PROSPECTUS Dated March 26, 1998 Pricing Supplement No. 19 to
PROSPECTUS SUPPLEMENT Registration Statement No. 333-46935
Dated March 26, 1998 Dated May 15, 1998
Rule 424(b)(3)
$21,855,015
Morgan Stanley Dean Witter & Co.
MEDIUM-TERM NOTES, SERIES C
Senior Fixed Rate Notes
4.5% MANDATORILY EXCHANGEABLE NOTES DUE MAY 15, 2000
Mandatorily Exchangeable For Shares of Common Stock of
THE GILLETTE COMPANY
The 4.5% Mandatorily Exchangeable Notes due May 15, 2000 (the
"Notes") are Medium-Term Notes, Series C (Senior Fixed Rate Notes) of Morgan
Stanley Dean Witter & 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 $117.00 (the "Initial Price"). The Notes will mature on May 15, 2000.
Interest on the Notes, at the rate of 4.5% of the principal amount per annum
(equivalent to $5.265 per annum per Note), is payable quarterly in arrears on
each February 15, May 15, August 15 and November 15, beginning August 15, 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 a number of shares of the common stock, par value $0.01
per share (the "Gillette Stock"), of The Gillette Company ("Gillette") per
Note equal to the Settlement Amount. The Settlement Amount is the sum of the
Daily Amounts as determined on each of 15 scheduled Determination Dates during
the Calculation Period, subject to adjustment upon the occurrence of certain
market disruption events. On any Determination Date, the Daily Amount per
Note is equal to the product of (i) the Exchange Amount (as defined below) and
(ii) a fraction, initially equal to 1/15, but subject to adjustment upon the
occurrence of certain market disruption events. The Exchange Amount for any
Determination Date is, subject to certain adjustments, (a) if the
Determination Price (as defined herein) is greater than or equal to $133.38
(the "Threshold Appreciation Price"), .87719298 of the product of the Exchange
Factor (as defined below) and one share of Gillette Stock per Note, (b) if the
Determination 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 Gillette Stock so that the value of such fraction
(determined at the Determination Price) equals the Initial Price and (c) if
the Determination Price is less than or equal to the Initial Price, the
product of the Exchange Factor and one share of Gillette 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 Amount varies depending on the Determination Prices, holders of the
Notes will not necessarily receive at maturity an amount equal to the
principal amount thereof. See "Exchange at Maturity," "Settlement Amount,"
"Exchange Amount," "Determination Price," "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 Gillette Stock. The opportunity
for equity appreciation afforded by an investment in the Notes is less than
that afforded by an investment in the Gillette Stock because at maturity a
holder may receive less than one share of Gillette Stock per Note. The value
of the Gillette Stock 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.
Gillette 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 Prospectus Supplement for information on
the range of Market Prices for Gillette Stock.
The Company will cause the Settlement Amount, 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.
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 100% AND ACCRUED INTEREST
------------------
<TABLE>
<CAPTION>
Price to Public(1) Agent's Commissions(2) Proceeds to Company(1)
------------------ ---------------------- ----------------------
<S> <C> <C> <C>
Per Note............. 100% 0.20% 99.80%
Total................ $21,855,015 $43,710.03 $21,811,304.97
</TABLE>
- ----------
(1) Plus accrued interest, if any, from May 20, 1998.
(2) The Company has agreed to indemnify the Agent against certain liabilities,
including liabilities under the Securities Act of 1933.
--------------
MORGAN STANLEY DEAN WITTER
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE NOTES OR THE GILLETTE
STOCK. SPECIFICALLY, THE AGENT MAY OVERALLOT IN CONNECTION WITH THE OFFERING,
AND MAY BID FOR, AND PURCHASE, THE NOTES OR THE GILLETTE STOCK IN THE OPEN
MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "USE OF PROCEEDS AND
HEDGING" IN THIS PRICING SUPPLEMENT.
Capitalized terms not defined herein have the meanings given to such terms in
the accompanying Prospectus Supplement.
