------------ -------------- -----------
Per Note.... % % %
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
Capitalized terms not defined herein have the meanings given to such terms in
the accompanying Prospectus Supplement.
Principal Amount.............. $
Maturity Date................. May 25, 1999
Interest Rate................. % per annum
Interest Payment Dates........ February 25, May 25, August 25 and November
25, beginning February 25, 1998
Specified Currency............ U.S. Dollars
Issue Price................... %
Original Issue Date
(Settlement Date)........... , 1997
Book Entry Note or
Certificated Note........... Certificated
Senior Note or Subordinated
Note........................ Senior
Denominations................. $ and integral multiples thereof
Trustee....................... The Chase Manhattan Bank
Agent......................... Morgan Stanley & Co. Incorporated
Exchange at Maturity.......... At maturity (including as a result of
acceleration or otherwise), the principal
amount of each Note will be mandatorily
exchanged by the Company, upon delivery of
such Note to the Trustee, into cash with a
value equal to the Maturity Price of a number
of shares of UNUM Stock at the Exchange Rate.
The Exchange Rate is equal to (a) if the
Maturity Price is greater than or equal to
$ (the "Threshold Appreciation Price"),
of the product of the Exchange
Factor and one share of UNUM Stock per Note,
(b) if the Maturity Price is less than the
Threshold Appreciation Price but is greater
than the Initial Price, a fraction of the
product of the Exchange Factor and one share
of UNUM Stock so that the value of such
fraction (determined at the Maturity Price)
equals the Initial Price and (c) if the
Maturity Price is less than or equal to the
Initial Price, the product of the Exchange
Factor and one share of UNUM Stock per Note,
subject in each case to any applicable
antidilution adjustments as set forth under
"Antidilution Adjustments" below.
The Company shall, or shall cause the
Calculation Agent to, deliver cash to the
Trustee for delivery to the holders. The
Calculation Agent shall calculate the
Maturity Price and the Exchange Factor and
determine the Exchange Rate applicable at the
maturity of the Notes. References to payment
"per Note" refer to each $ principal
amount of any Note.
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 NYSE Trading
Day immediately prior to maturity. See
"Antidilution Adjustments" below.
Initial Price................. $
Maturity Price................ The Maturity Price of the Notes will be
determined by the Calculation Agent and will
equal the arithmetic average of the products
(each a "Product") of (i) the Market Price of
one share of UNUM Stock and (ii) the Exchange
Factor, each as determined on the 5 scheduled
NYSE Trading Days during the Calculation
Period (each a "Determination Date");
provided that, if a Market Disruption Event
(as defined below) occurs on any such
Determination Date (consequently, a
"Non-Determination Date"), then the
Calculation Agent shall disregard such
Non-Determination Date and shall weight the
Product for each succeeding Determination
Date during the Calculation Period to ratably
distribute the intended weight of such
Non-Determination Date across the remaining
Determination Dates. Accordingly, if a
Market Disruption Event occurs during the
Calculation Period, the weightings of the
Products for the Determination Dates will be
calculated as follows: (A) each Determination
Date preceding the first Market Disruption
Event will receive a weighting of 1/5 and (B)
each Determination Date following a Market
Disruption Event will receive a weighting that
equals a fraction (i) the numerator of which
will be the fraction that equals 1 minus the
sum of the weights of all preceding
Determination Dates and (ii) the denominator
of which will be the number of scheduled
Determination Dates from and including such
Determination Date to and including the last
scheduled Determination Date in the
Calculation Period. If there is no
succeeding NYSE Trading Day on which a Market
Disruption Event has not occurred, the
product shall be determined on the last NYSE
Trading Day in the Calculation Period
notwithstanding the occurrence of a Market
Disruption Event on such NYSE Trading Day
and, if any scheduled NYSE Trading Day during
the Calculation Period is not an actual NYSE
Trading Day, the Market Price of UNUM Stock
for such scheduled NYSE Trading Day shall be
determined as of the earliest practicable
time (which may be after such scheduled NYSE
Trading Day).
