-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GZ7T8X+TKPxPIpXsz+UdWN9K2Iyv6D5m3LzUyMaSTctG9x8chiiM0ySBJxuew978 6kPB4+O7OSjbesopG3RVPA== 0000950103-96-001226.txt : 19961202 0000950103-96-001226.hdr.sgml : 19961202 ACCESSION NUMBER: 0000950103-96-001226 CONFORMED SUBMISSION TYPE: 424B3 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19961127 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MORGAN STANLEY GROUP INC /DE/ CENTRAL INDEX KEY: 0000789625 STANDARD INDUSTRIAL CLASSIFICATION: SECURITY BROKERS, DEALERS & FLOTATION COMPANIES [6211] IRS NUMBER: 132838811 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 424B3 SEC ACT: 1933 Act SEC FILE NUMBER: 333-01655 FILM NUMBER: 96673444 BUSINESS ADDRESS: STREET 1: 1585 BROADWAY CITY: NEW YORK STATE: NY ZIP: 10036 BUSINESS PHONE: 2127034000 424B3 1 PROSPECTUS Dated May 1, 1996 Pricing Supplement No. 47 to PROSPECTUS SUPPLEMENT Registration Statement No. 333-01655 Dated May 1, 1996 Dated November 20, 1996 Rule 424(b)(3) $70,490,000 Morgan Stanley Group Inc. MEDIUM-TERM NOTES, SERIES C Senior Fixed Rate Notes Reset Performance Equity-linked Redemption Quarterly-pay Securities ("Reset PERQS") 6% RESET PERQS DUE DECEMBER 1, 1998 Reset PERQS Mandatorily Exchangeable For Shares of Common Stock of CISCO SYSTEMS, INC. The 6% Reset PERQS due December 1, 1998 (the "Reset PERQS") are Medium-Term Notes, Series C (Senior Fixed Rate Notes) of Morgan Stanley Group Inc. (the "Company"), as further described below and in the Prospectus Supplement under "Description of Notes - Fixed Rate Notes." The principal amount of each of the Reset PERQS being offered hereby will be $66.50 (the Market Price (as defined herein) of the common stock, without par value, of Cisco Systems, Inc. ("Cisco") on November 20, 1996) (the "Initial Price"). The Reset PERQS will mature on December 1, 1998. Interest on the Reset PERQS, at the rate of 6% of the principal amount per annum (equivalent to $3.99 per annum per Reset PERQS), is payable quarterly in arrears on each March 1, June 1, September 1 and December 1, beginning March 1, 1997. At maturity upon delivery of each Reset PERQS to the Trustee, each $66.50 principal amount of such Reset PERQS will be applied by the Company as payment for a number of shares of the common stock of Cisco (the "Cisco Stock") at the then applicable Exchange Ratio. The Exchange Ratio, initially set at 1.0, is subject to adjustment on December 1, 1997 and at maturity in order to cap the value of the Cisco Stock to be received upon delivery of the Reset PERQS at $116.31 per $66.50 principal amount of each Reset PERQS (174.90226% of the Initial Price). Solely for purposes of adjustment upon the occurrence of certain corporate events, the number of shares of Cisco Stock to be delivered will also be adjusted by an Exchange Factor, initially set at 1.0. See "Exchange at Maturity," "Exchange Factor" and "Antidilution Adjustments" in this Pricing Supplement. If the Market Price per share of Cisco Stock on December 1, 1997 (as defined herein, the "First Year Closing Price") is less than or equal to $87.95 (the "First Year Cap Price"), no adjustment to the Exchange Ratio will be made at such time. If the First Year Closing Price exceeds the First Year Cap Price, the Exchange Ratio will be adjusted so that the new Exchange Ratio will equal the product of (i) the existing Exchange Ratio and (ii) a fraction the numerator of which will be the First Year Cap Price and the denominator of which will be the First Year Closing Price. In addition, on December 1, 1997, the Calculation Agent will establish the "Second Year Cap Price" that will be equal to the greater of (x) 132.25% of the First Year Closing Price and (y) the First Year Cap Price. If the Market Price at maturity (as defined herein, the "Maturity Price") is less than or equal to the Second Year Cap Price, no further adjustment to the Exchange Ratio will be made. If the Maturity Price exceeds the Second Year Cap Price, the existing Exchange Ratio will be adjusted so that the final Exchange Ratio will equal the product of (i) the existing Exchange Ratio and (ii) a fraction the numerator of which will be the Second Year Cap Price and the denominator of which will be the Maturity Price. See "Exchange at Maturity" and "Hypothetical Payments" in this Pricing Supplement. The opportunity for appreciation afforded by an investment in the Reset PERQS is less than that afforded by an investment in the Cisco Stock because at maturity a holder may receive less than one share of Cisco Stock per Reset PERQS if the Exchange Ratio has been adjusted to cap the value of the Cisco Stock to be received upon delivery of the Reset PERQS. The value of the Cisco Stock received by a holder of the Reset PERQS upon exchange at maturity, determined as described herein, may be more or less than the principal amount of the Reset PERQS. See "Hypothetical Payments on the Reset PERQS" in this Pricing Supplement. Cisco is not affiliated with the Company, is not involved in this offering of Reset PERQS and will have no obligations with respect to the Reset PERQS. See "Historical Information" in this Prospectus Supplement for information on the range of Market Prices for Cisco Stock. The Company will cause the Market Price, any adjustments to the Exchange Ratio, the Exchange Factor and any other antidilution adjustments to be determined by the Calculation Agent for The Chase Manhattan Bank, as Trustee under the Senior Debt Indenture. An investment in the Reset PERQS entails risks not associated with similar investments in a conventional debt security, as described under "Risk Factors" on PS-6 through PS-8 herein. ---------------- PRICE $66.50 A RESET PERQS ---------------- Proceeds to Agent's ------------ Price to Public(1) Commissions(2) Company(1) ------------------- --------------- ------------ Per Reset PERQS.. $66.50 $0.16 $66.34 Total............ $70,490,000 $169,600 $70,320,400 _______________ (1) Plus accrued interest, if any, from November 27, 1996. (2) The Company has agreed to indemnify the Agent against certain liabilities, including liabilities under the Securities Act of 1933. MORGAN STANLEY & CO. Incorporated (This page intentionally left blank) Capitalized terms not defined herein have the meanings given to such terms in the accompanying Prospectus Supplement. Principal Amount:.............. $70,490,000 Maturity Date:................. December 1, 1998 Interest Rate:................. 6% per annum (equivalent to $3.99 per annum per Reset PERQS) Interest Payment Dates......... March 1, June 1, September 1 and December 1, beginning March 1, 1997. Specified Currency:............ U.S. Dollars Issue Price:................... $66.50 a Reset PERQS Original Issue Date (Settlement Date):......................... November 27, 1996 CUSIP.......................... 617446513 Book Entry Note or Certificated Note:.......................... Book Entry Senior Note or Subordinated Note:.......................... Senior Denominations:................. $66.50 and integral multiples thereof Trustee:....................... The Chase Manhattan Bank Exchange at Maturity:.......... At maturity (including as a result of acceleration or otherwise), upon delivery of each Reset PERQS to the Trustee, each $66.50 principal amount of such Reset PERQS will be applied by the Company as payment for a number of shares of Cisco Stock at the Exchange Ratio. The Exchange Ratio, initially set at 1.0, is subject to adjustment on December 1, 1997 (or if such date is not a Trading Day on which no Market Disruption Event occurs, the immediately succeeding Trading Day on which no Market Disruption Event occurs (the "First Year Determination Date")) and at maturity in order to cap the value of the Cisco Stock to be received upon delivery of the Reset PERQS at $116.31 per principal amount of each Reset PERQS (174.90226% of the Initial Price). Solely for purposes of adjustment upon the occurrence of certain corporate events, the number of shares of Cisco Stock to be delivered at maturity will also be adjusted by an Exchange Factor, initially set at 1.0. See "Exchange Factor" and "Antidilution Adjustments" below. If on the First Year Determination Date the First Year Closing Price is less than or equal to $87.95 (the "First Year Cap Price"), no adjustment to the Exchange Ratio will be made at such time. If the First Year Closing Price exceeds the First Year Cap Price, the Exchange Ratio will be adjusted so that the new Exchange Ratio will equal the product of (i) the existing Exchange Ratio and (ii) a fraction the numerator of which will be the First Year Cap Price and the denominator of which will be the First Year Closing Price. In addition, on the First Year Determination Date, the Calculation Agent will establish the "Second Year Cap Price" that will be equal to the greater of (x) 132.25% of the First Year Closing Price and (y) the First Year Cap Price. Notice of the Second Year Cap Price and of any such adjustment to the Exchange Ratio shall promptly be sent by first-class mail to The Depository Trust Company, New York, New York (the "Depositary"). If the Maturity Price is less than or equal to the Second Year Cap Price, no further adjustment to the Exchange Ratio will be made. If the Maturity Price exceeds the Second Year Cap Price, the existing Exchange Ratio will be adjusted so that the final Exchange Ratio will equal the product of (i) the existing Exchange Ratio and (ii) a fraction the numerator of which will be the Second Year Cap Price and the denominator of which will be the Maturity Price. See "Hypothetical Payments" below. All percentages resulting from any calculation with respect to the Reset PERQS (and the First Year Cap Price and the Second Year Cap Price) will be rounded to the nearest one hundred-thousandth of a percentage point, with five one-millionths of a percentage point rounded upwards (e.g., 9.876545% (or .09876545) would be rounded to 9.87655% (or .0987655)), and all dollar amounts related to payments at maturity resulting from such calculation will be rounded to the nearest cent with one-half cent being rounded upwards. The Company shall, or shall cause the Calculation Agent to, (i) provide written notice to the Trustee and to the Depositary, on or prior to 10:30 a.m. on