Principal Amount.............. $21,855,015
Maturity Date................. May 15, 2000
Interest Rate................. 4.5% per annum (equivalent to $5.265 per
annum per Note)
Interest Payment Dates........ February 15, May 15, August 15 and November
15, beginning August 15, 1998
Specified Currency............ U.S. Dollars
Issue Price................... 100%
Original Issue Date
(Settlement Date)........... May 20, 1998
Book Entry Note or
Certificated Note........... Book Entry
CUSIP......................... 617446315
Senior Note or Subordinated
Note........................ Senior
Denominations................. $117.00 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 a number of
shares of Gillette Stock per Note equal to
the Settlement Amount.
The Company shall, or shall cause the
Calculation Agent to, deliver such shares of
Gillette Stock to the Trustee for delivery to
the holders. References to payment "per
Note" refer to each $117.00 principal amount
of any Note.
No Fractional Shares ......... Upon mandatory exchange of the Notes, the
Company will pay cash in lieu of delivering
fractional shares of Gillette Stock in an
amount equal to the corresponding fractional
Market Price of Gillette Stock on the second
scheduled NYSE Trading Day prior to maturity.
Settlement Amount............. The Settlement Amount per Note will be
determined by the Calculation Agent and is
equal to the sum, for each of the 15
scheduled NYSE Trading Days during the
Calculation Period (each a "Determination
Date"), of the products (each a "Daily
Amount") of (i) the Exchange Amount and
(ii) the Weighting (as defined below),
each determined as of such Determination
Date. The Weighting for each
Determination Date will initially be 1/15;
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 not compute a
Daily Amount for such Non-Determination
Date and shall weight the Daily Amount 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
Daily Amounts will be calculated as
follows: (A) the Daily Amount for each
Determination Date preceding the first
Market Disruption Event will be calculated
using a Weighting of 1/15 and (B) the
Daily Amount for each Determination Date
following a Market Disruption Event will
be calculated using a Weighting that
equals a fraction (i) the numerator of
which will be the fraction that equals 1
minus the sum of the Weightings for 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,
following a Market Disruption Event, there
is no succeeding NYSE Trading Day on which
a Market Disruption Event has not
occurred, a final Daily Amount will 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. If any scheduled
NYSE Trading Day during the Calculation
Period is not an actual NYSE Trading Day,
the Market Price of Gillette 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).
Exchange Amount............... The Exchange Amount on any Determination Date
will be determined by the Calculation Agent
and is, subject to certain adjustments, (a)
if the Determination Price is greater than or
equal to $133.38 (the "Threshold Appreciation
Price"), .87719298 of the product of the
Exchange Factor (as defined below) and one
share of Gillette Stock per Note, (b) if the
Determination 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 Gillette Stock so that the value of such
fraction (determined at the Determination
Price) equals the Initial Price and (c) if the
Determination Price is less than or equal to
the Initial Price, the product of the
Exchange Factor and one share of Gillette
Stock per Note, subject in each case to any
applicable antidilution adjustments. The
Exchange Amount determined for any
Determination Date may be subject to
additional adjustments from such
Determination Date through the final
Determination Date, at the Calculation Agents
sole discretion to reflect changes occurring
in relation to the Gillette Stock or any
other Exchange Property in circumstances
where the Company determines that it is
appropriate. See "Antidilution Adjustments"
below.
Determination Price........... The Determination Price on any Determination
Date will be the product of (i) the Market
Price of one share of Gillette Stock and (ii)
the Exchange Factor, in each case as
determined by the Calculation Agent on such
Determination Date.
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
NYSE Trading Day immediately prior to
maturity. See "Antidilution Adjustments"
below.
Initial Price................. $117.00
Calculation Period............ The 15 scheduled NYSE Trading Days
immediately preceding (and including) the
second scheduled NYSE Trading Day prior to
the maturity of the Notes (expected to be
the period from and including April 20,
2000 to and including May 11, 2000).
Market Price.................. If Gillette 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 Gillette 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 Gillette Stock
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 Gillette
Stock 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.")
All Exchange Factors, Exchange Amounts and
the Settlement Amount will be rounded to the
nearest one hundred millionth, with five
one-billionths rounded upwards (e.g.