All percentages resulting from any
calculation on the Notes 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 used in or resulting from such
calculation will be rounded to the nearest
cent with one-half cent being rounded upwards.
Calculation Period............ The period from and including May 17, 1999 to
and including the second scheduled NYSE
Trading Day immediately preceding the
Maturity Date.
Market Price.................. If UNUM 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 UNUM Stock (or
one unit of any such other security) on any
NYSE 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 UNUM Stock (or any 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 NYSE
Trading Day shall be the mean, as determined
by the Calculation Agent, of the bid prices
for UNUM Stock (or any 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.
NYSE Trading Day.............. A day on which trading is generally conducted
in the over-the-counter market for equity
securities in the United States and on the
New York Stock Exchange, as determined by
the Calculation Agent.
Calculation Agent............. Morgan Stanley & Co. Incorporated ("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 Notes, 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 the Maturity Price or any Market
Price or whether a Market Disruption Event
has occurred. See "Maturity Price" above and
"Antidilution Adjustments" and "Market
Disruption Event" below. MS & Co. is
obligated to carry out its duties as
Calculation Agent in good faith using its
reasonable judgment.
Restrictions on Transfer...... EACH HOLDER OF A NOTE MUST HAVE A VALID
BUSINESS PURPOSE FOR INVESTING IN THE NOTE,
AND ITS INVESTMENT IN THE NOTE MUST BE
CONSISTENT WITH ITS OVERALL INVESTMENT
STRATEGY. ANY RESALE, PLEDGE OR OTHER
TRANSFER OF THE NOTE MAY BE MADE ONLY WITH
THE COMPANY'S PRIOR APPROVAL AND WILL BE MADE
ONLY AFTER THE DELIVERY BY THE HOLDER,
PLEDGEE OR TRANSFEREE TO THE COMPANY OF (1) A
CERTIFICATE TO THE EFFECT THAT SUCH HOLDER,
PLEDGEE OR TRANSFEREE HAS A VALID BUSINESS
PURPOSE FOR INVESTING IN THE NOTE AND THAT
ITS INVESTMENT IN THE NOTE IS CONSISTENT WITH
ITS OVERALL INVESTMENT STRATEGY AND (2) SUCH
OTHER INFORMATION, CERTIFICATION OR
DOCUMENTATION AS THE COMPANY MAY REASONABLY
REQUEST TO EVIDENCE OR SUPPORT THE ACCURACY
OF SUCH CERTIFICATE AND THE AUTHORITY OF THE
PERSON SIGNING SUCH CERTIFICATE. THE COMPANY
MAY GRANT OR WITHHOLD ITS APPROVAL OF ANY
RESALE, PLEDGE OR OTHER TRANSFER IN ITS SOLE
DISCRETION, BASED ON ITS EVALUATION OF THE
VALIDITY OF THE BUSINESS PURPOSE AND THE
ADEQUACY OF EVIDENCE OF SUCH BUSINESS PURPOSE.
Risk Factors.................. An investment in the Notes entails
significant risks not associated with similar
investments in a conventional debt security,
including the following:
The Notes combine features of equity and debt
instruments. For example, the terms of the
Notes differ from those of ordinary debt
securities in that the value of the UNUM
Stock that a holder of the Notes will receive
upon mandatory exchange of the principal
amount thereof at maturity is not fixed, but
is based on the price of the UNUM Stock and
the Exchange Rate as determined at such
price. Because the price of the UNUM Stock
is subject to market fluctuations, the amount
of cash received by a holder of Notes upon
exchange at maturity, determined as described
herein, may be more or less than the
principal amount of the Notes. If the
Maturity Price of the UNUM Stock is less than
the Initial Price, the amount of cash
receivable upon exchange will be less than
the principal amount of the Notes, in which
case an investment in the Notes may result in
a loss. Because the Maturity Price will be
based upon an average of closing values of
UNUM Stock on specified days (the
Determination Dates), a significant increase
in the value of UNUM Stock as measured on the
final Determination Date, or any earlier
Determination Date, may be substantially or
entirely mitigated by the values of UNUM
Stock on the other Determination Dates.