the Trading Day immediately prior to maturity of the Reset PERQS, of the amount of Cisco Stock to be delivered with respect to each $66.50 principal amount of each Reset PERQS and (ii) deliver such shares of Cisco Stock (and cash in respect of interest and any fractional shares of Cisco Stock) to the Trustee for delivery to the holders. The Calculation Agent shall determine the Exchange Ratio applicable at the maturity of the Reset PERQS and calculate the Exchange Factor. References to payment "per Reset PERQS" refer to each $66.50 principal amount of any Reset PERQS. No Fractional Shares:.......... Upon delivery of the Reset PERQS to the Trustee at maturity (including as a result of acceleration or otherwise), the Company will pay cash in lieu of issuing fractional shares of Cisco Stock in an amount equal to the corresponding fractional Market Price of such fraction of a share of Cisco Stock as determined by the Calculation Agent as of the second scheduled Trading Day prior to maturity of the Reset PERQS. Initial Price:................. $66.50 First Year Closing Price:...... First Year Closing Price means the product of (i) the Market Price of one share of Cisco Stock and (ii) the Exchange Factor, each determined as of the First Year Determination Date. Maturity Price:................ Maturity Price means the product of (i) the Market Price of one share of Cisco Stock and (ii) the Exchange Factor, each determined as of the second scheduled Trading Day immediately prior to maturity. First Year Cap Price:.......... $87.95 (132.25564% of the Initial Price) Second Year Cap Price:......... Second Year Cap Price means the greater of (x) 132.25% of the First Year Closing Price and (y) the First Year Cap Price. See "Exchange at Maturity" above. Exchange Factor:............... The Exchange Factor will be set initially at 1.0, but will be subject to adjustment upon the occurrence of certain corporate events through and including the second scheduled Trading Day immediately prior to maturity. See "Antidilution Adjustments" below. Market Price:.................. If Cisco 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 Cisco Stock (or one unit of any such other security) on any Trading Day means (i) the last reported sale price, regular way, on such day on the principal United States securities exchange registered under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), on which Cisco Stock (or such other security) is listed or admitted to trading or (ii) if not listed or admitted to trading on any such securities exchange or if such last reported sale price is not obtainable, the last reported sale price on the over-the-counter market as reported on the NASDAQ NMS or OTC Bulletin Board on such day. If the last reported sale price is not available pursuant to clause (i) or (ii) of the preceding sentence, the Market Price for any Trading Day shall be the mean, as determined by the Calculation Agent, of the bid prices for Cisco Stock (or such other security) obtained from as many dealers in such stock, but not exceeding three, as will make such bid prices available to the Calculation Agent. The term "NASDAQ NMS security" shall include a security included in any successor to such system and the term "OTC Bulletin Board Service" shall include any successor service thereto. Trading Day:................... A day, as determined by the Calculation Agent, on which trading is generally conducted (i) on the New York Stock Exchange ("NYSE"), the American Stock Exchange, Inc. ("AMEX") and the NASDAQ NMS, (ii) on the Chicago Mercantile Exchange, (iii) on the Chicago Board of Options Exchange and (iv) in the over-the-counter market for equity securities in the United States. Acceleration Event:............ If on any date the product of the Market Price per share of Cisco Stock and the Exchange Factor is less than $5.00, the maturity date of the Reset PERQS will be deemed to be accelerated to such date, and each $66.50 principal amount of each Reset PERQS will be applied by the Company as payment for a number of shares of Cisco Stock at the then current Exchange Ratio, as adjusted by the then current Exchange Factor. See also "Antidilution Adjustments" below. Calculation Agent:............. Morgan Stanley & Co. Incorporated ("MS & Co.") Because the Calculation Agent is an affiliate of the Company, potential conflicts of interest may exist between the Calculation Agent and the holders of the Reset PERQS, including with respect to certain determinations and judgments that the Calculation Agent must make in making adjustments to the Exchange Factor or other antidilution adjustments or determining any Market Price or whether a Market Disruption Event has occurred. 