.999876545 would be rounded to .99987655).
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 any Market Price or whether a
Market Disruption Event has occurred. See
"Antidilution Adjustments" and "Market
Disruption Event" below. MS & Co. is
obligated to carry out its duties and
functions as Calculation Agent in good faith
and using its reasonable judgment.
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 debt securities
in that the value of the Gillette 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 Gillette Stock and
the Exchange Rate as determined at such
price. Because the price of the Gillette
Stock is subject to market fluctuations, the
value of the Gillette Stock 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 value of the Settlement Amount
is less than the Initial Price, the amount
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 Settlement Amount will
be based upon a series of closing values of
Gillette Stock on specified days (the
Determination Dates), a significant increase
in the value of Gillette Stock as measured on
the final Determination Date, or any earlier
Determination Date, may be substantially or
entirely mitigated by the values of Gillette
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 Gillette Stock because at maturity a
holder will receive less than one share of
Gillette Stock per Note if the Determination
Price of such Gillette Stock on any
Determination Date 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 Gillette Stock, including, without
limitation, the occurrence of a partial
tender or exchange offer for the Gillette
Stock by Gillette or any third party. Such
other events may adversely affect the market
value of the Notes.
There can be no assurance as to how the Notes
will trade in the secondary market or whether
such market will be liquid or illiquid. 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 Gillette Stock, including, but not limited
to, the volatility of Gillette Stock, the
dividend rate on Gillette Stock, market
interest and yield rates and the time
remaining to the maturity of the Notes. In
addition, the value of Gillette 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
Gillette 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 Gillette
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 Gillette Stock
is below, equal to or not sufficiently above
the Initial Price. The historical Market
Prices of Gillette Stock should not be taken
as an indication of Gillette 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 Gillette
and, although the Company as of the date of
this Pricing Supplement does not have any
material non-public information concerning
Gillette, corporate events of Gillette,
including those described below in
"Antidilution Adjustments," are beyond the
Company's ability to control and are
difficult to predict.
Gillette 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.
Gillette 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 Gillette 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 Gillette
Stock in any partial tender or exchange offer
by Gillette or any third party) until such
time as the Company shall deliver shares of
Gillette Stock to holders of the Notes 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 Notes, including
with respect to certain adjustments to the
Exchange Factor and other antidilution
adjustments that may influence the
determination of the amount of Gillette Stock
or other property 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 Amount) will be adjusted as follows:
1. If Gillette 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 Gillette Stock.
2. If Gillette Stock is subject (i) to a
stock dividend (issuance of additional
shares of Gillette Stock) that is given
ratably to all holders of shares of
Gillette Stock or (ii) to a distribution
of Gillette Stock as a result of the
triggering of any provision of the
corporate charter of Gillette by any
shareholder that is not a holder of the
Notes, then once the dividend has become
effective and Gillette 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
Gillette 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 Gillette 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 Gillette
Stock will be deemed to be an
"Extraordinary Dividend" if (i) such
dividend or other distribution exceeds the
immediately preceding non-Extraordinary
Dividend for Gillette Stock by an amount
equal to at least 6% of the Market Price
of Gillette Stock on the NYSE Trading Day
preceding the ex-dividend date for the
payment of such Extraordinary Dividend
(the "ex-dividend date") or (ii) Gillette
publicly declares such cash dividend or
other distribution to be extraordinary or
non-recurring. If an Extraordinary
Dividend occurs with respect to Gillette
Stock, the Exchange Factor with respect to
Gillette 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
Gillette 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 Gillette 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 Gillette 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 Gillette issues rights or warrants
to all holders of Gillette Stock to
subscribe for or purchase Gillette Stock
at an exercise price per share less than
the Market Price of the Gillette 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 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 Gillette Stock
outstanding immediately prior to such
issuance plus the number of additional
