PROSPECTUS Dated March 26, 1998 Pricing Supplement No. 12 to
PROSPECTUS SUPPLEMENT Registration Statement No. 333-46935
Dated March 26, 1998 Dated May 13, 1998
Rule 424(b)(3)
$105,025,968
Morgan Stanley Dean Witter & Co.
SONY CORPORATION 3% CURRENCY PROTECTED SECURITIES ("CPS(SM)")
DUE MAY 17, 2000
MEDIUM-TERM NOTES, SERIES C
The 3% Currency Protected Securities Due May 17, 2000 (the "Sony CPS") 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 Sony CPS permit the investor to participate in the price
fluctuations of the common stock, Yen 50 par value per share (the "Sony Stock"),
of Sony Corporation, a company incorporated under the laws of Japan ("Sony"),
without being affected by future changes in the Japanese Yen/U.S. Dollar
exchange rate. See "Hypothetical Movements in the Japanese Yen/U.S. Dollar
Exchange Rate" in this Pricing Supplement. The Sony Stock is quoted in Japanese
Yen on the Tokyo Stock Exchange. As of May 13, 1998, the Market Price of Sony
Stock was 11,180 Japanese Yen.
The principal amount of each Sony CPS being offered hereby will be
$1,670.34 (the "Issue Price"), which equals the quotient of (a) the Initial
Stock Price of 20 shares (the "Initial Share Control Amount") of Sony Stock
divided by (b) an exchange rate of 133.865 Japanese Yen per U.S. Dollar. The
Sony CPS will mature on May 17, 2000. Interest on the Sony CPS, at the rate of
3% of the principal amount per annum, is payable semiannually in arrears on each
May 17 and November 17, beginning November 17, 1998. Interest on the Sony CPS
will accrue at a higher rate than the rate at which dividends have been paid to
date on the Sony Stock.
At maturity (including as a result of acceleration or otherwise), the
Company will, with respect to the principal amount of each Sony CPS, deliver
either (i) an amount in U.S. Dollars equal to the product of the principal
amount thereof and the Stock Percentage Change (the "Cash Amount") or (ii) if
the holder so elects, the Equivalent Share Amount (see "Right to Receive the
Equivalent Share Amount" in this Pricing Supplement). The Stock Percentage
Change is a fraction, the numerator of which will be the Final Stock Price and
the denominator of which will be the Initial Stock Price. The Initial Stock
Price will equal the Market Price of Sony Stock on the Pricing Date. The Final
Stock Price will equal the Market Price of Sony Stock on the Determination Date,
which will be May 9, 2000, subject to certain market disruption events. See
"Exchange at Maturity" and "Antidilution Adjustments" in this Pricing
Supplement.
Sony is not affiliated with the Company, is not involved in this offering
of Sony CPS and will have no obligations with respect to the Sony CPS. See
"Historical Information" in this Pricing Supplement for information on the range
of Market Prices for Sony Stock on the Tokyo Stock Exchange.
The Company will cause the Market Price and any antidilution adjustments to
be determined by the Calculation Agent for The Chase Manhattan Bank, as Trustee
under the Senior Debt Indenture.
As a result of the formula for determining the amount payable at the
maturity of the Sony CPS, a holder may receive more or less than the Issue Price
per Sony CPS at maturity. In addition, an investment in the Sony CPS entails
risks not associated with similar investments in a conventional debt security,
as described under "Risk Factors" on PS-6 and PS-7 herein.
The Sony CPS have been approved for listing on the American Stock Exchange,
Inc. ("AMEX"), subject to official notice of issuance. The AMEX symbol for the
Sony CPS is "SPS." It is not possible to predict whether the Sony CPS will trade
in the secondary market or if such market will be liquid or illiquid.
-----------------------
PRICE $1,670.34 PER SONY CPS AND ACCRUED INTEREST
-----------------------
Agent's Proceeds to
Price to Public(1) Commissions(2) Company(1)
------------------ -------------- ----------
Per Sony CPS............ $ 1,670.34 $ 1.67 $ 1,668.67
Total................... $105,025,968 $105,004 $104,920,964
- -------------------
(1) Plus accrued interest, if any, from May 18, 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 SONY CPS OR THE SONY
STOCK. SPECIFICALLY, THE AGENT MAY OVERALLOT IN CONNECTION WITH THE OFFERING,
AND MAY BID FOR, AND PURCHASE, THE SONY CPS OR THE SONY STOCK IN THE OPEN
MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "USE OF PROCEEDS AND HEDGING"
IN THIS PRICING SUPPLEMENT AND "PLAN OF DISTRIBUTION" IN THE ACCOMPANYING
PROSPECTUS SUPPLEMENT.
Capitalized terms not defined herein have the meanings given to such terms in
the accompanying Prospectus Supplement.
Principal Amount................... $105,025,968.18
Maturity Date...................... May 17, 2000
Interest Rate...................... 3% per annum.
Interest Payment Dates............. May 17 and November 17,
beginning November 17, 1998
Specified Currency................. U.S. Dollars
Issue Price........................ $1,670.34 per Sony CPS, which equals the
quotient of (a) the Initial Stock Price
times the Initial Share Control Amount
divided by (b) the Initial FX Rate.
Original Issue Date
(Settlement Date)................ May 18, 1998
Pricing Date....................... May 13, 1998
CUSIP.............................. 617 446 349
Book Entry Note or
Certificated Note................ Book Entry
Senior Note or Subordinated Note... Senior
Denominations...................... $1,670.34 and integral multiples thereof
Trustee............................ The Chase Manhattan Bank
Agent.............................. Morgan Stanley & Co. Incorporated
Amount Payable at Maturity......... At maturity (including as a result of
acceleration or otherwise), the Company
will, with respect to the principal amount
of each Sony CPS, upon delivery of such
Sony CPS to the Trustee, deliver either
(i) an amount in U.S. Dollars equal to the
product of the principal amount thereof
and the Stock Percentage Change (the "Cash
Amount") or (ii) if the holder so elects,
the Equivalent Share Amount. See "Right to
Receive Equivalent Share Amount."