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 Reset PERQS entails significant risks not associated with similar investments in a conventional debt security, including the following: The Reset PERQS combine features of equity and debt instruments. For example, the terms of the Reset PERQS differ from those of debt securities in that the value of the Cisco Stock that a holder of the Reset PERQS will receive upon mandatory exchange of the principal amount thereof at maturity is not fixed, but is based on the price of the Cisco Stock on the First Year Determination Date and at maturity of the Reset PERQS. Because the price of the Cisco Stock is subject to market fluctuations and because the Exchange Ratio will be adjusted to cap the value of the Cisco Stock to be received upon delivery of the Reset PERQS, the value of the Cisco Stock received by a holder of Reset PERQS upon exchange at maturity, determined as described herein, may be more or less than the principal amount of the Reset PERQS. The amount receivable upon exchange will be less than the principal amount of the Reset PERQS if the Maturity Price of the Cisco Stock is (x) less than the Initial Price or (y) not sufficiently above the Initial Price following any adjustment of the Exchange Factor on the First Year Determination Date. In either case, an investment in the Reset PERQS would result in a loss. See "Hypothetical Payments" below. The opportunity for capital appreciation afforded by an investment in the Reset PERQS is less than that afforded by an investment in Cisco Stock because of the First and Second Year Cap Prices and because at maturity a holder may receive less than one share of Cisco Stock per Reset PERQS if the Exchange Ratio has been adjusted to cap the value of the Cisco Stock to be received upon delivery of the Reset PERQS. In addition, because the Exchange Ratio and the Maturity Price are determined as of the second scheduled Trading Day prior to maturity of the Reset PERQS and because the price of Cisco Stock may fluctuate after such Trading Day and prior to its delivery at maturity, the value of any Cisco Stock delivered at maturity may be less than the value of such Cisco Stock on such Trading Day. The amount payable at maturity with respect to each Reset PERQS, determined as of the second scheduled Trading Day prior to maturity, will not under any circumstances exceed $116.31 per Reset PERQS. Although the amount that holders of the Reset PERQS are entitled to receive at maturity is subject to adjustment for certain corporate events, such adjustments do not cover all events that could affect the Market Price of the Cisco Stock, including, without limitation, the occurrence of a partial tender or exchange offer for the Cisco Stock by Cisco or any third party. Such other events may adversely affect the market value of the Reset PERQS. There can be no assurance as to how the Reset PERQS will trade in the secondary market or whether such market will be liquid or illiquid. Securities with characteristics similar to the Reset PERQS are novel securities, and there is currently no secondary market for the Reset PERQS. The market value for the Reset PERQS will be affected by a number of factors in addition to the creditworthiness of the Company and the value of Cisco Stock, including, but not limited to, the volatility of Cisco Stock, the dividend rate on Cisco Stock, market interest and yield rates and the time remaining to the maturity of the Reset PERQS. In addition, the value of Cisco 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 Cisco is a part and over which the Company has no control. The market value of the Reset PERQS is expected to depend primarily on changes in the Market Price of Cisco Stock. The price at which a holder will be able to sell Reset PERQS prior to maturity may be at a discount, which could be substantial, from the principal amount thereof, if, at such time, the Market Price of Cisco Stock is below, equal to or not sufficiently above the Initial Price. The historical Market Prices of Cisco Stock should not be taken as an indication of Cisco Stock's future performance during the term of any Reset PERQS. The Reset PERQS 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 Reset PERQS may be difficult to obtain. The Company is not affiliated with Cisco and, although the Company as of the date of this Pricing Supplement does not have any material non-public information concerning Cisco, corporate events of Cisco, including those described below in "Antidilution Adjustments," are beyond the Company's ability to control and are difficult to predict. Cisco is not involved in the offering of the Reset PERQS and has no obligations with respect to the Reset PERQS, including any obligation to take the interests of the Company or of holders of Reset PERQS into consideration for any reason. Cisco will not receive any of the proceeds of the offering of the Reset PERQS made hereby and is not responsible for, and has not participated in, the determination of the timing of, prices for or quantities of, the Reset PERQS offered hereby. Holders of the Reset PERQS will not be entitled to any rights with respect to the Cisco 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 Cisco Stock in any partial tender or exchange offer by Cisco or any third party) until such time as the Company shall deliver shares of Cisco Stock to holders of the Reset PERQS at maturity. Because the Calculation Agent is an affiliate of the Company, potential conflicts of interest may exist between the Calculation Agent and