The opportunity for equity appreciation
afforded by an investment in the Notes is
less than that afforded by an investment in
the UNUM Stock because at maturity a holder
will receive cash in an amount that is less
than the Maturity Price of one share of UNUM
Stock per Note if the Maturity Price of such
UNUM Stock has appreciated above the Initial
Price.
Although the amount that holders of the Notes
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 UNUM Stock, including, without
limitation, the occurrence of a partial
tender or exchange offer for the UNUM Stock
by UNUM or any third party. Such other
events may adversely affect the market value
of the Notes.
There can be no assurance as to whether the
Notes will trade in the secondary market or,
if there is such a secondary market, whether
such market will be liquid or illiquid.
Securities with characteristics similar to
the Notes are novel securities, and there is
currently no secondary market for the Notes.
Transfer restrictions on the Notes will
further impact the liquidity of the market.
The Notes may be transferred only to
investors with a valid business purpose for
investing in the Notes and only if the
Company has granted its approval of the
transfer. See "Restrictions on Transfer"
above.
The market value for the Notes will be
affected by a number of factors in addition
to the creditworthiness of the Company and the
value of UNUM Stock, including, but not
limited to, the volatility of UNUM Stock, the
dividend rate on UNUM Stock, market interest
and yield rates and the time remaining to the
maturity of the Notes. In addition, the
value of UNUM 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 UNUM is a part and
over which the Company has no control. The
market value of the Notes is expected to
depend primarily on changes in the Market
Price of UNUM Stock. The price at which a
holder will be able to sell Notes 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 UNUM Stock is below, equal to or not
sufficiently above the Initial Price. The
historical Market Prices of UNUM Stock should
not be taken as an indication of UNUM Stock's
future performance during the term of any
Note.
The Notes will not be listed on any national
securities exchange or accepted for quotation
on a trading market and, as a result, pricing
information for the Notes may be difficult to
obtain.
The Company is not affiliated with UNUM and,
although the Company as of the date of this
Pricing Supplement does not have any material
non-public information concerning UNUM,
corporate events of UNUM, including those
described below in "Antidilution
Adjustments," are beyond the Company's
ability to control and are difficult to
predict.
UNUM is not involved in the offering of the
Notes and has no obligations with respect to
the Notes, including any obligation to take
the interests of the Company or of holders of
Notes into consideration for any reason.
UNUM will not receive any of the proceeds of
the offering of the Notes made hereby and is
not responsible for, and has not participated
in, the determination of the timing of,
prices for or quantities of, the Notes
offered hereby.
Holders of the Notes will not be entitled to
any rights with respect to the UNUM 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 UNUM Stock in
any partial tender or exchange offer by UNUM
or any third party).
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 Notes, including
with respect to certain adjustments to the
Exchange Factor and other antidilution
adjustments that may influence the
determination of the amount of cash
receivable at the maturity of the Notes. See
"Antidilution Adjustments" and "Market
Disruption Event."
It is suggested that prospective investors
who consider purchasing the Notes should
reach an investment decision only after
carefully considering the suitability of the
Notes in light of their particular
circumstances.
Investors should also consider the tax
consequences of investing in the Notes. See
"United States Federal Taxation" below.