The Company shall, or shall cause the
Calculation Agent to, deliver U.S. Dollars
(or Sony ADRs, if any holder of the Sony
CPS exercises the Right to Receive the
Equivalent Share Amount) to the Trustee
for delivery to the holders. References to
payment "per Sony CPS" refer to each
$1,670.34 principal amount of any Sony
CPS.
Stock Percentage Change............ The Stock Percentage Change is a fraction,
the numerator of which will be the Final
Stock Price and the denominator of which
will be the Initial Stock Price.
Initial Stock Price................ Yen 11,180, the Market Price of one share
of Sony Stock on the Pricing Date, as
determined by the Calculation Agent.
Final Stock Price.................. The product of the Market Price of one
share of Sony Stock and the Share Ratio,
each as determined on the Determination
Date by the Calculation Agent.
Initial Share Control Amount....... 20
Initial FX Rate.................... 133.865 Japanese Yen per U.S. $1.00, the
Japanese Yen/U.S. dollar exchange rate as
of the Pricing Date.
Share Ratio........................ The Share Ratio will initially be set at
1.0, but will be subject to adjustment
upon the occurrence of certain corporate
events through and including the
Determination Date. See "Antidilution
Adjustments" below.
Right to Receive the
Equivalent Share Amount............ On or prior to the fifteenth Business Day
prior to the Maturity Date, holders of
Sony CPS will be entitled, upon completion
by the holder and delivery to the Company
and the Calculation Agent of an Official
Notice of Exercise of Right to Receive
Equivalent Share Amount (in the form of
Annex A attached hereto) prior to 11:00
a.m., New York City time on such date, to
elect to receive the Equivalent Share
Amount at maturity, in lieu of the Cash
Amount, unless it is not reasonably
practicable at such time for the
Calculation Agent, in the opinion of the
Calculation Agent, to obtain such
Equivalent Share Amount, in which case the
Cash Amount will be paid.
Equivalent Share Amount............ The Equivalent Share Amount for any Sony
CPS means an amount of American Depositary
Shares, as determined by the Calculation
Agent, representing Sony Stock ("Sony
ADRs") equivalent to the Cash Amount
otherwise payable on such Sony CPS
determined as follows. The Equivalent
Share Amount will be a number of Sony ADRs
resulting from the conversion into Sony
ADRs (at the then current ratio of Sony
Stock to Sony ADRs) of a number of shares
of Sony Stock having an aggregate Market
Price on the Determination Date equal to
the Cash Amount multiplied by the Final FX
Rate; provided that the Cash Amount shall
be reduced by the cost of converting such
Sony Stock into Sony ADRs assessed by
Morgan Guaranty Trust Company of New York,
as Depositary for such Sony ADRs (together
with any successor depositary, the "Sony
ADR Depositary") (estimated to be $0.05
per share of Sony Stock, or $1.00 per Sony
CPS, subject to any adjustment of the
Share Ratio) and by any tax or other
governmental charge levied in connection
with such conversion; and provided further
that the Company will pay cash in lieu of
delivering fractional Sony ADRs, in an
amount as determined by the Calculation
Agent. The Equivalent Share Amount will be
delivered to the investor on the later of
(i) the Maturity Date and (ii) the first
Business Day when Sony ADRs are available
with respect to shares of Sony Stock
submitted to the Sony ADR Depositary for
conversion into Sony ADRs on the Business
Day immediately succeeding the
Determination Date. In the event of
certain Market Disruption Events, the
delivery of such Sony ADRs may be delayed
until after the Maturity Date.
Final FX Rate...................... The Japanese Yen/U.S. dollar exchange rate
as of 1:00 p.m. (Tokyo time) on the
Determination Date as determined by
reference to Reuters Screen TKYFX, as
determined by the Calculation Agent on the
Determination Date.
Determination Date................. May 9, 2000, or if such day is not a
Trading Day or if there is a Market
Disruption Event on such day, the
Determination Date will be the immediately
succeeding Trading Day during which no
Market Disruption Event shall have
occurred; provided that the Determination
Date will be no later than the second
scheduled Trading Day preceding the
Maturity Date, notwithstanding the
occurrence of a Market Disruption Event on
such second scheduled Trading Day.
Market Price....................... The Market Price for any security for any
date means the official closing price
(afternoon session, as applicable) of such
security as reported by the principal
exchange on which such security is traded
on such date. If the official closing
price is not available for any reason
(including, without limitation, the
occurrence of a Market Disruption Event),
the Market Price for such security for any
date shall be the mean, as determined by
the Calculation Agent, of the bid prices
for such security obtained from as many
dealers in such security, but not
exceeding three, as will make such bid
prices available to the Calculation Agent
after 3:00 p.m. (local time in such
principal market) on such date.
Trading Day........................ A day on which trading is generally
conducted on the Tokyo Stock Exchange
("TSE"), and in the over-the-counter
market for equity securities in the United
States and Japan, as determined by the
Calculation Agent.
Business Day....................... Any day other than a Saturday or Sunday,
that is neither a legal holiday nor a day
on which banking institutions are
authorized or required by law or
regulation to close in The City of New
York or in Tokyo.
Calculation Agent.................. Morgan Stanley & Co. Incorporated ("MS &
Co.")
For potential conflicts of interest that
may exist between the Calculation Agent
and the holders of the Sony CPS, see "Risk
Factors" below. MS & Co. is obligated to
carry out its duties as Calculation Agent
in good faith using its reasonable
judgment.
All percentages resulting from any
calculation on the Sony CPS 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.
Risk Factors....................... An investment in the Sony CPS entails
significant risks not associated with
similar investments in a conventional debt
security, including the following:
The Sony CPS combine features of equity
and debt instruments. For example, holders
of Sony CPS, unlike holders of Sony Stock,
will not be entitled to receive dividends,
if any, that may be payable on Sony Stock.