the holders of the Reset PERQS, including with respect to certain adjustments to the Exchange Factor and other antidilution adjustments that may influence the determination of the amount of Cisco Stock or other property receivable at the maturity of the Reset PERQS. See "Antidilution Adjustments" and "Market Disruption Event." It is suggested that prospective investors who consider purchasing the Reset PERQS should reach an investment decision only after carefully considering the suitability of the Reset PERQS in light of their particular circumstances. Investors should also consider the tax consequences of investing in the Reset PERQS. No statutory, judicial or administrative authority definitively addresses the characterization for U.S. federal income tax purposes of the Reset PERQS or instruments similar to the Reset PERQS. As a result, significant aspects of the U.S. federal income tax treatment of an investment in the Reset PERQS are uncertain. No ruling has been or will be requested from the Internal Revenue Service ("IRS") with respect to the Reset PERQS and no assurance can be given that the IRS or a court will agree with the analysis set forth herein. See "United States Federal Taxation" below. Antidilution Adjustments:...... The Exchange Factor will be adjusted as follows: 1. If Cisco 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 Cisco Stock. 2. If Cisco Stock is subject to a stock dividend (issuance of additional shares of Cisco Stock) that is given ratably to all holders of shares of Cisco Stock, then once the dividend has become effective and Cisco 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 Cisco 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 Cisco 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 Cisco Stock will be deemed to be an "Extraordinary Dividend" if such dividend or other distribution exceeds the immediately preceding non-Extraordinary Dividend for Cisco Stock by an amount equal to at least 10% of the Market Price of Cisco 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 Cisco Stock, the Exchange Factor with respect to Cisco Stock will be adjusted on the ex-dividend date with respect to such Extraordinary Dividend so that the new Exchange Factor will equal the product of (i) the then current Exchange Factor and (ii) a fraction, the numerator of which is the Market Price on the Trading Day preceding the ex-dividend date, and the denominator of which is the amount by which the Market Price on the Trading Day preceding the ex-dividend date exceeds the Extraordinary Dividend Amount. The "Extraordinary Dividend Amount" with respect to an Extraordinary Dividend for Cisco 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 Cisco 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 Cisco 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 Cisco issues rights or warrants to all holders of Cisco Stock to subscribe for or purchase Cisco Stock at an exercise price per share less than the Market Price of the Cisco 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 Reset PERQS, then the Exchange Factor will be adjusted to equal the product of the prior Exchange Factor and a fraction, the numerator of which shall be the number of shares of Cisco Stock outstanding immediately prior to the issuance of such rights or warrants plus the number of additional shares of Cisco Stock offered for subscription or purchase pursuant to such rights or warrants and the denominator of which shall be the number of shares of Cisco Stock outstanding immediately prior to the issuance of such rights or warrants plus the number of additional shares of Cisco Stock which the aggregate offering price of the total number of shares of Cisco Stock so offered for subscription or purchase pursuant to such rights or warrants would purchase at the Market Price on the expiration date of such rights or warrants, which shall be determined by multiplying such total number of shares offered by the exercise price of such rights or warrants and dividing the product so obtained by such Market Price. 5. If (i) there occurs any reclassification of Cisco Stock, (ii) Cisco or any surviving entity or subsequent surviving entity of Cisco (a "Cisco Successor") has been subject to a merger, combination or consolidation and is not the surviving entity, (iii) any statutory exchange of securities of Cisco or any Cisco Successor with another corporation occurs (other than pursuant to clause (ii) above), (iv) Cisco is liquidated, (v) Cisco issues to all of its shareholders equity securities of an issuer other than Cisco (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 Cisco Stock (any such event in clauses (i) through (vi) a "Reorganization Event"), the method of determining the amount payable upon exchange at maturity for each Reset PERQS will be adjusted to provide that each holder of Reset PERQS will receive at maturity, in respect of each $66.50 principal amount of each Reset PERQS, securities, cash or any other assets distributed in any such Reorganization Event, including, in the case of a Spin-off Event, the share of Cisco Stock with respect to which the