Antidilution Adjustments...... The Exchange Factor (and, in the case of
paragraph 5 below, the determination of the
Exchange Rate) will be adjusted as follows:
1. If UNUM 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 UNUM Stock.
2. If UNUM Stock is subject (i) to a
stock dividend (issuance of additional
shares of UNUM Stock) that is given
ratably to all holders of shares of UNUM
Stock or (ii) to a distribution of UNUM
Stock as a result of the triggering of any
provision of the corporate charter of UNUM
by any shareholder that is not a holder of
the Notes, then once the dividend has
become effective and UNUM 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 UNUM
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 UNUM 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 UNUM Stock
will be deemed to be an "Extraordinary
Dividend" if (i) such dividend or other
distribution exceeds the immediately
preceding non-Extraordinary Dividend for
UNUM Stock by an amount equal to at least
3% of the Market Price of UNUM Stock on
the NYSE Trading Day preceding the ex-
dividend date for the payment of such
Extraordinary Dividend (the "ex-dividend
date") or (ii) UNUM publicly declares
such cash dividend or other distribution
to be extraordinary or non recurring. If
an Extraordinary Dividend occurs with
respect to UNUM Stock, the Exchange Factor
with respect to UNUM 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 NYSE Trading Day preceding the ex-
dividend date, and the denominator of
which is the amount by which the Market
Price on the NYSE Trading Day preceding
the ex-dividend date exceeds the
Extraordinary Dividend Amount. The
"Extraordinary Dividend Amount" with
respect to an Extraordinary Dividend for
UNUM 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 UNUM 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 UNUM 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 UNUM issues rights or warrants to
all holders of UNUM Stock to subscribe for
or purchase UNUM Stock at an exercise
price per share less than the Market Price
of the UNUM Stock on (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 Notes, 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
UNUM Stock outstanding immediately prior
to such issuance plus the number of
additional shares of UNUM Stock offered
for subscription or purchase pursuant to
such rights or warrants and the
denominator of which shall be the number
of shares of UNUM Stock outstanding
immediately prior to such issuance plus
the number of additional shares of UNUM
Stock which the aggregate offering price
of the total number of shares of UNUM
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 or change of UNUM Stock,
(ii) UNUM, or any surviving entity or
subsequent surviving entity of UNUM (a
"UNUM Successor") has been subject to a
merger, combination or consolidation and
is not the surviving entity, (iii) any
statutory exchange of securities of UNUM
or any UNUM Successor with another
corporation occurs (other than pursuant to
clause (ii) above), (iv) UNUM is
liquidated, (v) UNUM issues to all of its
shareholders equity securities of an
issuer other than UNUM (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 UNUM Stock (any such event in clauses
(i) through (vi) a "Reorganization
Event"), the method of determining the
Exchange Rate in respect of the amount
payable upon exchange at maturity for each
Note will be adjusted to provide that each
holder of Notes will receive at maturity,
in respect of the principal amount of each
Note, cash in an amount equal to (a) if
the Transaction Value (as defined below)
is greater than or equal to the Threshold
Appreciation Price, multiplied by the
Transaction Value, (b) if the Transaction
Value is less than the Threshold
Appreciation Price but greater than the
Initial Price, the Initial Price and (c)
if the Transaction Value is less than or
equal to the Initial Price, the
Transaction Value; provided that, if the
Exchange Property (as defined below)
received in any such Reorganization Event
consists only of cash, the maturity date
of the Notes will be deemed to be
accelerated to the date on which such cash
is distributed to holders of UNUM Stock.
"Exchange Property" means the securities,
cash or any other assets distributed in
any such Reorganization Event, including,
in the case of a Spin-off Event, the share
of UNUM Stock with respect to which the
spun-off security was issued. "Transaction
Value" means (i) for any cash received in
any such Reorganization Event, the amount
of cash received per share of UNUM 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 of
such Exchange Property received for each
share of UNUM Stock at the date of the
receipt of such Exchange Property, as
adjusted by the Exchange Factor, as
determined by the Calculation Agent and
(iii) for any security received in any
such Reorganization Event, an amount equal
to the Market Price per share of such
security at the maturity of the Notes
multiplied by the quantity of such
security received for each share of UNUM
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 or
Exchange Rate will be required unless such
adjustment would require a change of at least
0.1% in the Exchange Factor or Exchange Rate
then in effect. The Exchange Factor or
Exchange Rate 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
Exchange Rate 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 UNUM Stock,
including, without limitation, a partial
tender or exchange offer for the UNUM Stock.