In addition, the terms of the Sony CPS
differ from those of ordinary debt
securities in that the amount due at
maturity is not fixed, but is based on the
price of the Sony Stock at maturity.
Because the price of the Sony Stock is
subject to market fluctuations, the amount
of cash or the value of the ADRs received
by a holder of Sony CPS at maturity,
determined as described herein, may be
more or less than the principal amount of
the Sony CPS. If the Final Stock Price is
less than the Initial Stock Price, the
amount of cash or the value of the ADRs
receivable upon exchange will be less than
the principal amount of the Sony CPS, in
which case an investment in the Sony CPS
may result in a loss.
Although the amount that holders of the
Sony CPS 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 Sony Stock,
including, without limitation, the
occurrence of a partial tender or exchange
offer for the Sony Stock by Sony or any
third party. Such other events may
adversely affect the market value of the
Sony CPS or any ADRs allocated on the
Determination Date (but not received by
the holder until maturity) pursuant to
such holder's election to receive the
Equivalent Share Amount.
There can be no assurance as to whether
the Sony CPS 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 Sony CPS
are novel securities, and there is
currently no secondary market for the Sony
CPS.
The market value for the Sony CPS will be
affected by a number of factors in
addition to the creditworthiness of the
Company and the value of Sony Stock,
including, but not limited to the dividend
rate on Sony Stock, market interest and
yield rates and the time remaining to the
maturity of the Sony CPS. In addition, the
value of Sony 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 Sony is a part
and over which the Company has no control.
The market value of the Sony CPS is
expected to depend primarily on changes in
the Market Price of Sony Stock. The price
at which a holder will be able to sell
Sony CPS prior to maturity may be at a
discount, which could be substantial, from
the principal amount thereof, if, at such
time, such Market Price is below, equal to
or not sufficiently above the Initial
Stock Price. The historical Market Prices
of Sony Stock should not be taken as an
indication of Sony Stock's future
performance during the term of any Sony
CPS.
The Company is not affiliated with Sony
and, although the Company as of the date
of this Pricing Supplement does not have
any material non-public information
concerning Sony, corporate events of Sony,
including those described below in
"Antidilution Adjustments," are beyond the
Company's ability to control and are
difficult to predict.
Sony is not involved in the offering of
the Sony CPS and has no obligations with
respect to the Sony CPS, including any
obligation to take the interests of the
Company or of holders of Sony CPS into
consideration for any reason. Sony will
not receive any of the proceeds of the
offering of the Sony CPS made hereby and
is not responsible for, and has not
participated in, the determination of the
timing of, prices for or quantities of,
the Sony CPS offered hereby.
Holders of the Sony CPS will not be
entitled to any rights with respect to the
Sony Stock (including, without limitation,
the right to receive dividends or other
distributions, voting rights and the right
to tender or exchange Sony Stock in any
partial tender or exchange offer by Sony
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 Sony CPS, including with respect to
certain adjustments to the Share Ratio and
other antidilution adjustments that may
influence the determination of the amount
of cash receivable at the maturity of the
Sony CPS. See "Antidilution Adjustments"
and "Market Disruption Event."
It is suggested that prospective investors
who consider purchasing the Sony CPS
should reach an investment decision only
after carefully considering the
suitability of the Sony CPS in light of
their particular circumstances.
Investors should also consider the tax
consequences of investing in the Sony CPS,
certain aspects of which are uncertain.
See "United States Federal Income
Taxation" below.
Antidilution Adjustments........... The Share Ratio (and, in the case of
paragraph 5 below, the determination of
the Cash Amount) will be adjusted as
follows:
1. If Sony Stock is subject to a
stock split or reverse stock split, then
once such split has become effective, the
Share Ratio will be adjusted to equal the
product of the prior Share Ratio and the
number of shares issued in such stock
split or reverse stock split with respect
to one share of Sony Stock.
2. If Sony Stock is subject (i) to a
stock dividend (issuance of additional
shares of Sony Stock) that is given
ratably to all holders of shares of Sony
Stock or (ii) to a distribution of Sony
Stock as a result of the triggering of any
provision of the corporate charter of Sony
by any shareholder that is not a holder of
the Sony CPS, then once the dividend has
become effective and Sony Stock is trading
ex-dividend, the Share Ratio will be
adjusted so that the new Share Ratio shall
equal the prior Share Ratio plus the
product of (i) the number of shares issued
with respect to one share of Sony Stock
and (ii) the prior Share Ratio.
3. There will be no adjustments to
the Share Ratio to reflect cash dividends
or other distributions paid with respect
to Sony 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 Sony Stock
will be deemed to be an "Extraordinary
Dividend" if such dividend or other
distribution exceeds the immediately
preceding non-Extraordinary Dividend for
Sony Stock by an amount equal to at least
10% of the Market Price of Sony Stock on
the Trading Day preceding the ex-dividend
date for the payment of such Extraordinary
Dividend (the "ex-dividend date"). If an
Extraordinary Dividend occurs with respect
to Sony Stock, the Share Ratio with
respect to Sony Stock will be adjusted on
the ex-dividend date with respect to such
Extraordinary Dividend so that the new
Share Ratio will equal the product of (i)
the then current Share Ratio and (ii) a
fraction, the numerator of which is the
Market Price on the Trading Day preceding
the ex-dividend date, and the denominator
of which is the amount by which the Market
Price on the Trading Day preceding the
ex-dividend date exceeds the Extraordinary
Dividend Amount. The "Extraordinary
Dividend Amount" with respect to an
Extraordinary Dividend for Sony 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
Sony 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 Sony Stock described
in clause (v) of paragraph 5 below that
also constitutes an Extraordinary Dividend
shall cause an adjustment to the Share
Ratio pursuant only to clause (v) of
paragraph 5.