spun-off security was issued (collectively, the "Exchange Property") in an amount with a value equal to (a) if the Exchange Ratio has not been adjusted prior to maturity, the Transaction Value or (b) if the Exchange Ratio has been adjusted, an amount equal to the product of the final Exchange Ratio and the Transaction Value. In addition, following a Reorganization Event, the method of determining the Maturity Price will be adjusted so that the Maturity Price will mean the Transaction Value as of the second scheduled Trading Day immediately prior to maturity, and if the Reorganization Event occurs prior to the First Year Determination Date, the First Year Closing Price will mean the Transaction Value determined as of the First Year Determination Date. Notwithstanding the above, if the Exchange Property received in any such Reorganization Event consists only of cash, the maturity date of the Reset PERQS will be deemed to be accelerated to the date on which such cash is distributed to holders of Cisco Stock and holders will receive in lieu of any Cisco Stock and as liquidated damages in full satisfaction of the Company's obligations under the Reset PERQS the product of (i) the Transaction Value as of such date and (ii) the then current Exchange Ratio adjusted as if such date were the next to occur of either the First Year Determination Date or the second scheduled Trading Day prior to maturity. If Exchange Property consists of more than one type of property, holders of Reset PERQS will receive at maturity a pro rata share of each such type of Exchange Property. "Transaction Value" at any date means (i) for any cash received in any such Reorganization Event, the amount of cash received per share of Cisco Stock, as adjusted by the Exchange Factor, (ii) for any property other than cash or securities received in any such Reorganization Event, the market value, as of the date of receipt, of such Exchange Property received for each share of Cisco Stock, as adjusted by the Exchange Factor, as determined by the Calculation Agent and (iii) for any security received in any such Reorganization Event, an amount equal to the Market Price, as of the date on which the Transaction Value is determined, per share of such security multiplied by the quantity of such security received for each share of Cisco Stock, as adjusted by the Exchange Factor. For purposes of paragraph 5 above, in the case of a consummated tender or exchange offer for all Exchange Property of a particular type, Exchange Property shall be deemed to include the amount of cash or other property paid by the offeror in the tender or exchange offer with respect to such Exchange Property (in an amount determined on the basis of the rate of exchange in such tender or exchange offer). In the event of a tender or exchange offer with respect to Exchange Property in which an offeree may elect to receive cash or other property, Exchange Property shall be deemed to include the kind and amount of cash and other property received by offerees who elect to receive cash. No adjustments to the Exchange Factor will be required unless such adjustment would require a change of at least 0.1% in the Exchange Factor then in effect. The Exchange Factor resulting from any of the adjustments specified above will be rounded to the nearest one thousandth with five ten-thousandths being rounded upward. No adjustments to the Exchange Factor or method of calculating the Exchange Ratio will be made other than those specified above. The adjustments specified above do not cover all events that could affect the Market Price of the Cisco Stock, including, without limitation, a partial tender or exchange offer for the Cisco Stock. NOTWITHSTANDING THE FOREGOING, THE AMOUNT PAYABLE AT MATURITY WITH RESPECT TO EACH RESET PERQS, DETERMINED AS OF THE SECOND SCHEDULED TRADING DAY PRIOR TO MATURITY, WILL NOT UNDER ANY CIRCUMSTANCES EXCEED $116.31 PER RESET PERQS. The Calculation Agent shall be solely responsible for the determination and calculation of any adjustments to the Exchange Factor or method of calculating the Exchange Ratio and of any related determinations and calculations with respect to any distributions of stock, other securities or other property or assets (including cash) in connection with any corporate event described in paragraph 5 above, and its determinations and calculations with respect thereto shall be conclusive. The Calculation Agent will provide information as to any adjustments to the Exchange Factor or method of calculating the Exchange Ratio upon written request by any holder of the Reset PERQS. Market Disruption Event:....... "Market Disruption Event" means, with respect to Cisco Stock: (i) a suspension, absence or material limitation of trading of Cisco Stock on the primary market for Cisco 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 Cisco Stock, if available, during the one-half hour period preceding the close of trading in the applicable market, in each case as determined by the Calculation Agent in its sole discretion; and (ii) a determination by the Calculation Agent in its sole discretion that the event described