The Calculation Agent shall be solely
responsible for the determination and
calculation of any adjustments to the Exchange
Factor or Exchange Rate 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 Exchange Rate upon written
request by any holder of the Notes.
Market Disruption Event....... "Market Disruption Event" means, with respect
to UNUM Stock:
(i) a suspension, absence or material
limitation of trading of UNUM Stock on the
primary market for UNUM 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 UNUM 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 Notes.
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 Market Disruption Event, (4) a
suspension of trading in an options contract
on UNUM 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 UNUM Stock and (5) a suspension,
absence or material limitation of trading on
the primary securities market on which
options contracts related to UNUM Stock are
traded will not include any time when such
securities market is itself closed for
trading under ordinary circumstances.
UNUM Stock; Public Information UNUM and its subsidiaries are insurance
providers. UNUM 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 Office 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
assessed 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
UNUM pursuant to the Exchange Act of 1934 can
be located by reference to Commission file
number 1-9254. In addition, information
regarding UNUM 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
NOTES OFFERED HEREBY AND DOES NOT RELATE TO
UNUM STOCK OR OTHER SECURITIES OF UNUM. ALL
DISCLOSURES CONTAINED IN THIS PRICING
SUPPLEMENT REGARDING UNUM 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 UNUM.
NEITHER THE COMPANY NOR THE AGENT MAKES ANY
REPRESENTATION THAT SUCH PUBLICLY AVAILABLE
DOCUMENTS OR ANY OTHER PUBLICLY AVAILABLE
INFORMATION REGARDING UNUM 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 UNUM STOCK (AND THEREFORE
THE INITIAL PRICE, THE THRESHOLD APPRECIATION
PRICE AND THE EXCHANGE RATE APPLICABLE ABOVE
THE THRESHOLD APPRECIATION PRICE) HAVE BEEN
PUBLICLY DISCLOSED. SUBSEQUENT DISCLOSURE OF
ANY SUCH EVENTS OR THE DISCLOSURE OF OR
FAILURE TO DISCLOSE MATERIAL FUTURE EVENTS
CONCERNING UNUM COULD AFFECT THE VALUE
RECEIVED AT MATURITY WITH RESPECT TO THE
NOTES AND THEREFORE THE TRADING PRICES OF THE
NOTES.
NEITHER THE COMPANY NOR ANY OF ITS AFFILIATES
MAKE ANY REPRESENTATION TO ANY PURCHASER OF
NOTES AS TO THE PERFORMANCE OF UNUM STOCK.
The Company or its affiliates may presently
or from time to time engage in business with
UNUM including extending loans to, or making
equity investments in, UNUM or providing
advisory services to UNUM, 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 UNUM and, in addition, one or
more affiliates of the Company may publish
research reports with respect to UNUM. The
statement in the preceding sentence is not
intended to affect the right of holders of
the Notes under the securities laws. Any
prospective purchaser of a Note should
undertake an independent investigation of
UNUM as in its judgment is appropriate to
make an informed decision with respect to an
investment in UNUM Stock.
Historical Information........ The following table sets forth the high and
low Market Price during 1994, 1995, 1996, and
during 1997 through November 18, 1997. The
Market Price on November 18, 1997 was $49.
The Market Prices and Dividends Per Share
listed below were obtained from Bloomberg
Financial Markets and the Company believes
such information to be accurate. The
historical prices of UNUM Stock should not be
taken as an indication of future performance,
and no assurance can be given that the price
of UNUM Stock will not decrease so that the
beneficial owners of the Notes will receive at
maturity cash in an amount that is less than
the principal amount of the Notes. Nor can
assurance be given that the price of UNUM
Stock will increase above the Threshold
Appreciation Price so that at maturity the
beneficial owners of the Notes will receive
cash in an amount in excess of the principal
amount of the Notes.