4. If Sony issues rights or warrants
to all holders of Sony Stock to subscribe
for or purchase Sony Stock at an exercise
price per share less than the Market Price
of the Sony 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 Sony CPS,
then the Share Ratio will be adjusted to
equal the product of the prior Share Ratio
and a fraction, the numerator of which
shall be the number of shares of Sony
Stock outstanding immediately prior to
such issuance plus the number of
additional shares of Sony Stock offered
for subscription or purchase pursuant to
such rights or warrants and the
denominator of which shall be the number
of shares of Sony Stock outstanding
immediately prior to such issuance plus
the number of additional shares of Sony
Stock which the aggregate offering price
of the total number of shares of Sony
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 Sony Stock,
(ii) Sony, or any surviving entity or
subsequent surviving entity of Sony (a
"Sony Successor") has been subject to a
merger, combination or consolidation and
is not the surviving entity, (iii) any
statutory exchange of securities of Sony
or any Sony Successor with another
corporation occurs (other than pursuant to
clause (ii) above), (iv) Sony is
liquidated, (v) Sony issues to all of its
shareholders equity securities of an
issuer other than Sony (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 Sony Stock (any such event in clauses
(i) through (vi) a "Reorganization
Event"), the method of determining the
amount payable at maturity for each Sony
CPS will be adjusted to provide that each
holder of Sony CPS will receive at
maturity, in respect of the principal
amount of each Sony CPS and in lieu of the
Cash Amount, U.S. Dollars in an amount
equal to the Transaction Value (as defined
below); provided that, if the Exchange
Property (as defined below) received in
any such Reorganization Event consists
only of cash, the maturity date of the
Sony CPS will be deemed to be accelerated
to the date on which such cash is
distributed to holders of Sony 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 Sony 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 Sony Stock
multiplied by the product of the Initial
Share Control Amount and the then current
Share Ratio divided by the Initial FX
Rate, (ii) for any property other than
cash or securities received in any such
Reorganization Event, the market value (as
determined by the Calculation Agent) of
such Exchange Property received for each
share of Sony Stock at the date of the
receipt of such Exchange Property
multiplied by the product of the Initial
Share Control Amount and the then current
Share Ratio divided by the Initial FX Rate
and (iii) for any security received in any
such Reorganization Event, an amount equal
to the Market Price per share of such
security on the Determination Date
multiplied by the quantity of such
security received for each share of Sony
Stock multiplied by the product of the
Initial Share Control Amount and the then
current Share Ratio divided by the Initial
FX Rate.
6. In the event of a general
revaluation of the Japanese Yen pursuant
to any governmental action by Japan, the
Share Ratio will be adjusted by the
Calculation Agent so that the new Share
Ratio will reflect the effect of such
revaluation on the Japanese Yen /U.S.
dollar exchange rate. For example, if
Japan were to revalue the Yen by the
issuance of a new currency (the "New
Currency") whose value per currency unit
against the U.S. dollar was equivalent to
a multiple or fraction of the then
prevailing Japanese Yen/U.S. dollar rate
(and the price of Sony Stock was to be
quoted in such New Currency), the Market
Price will be determined by reference to
the market price of Sony Stock as quoted
in such New Currency and the Share Ratio
will be adjusted by such multiple or
fraction so that the US dollar value of
the Sony CPS would remain constant i.e.
the Cash Amount, if determined immediately
after such revaluation would be the same
as the Cash Amount as determined
immediately prior to such revaluation.
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 Share Ratio will be
required unless such Share Ratio
adjustment would require a change of at
least 0.1% in the Share Ratio then in
effect. The Share Ratio 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 Share Ratio or to
the amount payable at maturity of the Sony
CPS will be required other than those
specified above. However, the Company may,
at its sole discretion, cause the
Calculation Agent to make additional
adjustments to the Share Ratio to reflect
changes occurring in relation to the Sony
Stock or any other Exchange Property in
other circumstances where the Company
determines that it is appropriate, but
only to reflect such changes, and not with
the aim of spreading investment risk. The
required adjustments specified above do
not cover all events that could affect the
Market Price of the Sony Stock, including,
without limitation, a partial tender or
exchange offer for the Sony Stock.
The Calculation Agent shall be solely
responsible for the determination and
calculation of any adjustments to the
Share Ratio and of any related
determinations and calculations with
respect to any distributions of stock,
other securities or other property or
assets (including cash) in connection with
any corporate event described in paragraph
5 above, and its determinations and
calculations with respect thereto shall be
conclusive.
The Calculation Agent will provide
information as to any adjustments to the
Share Ratio upon written request by any
holder of the Sony CPS.
Market Disruption Event............ "Market Disruption Event" means:
(i) a suspension, absence (including
the absence of an official closing
price) or material limitation of
trading of Sony Stock on the Tokyo
Stock Exchange for more than two hours
of trading or during the one-half hour
period preceding or at the close of
trading in such market; or the
suspension or material limitation on
the primary market for trading in
options contracts related to Sony
Stock, if available, during the
one-half hour period preceding or at
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 Sony CPS or to purchase
Sony Stock for the purpose of
delivering the Equivalent Share
Amount.
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 any
rule or regulation enacted or promulgated
by the Tokyo Stock Exchange (or other
regulatory organization in Japan with
jurisdiction over the Tokyo Stock
Exchange) on trading during significant
market fluctuations will constitute a
suspension or material limitation of
trading in Sony Stock, (4) a suspension of
trading in an options contract on Sony
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
Sony Stock and (5) a suspension, absence
or material limitation of trading on the
primary securities market on which options
contracts related to Sony Stock are traded
will not include any time when such
securities market is itself closed for
trading under ordinary circumstances.
Alternative Determination Date
in case of an Event of Default..... In case an Event of Default with respect
to any Sony CPS shall have occurred and be
continuing, the amount declared due and
payable upon any acceleration of the Sony
CPS will be determined by the Calculation
Agent and will be equal to the Cash Amount
determined as though the Determination
Date were the date of acceleration plus
any accrued but unpaid interest to but not
including the date of acceleration.