in clause (i) above materially interfered with the ability of the Company or any of its affiliates to unwind all or a material portion of the hedge with respect to the Reset PERQS. For purposes of determining whether a Market Disruption Event has occurred: (1) a limitation on the hours or number of days of trading will not constitute a Market Disruption Event if it results from an announced change in the regular business hours of the relevant exchange, (2) a decision to permanently discontinue trading in the relevant option contract will not constitute a Market Disruption Event, (3) limitations pursuant to New York Stock Exchange Rule 80A (or any applicable rule or regulation enacted or promulgated by the New York Stock Exchange, any other self- regulatory organization or the Securities and Exchange Commission of similar scope as determined by the Calculation Agent) on trading during significant market fluctuations shall constitute a Market Disruption Event, (4) a suspension of trading in an options contract on Cisco 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 Cisco Stock and (5) a "suspension, absence or material limitation of trading" on the primary securities market on which options contracts related to Cisco Stock are traded will not include any time when such securities market is itself closed for trading under ordinary circumstances. Alternate Exchange Calculation in case of an Event of Default. In case an Event of Default with respect to the Reset PERQS shall have occurred and be continuing, holders will be entitled to receive, upon any acceleration of the Reset PERQS, an amount determined by MS & Co., as Calculation Agent, equal to the Issue Price of each Reset PERQS, plus any accrued interest to, but not including, the date of acceleration. Cisco Stock; Public Information Cisco develops, manufactures, markets and supports multiprotocol internetworking systems that link geographically dispersed local-area and wide-area networks to form a single information infrastructure. Cisco 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 is available at the offices of the Commission specified under "Available Information" in the accompanying Prospectus. In addition, information regarding Cisco may be obtained from other sources including, but not limited to, press releases, newspaper articles and other publicly disseminated documents. The Company makes no representation or warranty as to the accuracy or completeness of such reports. THIS PRICING SUPPLEMENT RELATES ONLY TO THE RESET PERQS OFFERED HEREBY AND DOES NOT RELATE TO CISCO STOCK OR OTHER SECURITIES OF CISCO. ALL DISCLOSURES CONTAINED IN THIS PRICING SUPPLEMENT REGARDING CISCO 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 CISCO IN CONNECTION WITH THE OFFERING OF THE RESET PERQS. NEITHER THE COMPANY NOR THE AGENT MAKES ANY REPRESENTATION THAT SUCH PUBLICLY AVAILABLE DOCUMENTS OR ANY OTHER PUBLICLY AVAILABLE INFORMATION REGARDING CISCO 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 CISCO (AND THEREFORE THE INITIAL PRICE, THE FIRST YEAR CAP PRICE AND THE MAXIMUM APPRECIATION AMOUNT) HAVE BEEN PUBLICLY DISCLOSED. SUBSEQUENT DISCLOSURE OF ANY SUCH EVENTS OR THE DISCLOSURE OF OR FAILURE TO DISCLOSE MATERIAL FUTURE EVENTS CONCERNING CISCO COULD AFFECT THE VALUE RECEIVED AT MATURITY WITH RESPECT TO THE RESET PERQS AND THEREFORE THE TRADING PRICES OF THE RESET PERQS. NEITHER THE COMPANY NOR ANY OF ITS AFFILIATES MAKES ANY REPRESENTATION TO ANY PURCHASER OF RESET PERQS AS TO THE PERFORMANCE OF CISCO STOCK. The Company or its affiliates may presently or from time to time engage in business with Cisco including extending loans to, or making equity investments in, Cisco or providing advisory services to Cisco, 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 Cisco and, in addition, one or more affiliates of the Company may publish research reports with respect to Cisco. The Company does not make any representation to any purchaser of Reset PERQS with respect to any matters whatsoever relating to Cisco. Any prospective purchaser of a Reset PERQS should undertake an independent investigation of Cisco as in its judgment is appropriate to make an informed decision with respect to an investment in Cisco Stock. Historical Information......... The following table sets forth the high and low Market Price during 1993, 1994, 1995 and 1996 through November 20, 1996. The Market Price on November 20, 1996 was $66.50. All Market Prices are rounded to the nearest one-tenth of a cent. The Market Prices listed below were obtained from Bloomberg Financial Markets and that the Company believes such information to be accurate. The historical prices of Cisco Stock should not be taken as an indication of future performance, and no assurance can be given that the price of Cisco Stock will not decrease so that the beneficial owners of the Reset PERQS will receive at maturity shares of Cisco Stock worth less than the principal amount of the Reset PERQS. Nor can assurance be given that the price of Cisco Stock will increase above the Initial Price so that at maturity the beneficial owners of the Reset PERQS will receive an amount in excess of the principal amount of the Reset PERQS. Cisco (CUSIP #17275R102) High Low - ------------------ ---- --- 1993: First Quarter.......... $ 11 31/32 $ 9 3/4 Second Quarter......... 