shares of Gillette Stock offered for
subscription or purchase pursuant to such
rights or warrants and the denominator of
which shall be the number of shares of
Gillette Stock outstanding immediately
prior to such issuance plus the number of
additional shares of Gillette Stock which
the aggregate offering price of the total
number of shares of Gillette 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 Gillette
Stock, (ii) Gillette, or any surviving
entity or subsequent surviving entity of
Gillette (a "Gillette Successor") has been
subject to a merger, combination or
consolidation and is not the surviving
entity, (iii) any statutory exchange of
securities of Gillette or any Gillette
Successor with another corporation occurs
(other than pursuant to clause (ii)
above), (iv) Gillette is liquidated, (v)
Gillette issues to all of its shareholders
equity securities of an issuer other than
Gillette (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 Gillette
Stock (any such event in clauses (i)
through (vi) a "Reorganization Event"),
the method of determining the Exchange
Amount for each Note on each Determination
Date will be adjusted so that the Exchange
Amount will be securities, cash or any
other assets distributed in any such
Reorganization Event, including, in the
case of a Spin-off Event, the share of
Gillette Stock with respect to which the
spun-off security was issued
(collectively, the "Exchange Property") in
an amount equal in value to (a) if the
Transaction Value (as defined below) is
greater than or equal to the Threshold
Appreciation Price, .87719298 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 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 Gillette Stock and the Settlement
Amount will be determined as though any
Determination Date scheduled to occur on
or after such date were such date. If
Exchange Property consists of more than
one type of property, holders of Notes
will receive at maturity a pro rata share
of each such type of Exchange Property.
"Transaction Value" means (i) for any cash
received in any such Reorganization Event,
the amount of cash received per share of
Gillette 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 Gillette Stock as of the
date of the receipt of such Exchange
Property, as adjusted by the Exchange
Factor at the date of the receipt of such
Exchange Property, 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
Gillette 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.
No adjustments to the Exchange Factor or
Settlement Amount 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 Gillette
Stock, including, without limitation, a
partial tender or exchange offer for the
Gillette Stock.
The Calculation Agent shall be solely
responsible for the determination and
calculation of any adjustments to the Exchange
Factor, the Exchange Amounts or the
Settlement Amount 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 Settlement Amount upon
written request by any holder of the Notes.
Market Disruption Event....... "Market Disruption Event" means, with respect
to Gillette Stock:
(i) a suspension, absence or material
limitation of trading of Gillette Stock on
the primary market for Gillette 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 Gillette 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 suspension, absence or material
limitation of trading, (4) a suspension of
trading in an options contract on Gillette
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 Gillette Stock and (5) a
suspension, absence or material limitation of
trading on the primary securities market on
which options contracts related to Gillette
Stock are traded will not include any time
when such securities market is itself closed
for trading under ordinary circumstances.
Gillette Stock; Public
Information.................. The Gillette Company develops, manufactures
and markets blades and razors, toiletries and
cosmetics, stationery products, electric
shavers, small household appliances, hair
care appliances, oral care appliances, oral
care products and alkaline batteries for
consumer products. Gillette 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
Gillette pursuant to the Exchange Act of 1934
can be located by reference to Commission
file number 1-922. In addition, information
regarding Gillette 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
GILLETTE STOCK OR OTHER SECURITIES OF
GILLETTE. ALL DISCLOSURES CONTAINED IN THIS
PRICING SUPPLEMENT REGARDING GILLETTE 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 GILLETTE. IN CONNECTION WITH
THE OFFERING OF THE NOTES, NEITHER THE
COMPANY NOR THE AGENT MAKES ANY
REPRESENTATION THAT SUCH PUBLICLY AVAILABLE
DOCUMENTS OR ANY OTHER PUBLICLY AVAILABLE
INFORMATION REGARDING GILLETTE 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 GILLETTE 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 GILLETTE
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 GILLETTE STOCK.
The Company or its affiliates may presently
or from time to time engage in business with
Gillette including extending loans to, or
making equity investments in, Gillette or
providing advisory services to Gillette,
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
Gillette and, in addition, one or more
affiliates of the Company may publish research
reports with respect to Gillette. 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
Gillette as in its judgment is appropriate to
make an informed decision with respect to an
investment in Gillette Stock.