Dividends Per
UNUM High Low Share(1)
-------------------- ------------ ----------- -------------
(CUSIP #90319210)
1994
First Quarter..... 28 (5)/(8) 24 (1)/(4) .10
Second Quarter.... 28 (1)/(16) 22 (3)/(8) .12
Third Quarter..... 25 21 (9)/(16) .12
Fourth Quarter.... 23 (3)/(8) 18 (1)/(8) .12
1995
First Quarter..... 23 19 (1)/(8) .12
Second Quarter.... 23 (15)/(16) 20 (1)/(16) .1325
Third Quarter..... 26 (15)/(16) 22 (13)/(16) .1325
Fourth Quarter.... 28 (3)/(16) 25 (7)/(16) .1325
1996
First Quarter..... 30 (15)/(16) 27 (15)/(16) .1325
Second Quarter.... 31 (1)/(2) 28 .1375
Third Quarter..... 32 (13)/(16) 29 .1375
Fourth Quarter.... 36 (9)/(16) 31 (1)/(16) .1375
1997
First Quarter..... 39 (11)/(16) 35 (7)/(8) .1375
Second Quarter.... 45 (3)/(4) 33 (13)/(16) .1425
Third Quarter..... 48 (1)/(4) 40 (11)/(16) .1425
Fourth Quarter
(through
November
18, 1997)........ 50 (7)/(8) 46 (3)/(8) .1425
----------
(1) The Company makes no representation as to
the amount of dividends, if any, that UNUM
will pay in the future. In any event,
holders of the Notes will not be entitled
to receive dividends, if any, that may be
payable on UNUM Stock.
Use of Proceeds and Hedging... The net proceeds to be received by the
Company from the sale of the Notes 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 Notes. See
also "Use of Proceeds" in the accompanying
Prospectus.
On or prior to the date of this Pricing
Supplement, the Company, through its
subsidiaries and others, may hedge its
anticipated exposure in connection with the
Notes by taking positions in UNUM Stock, in
options contracts on UNUM 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
Notes. Purchase activity could potentially
increase the price of UNUM Stock, and
therefore effectively increase the level to
which UNUM Stock must rise before a holder of
a Note would receive at maturity cash in an
amount that is equal to or greater than the
principal amount of the Notes. Although the
Company has no reason to believe that its
hedging activity will have a material impact
on the price of UNUM 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 Notes by
purchasing and selling the securities and
instruments listed above and any other
available securities and instruments.
United States Federal Income
Taxation.................... This summary addresses certain U.S.
federal income tax consequences to holders
who are initial holders of the Notes
purchasing the Notes at the Issue Price, and
who will hold the Notes 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 Note 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
Notes 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 Note 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 Note, the
Company and every Holder of a Note agree (in
the absence of an administrative
determination or judicial ruling to the
contrary) to characterize a Note for all tax
purposes as an investment unit consisting of
the following components (the "Components"):
(i) a contract (the "Forward Contract") that
requires the Holder of the Note to pay an
amount as described below under "Settlement
of the Forward Contract" and entitles the
Holder to receive a cash amount at maturity
as provided above in "Exchange at Maturity",
and (ii) a deposit with the Company of a
fixed amount of cash to secure the Holder's
obligation under the Forward Contract (the
"Deposit"), which Deposit is bearing a yield
equal to % 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 Notes, the
Company will allocate 100% of the Issue Price
of the Notes 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 Notes, 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 Note 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 Notes or instruments
similar to the Notes for U.S. federal income
tax purposes, and no ruling is being
requested from the IRS with respect to the
Notes. Due to the absence of authorities
that directly address instruments that are
similar to the Notes, 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 Notes. As a result,
significant aspects of the U.S. federal
income tax consequences of an investment in
the Notes 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 Notes
(including alternative characterizations of
the Notes) 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 Notes
Assuming the characterization of the Notes as
set forth above, Tax Counsel believes that
the following U.S. federal income tax
consequences should result.