Sony Stock; Public Information..... Sony is engaged in the design,
development, manufacture and distribution
of electronic and entertainment products.
American Depositary Shares representing
Sony Stock are registered under the
Exchange Act of 1934, as amended (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 Sony
pursuant to the Exchange Act can be
located by reference to Commission file
number 1-6439. In addition, information
regarding Sony 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 SONY CPS OFFERED HEREBY AND DOES NOT
RELATE TO SONY STOCK OR OTHER SECURITIES
OF SONY. ALL DISCLOSURES CONTAINED IN THIS
PRICING SUPPLEMENT REGARDING SONY 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 SONY.
NEITHER THE COMPANY NOR THE AGENT MAKES
ANY REPRESENTATION THAT SUCH PUBLICLY
AVAILABLE DOCUMENTS OR ANY OTHER PUBLICLY
AVAILABLE INFORMATION REGARDING SONY 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 SONY STOCK (AND THEREFORE
THE INITIAL STOCK PRICE) HAVE BEEN
PUBLICLY DISCLOSED. SUBSEQUENT DISCLOSURE
OF ANY SUCH EVENTS OR THE DISCLOSURE OF OR
FAILURE TO DISCLOSE MATERIAL FUTURE EVENTS
CONCERNING SONY COULD AFFECT THE VALUE
RECEIVED AT MATURITY WITH RESPECT TO THE
SONY CPS AND THEREFORE THE TRADING PRICES
OF THE SONY CPS. NEITHER THE COMPANY NOR
ANY OF ITS AFFILIATES MAKE ANY
REPRESENTATION TO ANY PURCHASER OF SONY
CPS AS TO THE PERFORMANCE OF SONY STOCK.
The Company or its affiliates may
presently or from time to time engage in
business with Sony including extending
loans to, or making equity investments in,
Sony or providing advisory services to
Sony, 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 Sony and, in addition, one or
more affiliates of the Company may publish
research reports with respect to Sony. The
statement in the preceding sentence is not
intended to affect the right of holders of
the Sony CPS under the securities laws.
Any prospective purchaser of a Sony CPS
should undertake an independent
investigation of Sony as in its judgment
is appropriate to make an informed
decision with respect to an investment in
Sony Stock.
Historical Information............. The following table sets forth the high
and low Market Price during 1995, 1996,
1997, and during 1998 through May 13,
1998. The Market Price on May 13, 1998
was Yen 11,180. 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
Sony Stock should not be taken as an
indication of future performance, and no
assurance can be given that the price of
Sony Stock will not decrease so that the
beneficial owners of the Sony CPS will
receive at maturity cash in an amount that
is less than the principal amount of the
Sony CPS. Nor can assurance be given that
the price of Sony Stock will increase
above the Initial Stock Price so that at
maturity the beneficial owners of the Sony
CPS will receive cash in an amount in
excess of the principal amount of the Sony
CPS.
Dividends Per
Sony High Low Share1
---- ---- --- ------
(SEDOL #6821506)
1995
First Quarter.......... Yen 5680 Yen 4030 Yen 25
Second Quarter......... 4300 3800 0
Third Quarter.......... 5420 4100 25
Fourth Quarter......... 6190 4600 0
1996
First Quarter.......... 6850 6080 25
Second Quarter......... 7250 6380 0
Third Quarter.......... 7230 6700 25
Fourth Quarter......... 7680 6760 0
1997
First Quarter.......... 9080 7320 30
Second Quarter......... 10100 8660 0
Third Quarter.......... 12200 9640 25
Fourth Quarter......... 12200 9450 0
1998
First Quarter.......... 12400 10500 35
Second Quarter
(through May 13,
1998)............... 11600 10550 0
- ----------
1 The Company makes no representation as to the amount of dividends, if any,
that Sony will pay in the future. In any event, holders of the Sony CPS will
not be entitled to receive dividends, if any, that may be payable on Sony
Stock.
Hypothetical Movements
in the Japanese
Yen/U.S. Dollar Exchange Rate.... By linking the amount payable at maturity
to the Stock Percentage Change rather
than the U.S. Dollar value of Sony
Stock at maturity, the Sony CPS
permit the investor to participate in
price fluctuations of the Sony Stock
without being affected by future
changes in the Japanese Yen/U.S.
Dollar exchange rate. Based on an
initial Japanese Yen/ U.S. Dollar
exchange rate of Yen 130/1 U.S. $ and
a Market Price of Sony Stock
of Yen 11,000 (or U.S. $84.62 at such
initial exchange rate) and assuming,
solely for the purpose of
illustrating the lack of effect of
changes in such exchange rate, a
hypothetical 20% increase in the
Market Price of Sony Stock
to Yen 13,320, the following table
illustrates, for a range of Final FX
Rates, the variations in the U.S.
Dollar value of Sony Stock at
maturity (excluding dividends) and
compares such values to the total
payment on the Sony CPS.
<TABLE>
Final CPS
Internal Rate of
Sony Change Final Sony Sony Change Final CPS Return (including
Final FX Rate on TSE (%) Price (in $) in $ (%) Value ($) 3% Coupon)
------------- ---------- ------------ -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
150 20.00% 88.00 4.00% 2,030.77 26.00%
146 20.00% 90.41 6.85% 2,030.77 26.00%
142 20.00% 92.96 9.86% 2,030.77 26.00%
138 20.00% 95.65 13.04% 2,030.77 26.00%
134 20.00% 98.51 16.42% 2,030.77 26.00%
Hypothetical Initial FX Rate -- 130 20.00% 101.54 20.00% 2,030.77 26.00%
126 20.00% 104.76 23.81% 2,030.77 26.00%
122 20.00% 108.20 27.87% 2,030.77 26.00%
118 20.00% 111.86 32.20% 2,030.77 26.00%
114 20.00% 115.79 36.84% 2,030.77 26.00%
110 20.00% 120.00 41.82% 2,030.77 26.00%
</TABLE>
Use of Proceeds and Hedging........ The net proceeds to be received by the
Company from the sale of the Sony CPS 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 Sony CPS. See also "Use of Proceeds"
in the accompanying Prospectus.