Historical Information........ The following table sets forth the high and
low Market Price during 1995, 1996, 1997, and
during 1998 through May 15, 1998. The Market
Price on May 15, 1998 was $116(3)/(8). All
Market Prices are rounded to the nearest
one-thousandth of a cent. The Market Prices
listed below were obtained from Bloomberg
Financial Markets and the Company believes
such information to be accurate. The
historical prices of Gillette Stock should
not be taken as an indication of future
performance, and no assurance can be given
that the price of Gillette Stock will not
decrease so that the beneficial owners of the
Notes will receive at maturity shares of
Gillette Stock worth less than the principal
amount of the Notes. Nor can assurance be
given that the price of Gillette Stock will
increase above the Threshold Appreciation
Price so that at maturity the beneficial
owners of the Notes will receive an amount in
excess of the principal amount of the Notes.
Dividends
Gillette High Low Per Share
-------- ---- --- ---------
(CUSIP #375766102)
1995:
First Quarter......... $ 42 $ 35 7/8 $ 0.125
Second Quarter........ 44 3/4 40 5/8 0.150
Third Quarter......... 48 40 7/8 0.150
Fourth Quarter........ 55 1/4 47 3/4 0.150
1996:
First Quarter......... 57 51 1/4 0.150
Second Quarter........ 62 3/8 49 1/8 0.180
Third Quarter......... 72 1/8 57 3/4 0.180
Fourth Quarter........ 77 3/4 68 7/8 0.180
1997:
First Quarter......... 86 72 5/8 0.180
Second Quarter........ 98 3/4 75 3/4 0.215
Third Quarter......... 104 5/16 79 0.215
Fourth Quarter........ 101 5/16 86 1/16 0.215
1998:
First Quarter......... 121 7/16 98 9/16 0.215
Second Quarter through
May 15,1998......... 124 9/16 113 3/8 0.255
Historical prices have been adjusted for a 2
to 1 stock split of Gillette Stock, which
became effective in the second quarter of
1995.
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, hedged its anticipated exposure
in connection with the Notes by taking
positions in Gillette Stock. Purchase
activity could potentially have increased the
price of Gillette Stock, and therefore
effectively have increased the level to which
Gillette Stock must rise before a holder of a
Note would receive at maturity an amount of
Gillette Stock worth as much as or more than
the principal amount of the Notes. The
Company, through its subsidiaries, is likely
to modify its hedge position throughout the
life of the Notes, including on the
Determination Dates, by purchasing and
selling Gillette Stock, options contracts on
Gillette Stock listed on major securities
markets or positions in any other instruments
that it may wish to use in connection with
such hedging. Although the Company has no
reason to believe that its hedging activity
had or will have a material impact on the
price of Gillette Stock, there can be no
assurance that the Company did not or will
not affect such price as a result of its
hedging activities.
Alternate Determination Date in
case of an Event of Default... In case an Event of Default with respect to
any Notes shall have occurred and be
continuing, the amount per Note declared
due and payable upon any acceleration of
the Notes will be determined by the
Calculation Agent and will be equal to the
Settlement Amount determined as though
each Determination Date scheduled to occur
on or after such date of acceleration were
the date of acceleration.
United States Federal Taxation The following summary is based on the advice
of Davis Polk & Wardwell, special tax counsel
to the Company ("Tax Counsel"), and is a
general discussion of the principal potential
U.S. federal income tax consequences to
holders who are initial holders of the Notes
and purchase the Notes at the first price to
the public at which a substantial amount of
the Notes is sold for money (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 to date, 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, tax-exempt
organizations, dealers in options or
securities, or persons who hold Notes 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 an
owner of a Note that is, for U.S. federal
income tax purposes, (i) a citizen or
resident of the United States, (ii) a
corporation created or organized under the
laws of the United States 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.