Interest on the Deposit. The Deposit will be
subject to the "original issue discount"
rules. A Holder will include "qualified
stated interest" equal to the stated interest
on the Notes in income in accordance with the
Holder's method of accounting for federal
income tax purposes. Additionally, each
Holder, including a taxpayer who otherwise
uses the cash method of accounting, will be
required to include original issue discount
("OID") on the Deposit in income as it
accrues, in accordance with a constant yield
method based on a compounding of interest.
Such method will generally cause the Holder
to include OID in each accrual period in an
amount equal to the product of the adjusted
issue price of the Notes at the beginning of
the accrual period and the yield of the
Notes, less the amount of any qualified
stated interest allocable to the accrual
period. Because the yield on the Deposit is
higher than the stated interest rate, the
amount of income recognized by the Holder will
generally be more than the stated interest
paid to the Holder and will increase during
the term of the Notes.
Tax Basis. Based on the Company's
determination set forth above, the Holder's
tax basis in the Deposit would initially be
100% of the Issue Price. The Holder's tax
basis in the Deposit will be subsequently
increased by OID accrued with respect
thereto.
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 (including the amount of OID accrued)
toward the exchange for the cash payment at
maturity, and 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 Holder's
tax basis in the Deposit.
Holders should note that while the accrued
but unpaid OID on the Deposit would be
taxable as ordinary income, any gain or loss
recognized upon the final settlement of the
Forward Contract would be capital gain or
loss. The distinction between capital gain or
loss and ordinary gain or loss is potentially
significant in several respects. For
example, limitations apply to a Holder's
ability to offset capital losses against
ordinary income, and certain Holders may be
subject to lower U.S. federal income tax
rates with respect to long-term capital gain
than with respect to ordinary gain. Holders
should consult their tax advisors with
respect to the treatment of capital gain or
loss on the Notes.
Sale or Exchange of the Notes. Upon a sale or
exchange of a Note prior to the maturity of
the Note, 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 Note so
sold or exchanged. Any such gain or loss
would generally be capital gain or loss, as
the case may be. Such Holder's tax basis in
the Note would generally equal the Holder's
tax basis in the Deposit. For these
purposes, the amount realized does not
include any amount attributable to accrued
OID on the Deposit, which would be taxed as
described under "-Interest on the Deposit"
above.
Possible Alternative Tax Treatments of an
Investment in the Note
Due to the absence of authorities that
directly address the proper characterization
of the Note, 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
Note under Treasury regulations governing
contingent payment debt instruments (the
"Contingent Payment Regulations").
The Company will take the position that the
Notes are not debt instruments, and
therefore, that the Contingent Payment
Regulations do not apply to the Notes. If
the IRS were successful in asserting that the
Contingent Payment Regulations applied to the
Notes, the timing and character of income
thereon would be significantly affected.
Among other things, a Holder would be
required to accrue as OID, subject to the
adjustments described below, income at a
"comparable yield" on the Issue Price,
regardless of the Holder's usual method of
accounting for federal income tax purposes.
In addition, the Contingent Payment
Regulations require that a projected payment
schedule, which results 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 Note would
generally be treated as ordinary income, and
any loss realized would 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 Note.
Even if the Contingent Payment Regulations do
not apply to the Note, other alternative U.S.
federal income characterizations or
treatments of the Notes are also possible,
which may also affect the timing and the
character of the income or loss with respect
to the Notes. It is possible, for example,
that a Note could be treated as including 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 Notes.
Backup Withholding and Information Reporting
A Holder of a Note may be subject to
information reporting and to backup
withholding at a rate of 31 percent of the
amounts paid 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 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.