On the date of this Pricing Supplement,
the Company, through its subsidiaries and
others, hedged its anticipated exposure in
connection with the Sony CPS by taking
positions in Sony Stock and positions in
other instruments in connection with such
hedging. Such hedging was carried out in a
manner designed to minimize any impact on
the price of the Sony Stock. Purchase
activity could potentially have increased
the price of Sony Stock, and therefore
effectively have increased the level to
which Sony Stock must rise before a holder
of a Sony CPS would receive at maturity
cash in an amount that is equal to or
greater than the principal amount of the
Sony CPS. The Company, through its
subsidiaries, may modify the hedge
position noted above throughout the life
of the Sony CPS. Although the Company has
no reason to believe that its hedging
activity has had or will have a material
impact on the price of Sony Stock, there
can be no assurance that the Company has
not or will not affect such price as a
result of its hedging activities.
United States Federal
Income 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 Sony CPS purchasing
the Sony CPS at the Issue Price, and who
will hold the Sony CPS 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 currently in
effect, 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 Sony CPS 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 Sony
CPS 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.
Pursuant to the terms of the Sony CPS, the
Company and every holder of a Sony CPS
agree (in the absence of an administrative
determination or judicial ruling to the
contrary) to characterize a Sony CPS 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 Sony CPS 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 "Amount Payable 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 bears a yield of 6.0% 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 Sony CPS, the Company will
allocate 100% of the Issue Price of the
Sony CPS 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 U.S. Holder of a Sony
CPS, unless such U.S. 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 Sony CPS
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 Sony CPS or instruments similar to the
Sony CPS for U.S. federal income tax
purposes, and no ruling is being requested
from the IRS with respect to the Sony CPS.
DUE TO THE ABSENCE OF AUTHORITIES THAT
DIRECTLY ADDRESS INSTRUMENTS THAT ARE
SIMILAR TO A SONY CPS, TAX COUNSEL IS
UNABLE TO RENDER AN OPINION AS TO THE
PROPER U.S. FEDERAL INCOME TAX
CHARACTERIZATION OF THE SONY CPS. AS A
RESULT, SIGNIFICANT ASPECTS OF THE U.S.
FEDERAL INCOME TAX CONSEQUENCES OF AN
INVESTMENT IN THE SONY CPS 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 A SONY
CPS (INCLUDING ALTERNATIVE
CHARACTERIZATIONS OF A SONY CPS) AND WITH
RESPECT TO ANY TAX CONSEQUENCES ARISING
UNDER THE LAWS OF ANY STATE, LOCAL OR
FOREIGN TAXING JURISDICTION. UNLESS
OTHERWISE STATED, THE FOLLOWING
DISCUSSIONS ARE BASED ON THE ASSUMPTION
THAT THE TREATMENT AND THE ALLOCATION
DESCRIBED ABOVE ARE ACCEPTED FOR U.S.
FEDERAL INCOME TAX PURPOSES.
U.S. Holders
As used herein, the term "U.S. Holder"
means a beneficial owner of a Sony CPS
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.
Tax Treatment of A Sony CPS
Interest on the Deposit. As described
above, the Deposit is treated as bearing a
yield of 6.0% per annum, which is greater
than the stated interest rate on the
Deposit. Accordingly, the Deposit will be
subject to the "original issue discount"
rules. A U.S. Holder will include
"qualified stated interest" equal to the
stated interest on the Sony CPS in income
in accordance with the U.S. Holder's
method of accounting for federal income
tax purposes. Additionally, each U.S.
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 U.S. Holder to include
OID 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, 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
U.S. Holder will generally be more than
the stated interest paid to the U.S.
Holder and will increase during the term
of the Sony CPS.
Tax Basis. Based on the Company's
determination set forth above, the U.S.
Holder's tax basis in the Deposit would
initially be 100% of the Issue Price. The
U.S. 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 U.S. Holder receiving cash
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 U.S. 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 U.S. Holder's tax basis in the
Deposit.
U.S. 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 U.S. Holder's ability to offset
capital losses against ordinary income,
and certain U.S. 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. U.S.
Holders should consult their tax advisors
with respect to the treatment of capital
gain or loss on a Sony CPS.
A U.S. Holder receiving the Equivalent
Share Amount pursuant to the Forward
Contract would be deemed to have applied
the Deposit toward the purchase of such
Equivalent Share Amount, and such U.S.
Holder would not recognize any gain or
loss with respect to the Equivalent Share
Amount received upon the final settlement
of the Forward Contract. A U.S. Holder's
tax basis in the Equivalent Share Amount
so received would be equal to the U.S.
Holder's tax basis in the Deposit
allocable thereto. Such U.S. Holder's
holding period of the Equivalent Share
Amount would start on the day after the
Maturity Date.
Sale or Exchange of the Sony CPS. Upon a
sale or exchange of a Sony CPS prior to
the maturity of the Sony CPS, a U.S.
Holder would recognize taxable gain or
loss equal to the difference between the
amount realized on such sale or exchange
and such U.S. Holder's tax basis in the
Sony CPS so sold or exchanged. Any such
gain or loss would generally be capital
gain or loss, as the case may be. Such
U.S. Holder's tax basis in the Sony CPS
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 interest or
OID on the Deposit, which would be taxed
as described under "-- Interest on the
Deposit" above.