Pursuant to the terms of the Notes, 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 deposit with the Company of an amount
of cash to secure the holder's obligation to
purchase the Gillette Stock (the "Deposit"),
which Deposit provides for quarterly interest
payments at a rate of 4.5% per annum (the
"Deposit Interest Payments") and original
issue discount such that the total yield on
the Deposit is 6.12% per annum, and (ii) a
contract (the "Forward Contract") that
requires the holder of the Notes to purchase,
and the Company to sell, for an amount equal
to $120.62 (the "Forward Price"), the
Gillette Stock at maturity (or,
alternatively, upon an earlier redemption of
the Notes). 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 the 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 Notes 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, 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
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 Payment and Original Issue
Discount. The Deposit Interest Payment 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. In addition, the Deposit will be
considered to have original issue discount,
and such difference must be included in
income for U.S. federal income tax purposes
as it accrues, in accordance with a constant
yield method based on a compounding of
interest, even though the Holder will not
receive cash payments attributable to such
income. Such method generally will cause the
Holder to include original issue discount in
each accrual period in an amount equal to the
product of the adjusted issue price of the
Deposit at the beginning of the accrual
period and the yield of the Deposit, which is
equal to 6.12%, less the Deposit Interest
Payment allocable to the accrual period.
Tax Basis. Based on the Company's
determination set forth above, the Holder's
tax basis in the Forward Contract will be
zero, and the Holder's tax basis in the
Deposit would be 100% of the Issue Price,
increased by the amount of original issue
discount included in such Holder's income
during the period such Holder held the Notes.
Settlement of the Forward Contract. Upon the
settlement of the Forward Contract, a Holder
would, pursuant to the Forward Contract, be
deemed to have applied the Forward Price
(which would equal the Issue Price plus any
original issue discount) toward the purchase
of Gillette Stock, and a Holder would not
recognize any gain or loss with respect to
any Gillette Stock received thereon. With
respect to any cash received upon maturity, 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 Forward Price 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 Gillette Stock received upon
maturity, the Holder would have an adjusted
tax basis in such Gillette Stock equal to the
pro rata portion of the Forward Price
allocable thereto. The allocation of the
Forward Price between cash and Gillette Stock
should be based on the amount of the cash
received and the relative fair market value,
as of the maturity, of the Gillette Stock.
The Holder's holding period of any Gillette
Stock received would start on the day after
the maturity of the Notes.
Sale or Exchange of a Note. 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 aggregate 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 Payments or
original issue discount, which would be taxed
as described under "--Deposit Interest
Payment and Original Issue Discount" above.
Possible Alternative Tax Treatments of an
Investment in the Notes
Due to the absence of authorities that
directly address the proper characterization
of the Notes, 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
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
original issue discount income, subject to the
adjustments described below, at a "comparable
yield", which would be greater than the
Deposit Interest Payment. 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
(including upon receipt of the Gillette Stock
at maturity). Furthermore, any gain realized
with respect to the Notes 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
Notes.
Even if the Contingent Payment Regulations do
not apply to the Notes, other alternative
U.S. federal income characterizations or
treatments of the Notes are also possible,
and such other characterizations or
treatments 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 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 Notes.
Proposed Legislation
On February 4, 1998, Representative Barbara
Kennelly released H.R. 3170 (the "Kennelly
Bill"), which, if enacted, would treat a
taxpayer owning certain types of derivative
positions in property as having "constructive
ownership" in that property, with the result
that all or a portion of the long term
capital gain recognized by such taxpayer with
respect to the derivative position would be
recharacterized as short term capital gain.
It is unclear whether, if enacted in its
present form, the Kennelly Bill would apply
to the Notes. If the Kennelly Bill were to
apply to a Note, the effect on a Holder of a
Note would be to treat any long term capital
gain recognized by such Holder on sale or
exchange of the Note attributable to the
Forward Contract as short term capital gain,
but only to the extent such long term capital
gain exceeds the long term capital gain that
would have been recognized by such Holder if
the Holder had acquired Gillette Stock itself
on the issue date of the Notes and disposed
of the Gillette Stock upon disposition of the
Notes. In addition, the Kennelly Bill would
impose an interest charge on the gain that
was recharacterized on the sale or exchange
of the Notes. As proposed, the Kennelly Bill
would be effective for gains recognized after
the date of enactment. Holders should
consult their tax advisors regarding the
potential application of the Kennelly Bill to
the purchase, ownership and disposition of a
Note.
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.