Possible Alternative Tax Treatments of an
Investment in a Sony
CPS
Due to the absence of authorities that
directly address the proper
characterization of the Sony CPS, 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 Sony
CPS 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 Sony CPS. If the IRS were
successful in asserting that the
Contingent Payment Regulations applied to
the Sony CPS, the timing and character of
income thereon would be significantly
affected. Among other things, a U.S.
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 U.S.
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 (including upon receipt
of the Equivalent Share Amount at
Maturity). Furthermore, any gain realized
with respect to a Sony CPS would generally
be treated as ordinary income, and any
loss realized would generally be treated
as ordinary loss to the extent of the U.S.
Holder's prior ordinary income inclusions
(which were not previously reversed) with
respect to the Sony CPS.
Even if the Contingent Payment Regulations
do not apply to the Sony CPS, other
alternative U.S. federal income
characterizations or treatments of the
Sony CPS are also possible, which may also
affect the timing and the character of the
income or loss with respect to the Sony
CPS. It is possible, for example, that a
Sony CPS 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 a Sony CPS.
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 a Sony CPS. If the Kennelly Bill
were to apply to a Sony CPS, the effect on
a U.S. Holder of a Sony CPS would be to
treat all or a portion of the long term
capital gain recognized by such U.S.
Holder on sale or maturity of the Sony CPS
(or the Equivalent Share Amount received
thereon) 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
U.S. Holder if the U.S. Holder had
acquired Sony Stock itself on the issue
date of the Sony CPS and disposed of the
Sony Stock upon disposition of the Sony
CPS (or, where the U.S. Holder elects to
receive the Equivalent Share Amount, upon
disposition of the Equivalent Share
Amount). In addition, the Kennelly Bill
would impose an interest charge on the
gain that was recharacterized on the sale
or maturity of the Sony CPS (or the
Equivalent Share Amount received thereon).
As proposed, the Kennelly Bill would be
effective for gains recognized after the
date of enactment. U.S. Holders should
consult their tax advisors regarding the
potential application of the Kennelly Bill
to the purchase, ownership and disposition
of a Sony CPS.
Backup Withholding and Information
Reporting
A U.S. Holder of a Sony CPS may be subject
to information reporting and to backup
withholding at a rate of 31 percent of the
amounts paid to the U.S. Holder, unless
such U.S. 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 U.S.
Holder's U.S. federal income tax
liability, provided the required
information is furnished to the IRS.
Non-U.S. Holders
As used herein, the term "Non-U.S. Holder"
means an owner of a Sony CPS that is, for
United States federal income tax purposes,
(i) a nonresident alien individual, (ii) a
foreign corporation, (iii) a nonresident
alien fiduciary of a foreign trust or
estate or (iv) a foreign partnership one
or more of the members of which is, for
United States federal income tax purposes,
a nonresident alien individual, a foreign
corporation or a nonresident alien
fiduciary of a foreign trust or estate.
The following summary addresses certain
U.S. federal income tax consequences to
holders who are initial holders of the
Sony CPS purchasing the Sony CPS at the
Issue Price, and who will hold the Sony
CPS as capital assets within the meaning
of Section 1221 of the Code. This summary
does not deal with persons that are not
Non-U.S. Holders or that are subject to
special rules, such as nonresident alien
individuals that have lost United States
citizenship or that have ceased to be
taxed as United States resident aliens,
corporations that are treated as foreign
personal holding companies, controlled
foreign corporations or passive foreign
investment companies, and certain other
Non-U.S. Holders that are owned or
controlled by persons subject to United
States federal income tax. In addition,
the following summary does not apply to
persons for whom interest or gain on a
Sony CPS is effectively connected with a
trade or business in the United States.
As described above in "United States
Federal Income Taxation--General," the
Company and every holder of a Sony CPS
agree (in the absence of an administrative
determination or judicial ruling to the
contrary) to characterize a Sony CPS for
all purposes as an investment unit
consisting of the Forward Contract and the
Deposit.
Subject to the discussion below concerning
backup withholding, payments with respect
to a Sony CPS (including the delivery of
the Equivalent Share Amount) by the
Company or a paying agent to a Non-U.S.
Holder, and gain realized on the sale,
exchange or other disposition of such Sony
CPS, should not be subject to United
States federal income or withholding tax,
provided that: (i) such Non-U.S. Holder
does not own, actually or constructively,
10 percent or more of the total combined
voting power of all classes of stock of
the Company entitled to vote, is not a
controlled foreign corporation related,
directly or indirectly, to the Company
through stock ownership, and is not a bank
receiving interest described in Section
881(c)(3)(A) of the Code; (ii) the
statement required by Section 871(h) or
Section 881(c) of the Code has been
provided with respect to the beneficial
owner, as discussed below; (iii) such
Non-U.S. Holder is not an individual who
is present in the United States for 183
days or more in the taxable year of
disposition, or such individual does not
have a "tax home" (as defined in Section
911(d)(3) of the Code) or an office or
other fixed place of business in the
United States; and (iv) such payment and
gain are not effectively connected with
the conduct by such Non-U.S. Holder of a
trade or business in the United States.
Sections 871(h) and 881(c) of the Code
require that, in order to obtain the
portfolio interest exemption from
withholding tax, either the beneficial
owner of the Sony CPS, or a securities
clearing organization, bank or other
financial institution that holds
customers' securities in the ordinary
course of its trade or business (a
"Financial Institution") and that is
holding the Sony CPS on behalf of such
beneficial owner, file a statement with
the withholding agent to the effect that
the beneficial owner of the Sony CPS is
not a United States person. Under United
States Treasury Regulations, such
requirement will be fulfilled if the
beneficial owner of a Sony CPS certifies
on Internal Revenue Service Form W-8,
under penalties of perjury, that it is not
a United States person and provides its
name and address, and any Financial
Institution holding the Sony CPS on behalf
of the beneficial owner files a statement
with the withholding agent to the effect
that it has received such a statement from
the Non-U.S. Holder (and furnishes the
withholding agent with a copy thereof).
With respect to Sony CPS held by a foreign
partnership, under current law, the Form
W-8 may be provided by the foreign
partnership. However, for payments with
respect to a Sony CPS after December 31,
1999, unless the foreign partnership has
entered into a withholding agreement with
the Internal Revenue Service, a foreign
partnership will be required, in addition
to providing an intermediary Form W-8, to
attach an appropriate certification by
each partner. Prospective investors,
including foreign partnerships and their
partners, should consult their tax
advisors regarding possible additional
reporting requirements.
A Sony CPS held by a Non-U.S. Holder at
the time of his death is likely be subject
to United States federal estate tax as a
result of such individual's death, to the
extent of the value of the Forward
Contract, if any, unless a relevant estate
tax treaty applies.
Possible Alternative Tax Treatments of an
Investment in a Sony
CPS
As described above in "United States
Federal Income Taxation--U.S.
Holders--Possible Alternative Tax
Treatments of an Investment in a Sony
CPS," the IRS may seek to treat the Sony
CPS as a debt instrument subject to the
Contingent Payment Regulations. If such a
characterization were successful, the tax
consequences to a Non-U.S. Holder of
ownership and disposition of a Sony CPS
would be the same as those described
immediately above. However, if the IRS
sought to recharacterize a Sony CPS as a
pre-paid forward contract, it is possible
that payments of stated interest made with
respect to a Sony CPS would be subject to
withholding at a rate of 30%, unless a
relevant income tax treaty applies. The
Company does not currently intend to
withhold on payments of stated interest
with respect to a Sony CPS, but will do so
if required by law. Due to the absence of
authorities that directly address
instruments that are similar to a Sony
CPS, significant aspects of the U.S.
federal income tax consequences of an
investment in a Sony CPS are not certain,
and no assurance can be given that the IRS
or the courts will agree with the
characterization of a Sony CPS as an
investment unit consisting of the Forward
Contract and the Deposit. Accordingly,
prospective purchasers are urged to
consult their tax advisors regarding the
U.S. federal income tax consequences of an
investment in a Sony CPS.
Backup Withholding and Information
Reporting
Under current Treasury Regulations, backup
withholding at 31% will not apply to
payments by the Company made on a Sony CPS
if the certifications required by Sections
871(h) or 881(c) are received.
Under current Treasury Regulations,
payments on the sale, exchange or other
disposition of a Sony CPS made to or
through a foreign office of a broker
generally will not be subject to backup
withholding. However, if such broker is a
United States person, a controlled foreign
corporation for United States tax
purposes, a foreign person 50 percent or
more of whose gross income is effectively
connected with a United States trade or
business for a specified three-year period
or, in the case of payments made after
December 31, 1999, a foreign partnership
with certain connections to the United
States, information reporting will be
required unless the broker has in its
records documentary evidence that the
beneficial owner is not a United States
person and certain other conditions are
met or the beneficial owner otherwise
establishes an exemption. Payments to or
through the United States office of a
broker will be subject to backup
withholding and information reporting
unless the Non-U.S. Holder certifies,
under penalties of perjury, that it is not
a United States person or otherwise
establishes an exemption.
Non-U.S. Holders of Sony CPS should
consult their tax advisors regarding the
application of information reporting and
backup withholding in their particular
situations, the availability of an
exemption therefrom, and the procedure for
obtaining such an exemption, if available.
Any amounts withheld from a payment to a
Non-U.S. Holder under the backup
withholding rules will be allowed as a
credit against such Non-U.S. Holder's
United States federal income tax liability
and may entitle such Non-U.S. Holder to a
refund, provided that the required
information is furnished to the Internal
Revenue Service.
ANNEX A
OFFICIAL NOTICE OF EXERCISE OF RIGHT TO
RECEIVE EQUIVALENT SHARE AMOUNT
SONY CORPORATION 3% CURRENCY PROTECTED SECURITIES ("CPS(sm)")
DUE MAY 17, 2000
MEDIUM-TERM NOTES
Dated: [On or prior to the fifteenth
Business Day prior to May 17, 2000]
Morgan Stanley Dean Witter & Co.
1585 Broadway
New York, New York 10036
Morgan Stanley & Co. Incorporated, as
Calculation Agent
1585 Broadway
New York, New York 10036
Fax No.: (212) 761-0674
(Attn: 5th Fl. Equity Derivatives Trader Support/Syndicates)
Dear Sirs:
The undersigned holder of the Sony Corporation 3% Currency Protected
Securities Due May 17, 2000 of Morgan Stanley Dean Witter & Co. (the "Sony CPS")
hereby irrevocably elects to exercise with respect to the number of Sony CPS
indicated below, as of the date hereof, provided that such day is prior to the
fifteenth Business Day prior to May 17, 2000, the Right to Receive the
Equivalent Share Amount as described in Pricing Supplement No. 12 dated May 13,
1998 (the "Pricing Supplement") to the Prospectus Supplement dated March 26,
1998 and the Prospectus dated March 26, 1998 related to Registration Statement
No. 333-46935. Capitalized terms not defined herein have the meanings given to
such terms in the Pricing Supplement. Please date and acknowledge receipt of
this notice in the place provided below on the date of receipt, and fax a copy
to the fax number indicated, whereupon the Company will deliver Sony ADRs, in
accordance with the terms of the Sony CPS described in the Pricing Supplement.
Very truly yours,
--------------------------------------------
[Name of Holder]
By:_________________________________________
[Title]
--------------------------------------------
[Fax No.]
$___________________________________________
Number of Sony CPS surrendered for exchange
Receipt of the above Official
Notice of Exchange is hereby acknowledged
MORGAN STANLEY DEAN WITTER & CO., as Issuer
MORGAN STANLEY & CO. INCORPORATED, as Calculation Agent
By MORGAN STANLEY & CO. INCORPORATED, as Calculation Agent
By:_________________________________________________
Title:
Date and time of acknowledgment ____________________