14 1/16 10 3/32 Third Quarter.......... 14 11/16 10 15/32 Fourth Quarter......... 16 7/16 11 1/4 1994: First Quarter.......... 20 3/16 16 Second Quarter......... 17 13/16 10 1/2 Third Quarter.......... 13 11/16 9 13/16 Fourth Quarter......... 17 15/16 13 1/8 1995: First Quarter.......... 19 9/16 16 9/32 Second Quarter......... 25 15/16 19 5/16 Third Quarter.......... 36 1/16 25 3/16 Fourth Quarter......... 43 15/16 32 7/32 1996: First Quarter.......... 50 32 11/16 Second Quarter......... 57 1/4 44 5/16 Third Quarter.......... 63 3/8 47 1/8 Fourth Quarter (through November 20, 1996)........... 67 57 5/8 Historical prices have been adjusted for three 2 for 1 stock splits of the Cisco Stock, which became effective in each of the first quarter of 1993, the first quarter of 1994 and the first quarter of 1996. Cisco has not paid cash dividends on the Cisco Stock to date. The Company makes no representation as to the amount of dividends, if any, that Cisco will pay in the future. In any event, holders of the Reset PERQS will not be entitled to receive dividends, if any, that may be payable on Cisco Stock. Use of Proceeds and Hedging:... The net proceeds to be received by the Company from the sale of the Reset PERQS will be used for general corporate purposes and, in part, by the Company or one or more of its affiliates in connection with hedging the Company's obligations under the Reset PERQS. See also "Use of Proceeds" in the accompanying Prospectus. On the date of this Pricing Supplement, the Company, through its subsidiaries, hedged its anticipated exposure in connection with the Reset PERQS by taking positions in Cisco Stock. Such hedging was carried out in a manner designed to minimize any impact on the price of Cisco Stock. Purchase activity could potentially have increased the price of Cisco Stock, and therefore effectively have increased the level of the Market Price of Cisco Stock at which a holder of a Reset PERQS would receive at maturity an amount of Cisco Stock worth as much as or more than the principal amount of the Reset PERQS. Although the Company has no reason to believe that its hedging activity had a material impact on the price of Cisco Stock, there can be no assurance that the Company did not, or in the future will not, affect such price as a result of its hedging activities. The Company, through its subsidiaries, is likely to modify its hedge position throughout the life of the Reset PERQS by purchasing and selling Cisco Stock, options contracts on Cisco Stock listed on major securities markets or positions in any other instruments that it may wish to use in connection with such hedging. Plan of Distribution:.......... Morgan Stanley & Co. Incorporated, as Agent, initially proposes to offer part of the Reset PERQS directly to the public at the public offering price set forth on the cover page hereof and part to Utendahl Capital Partners, as dealer, at a price that represents a concession not in excess of $0.375 per Reset PERQS. United States Federal Taxation: The following discussion is based upon the opinion of the Company's counsel, Shearman & Sterling, as to certain of the material U.S. federal income tax considerations with respect to the acquisition, ownership and disposition of Reset PERQS by an initial purchaser thereof. This summary is based on the provisions of the Internal Revenue Code of 1986, as amended (the "Code"), existing and proposed Treasury regulations promulgated thereunder, and administrative and judicial interpretations thereof, all as currently in effect and all of which are subject to change (possibly with retroactive effect) and to differing interpretations. This summary deals only with "U.S. Holders" (as defined below) who or that purchase the Reset PERQS at the Issue Price and hold the Reset PERQS as capital assets. Furthermore, this summary does not discuss all aspects of U.S. federal income taxation that may be applicable to particular investors in light of their individual circumstances, or to investors subject to special treatment under U.S. federal income tax law (including, for example, life insurance companies, dealers in securities, financial institutions, tax- exempt organizations, persons having a functional currency other than the U.S. dollar, persons holding Reset PERQS as a position in a "straddle" or conversion transaction, or as part of a "synthetic security," a hedging transaction or other integrated financial transaction). This summary also does not address the state, local or foreign tax consequences of an investment in Reset PERQS. As the tax law in this area is technical and complex, the discussion below necessarily represents only a general summary. As used herein, the term "U.S. Holder" means an initial purchaser of a Reset PERQS who or that is, for U.S. federal income tax purposes, (i) a citizen or resident of the United States, (ii) a corporation, partnership or other entity created in or organized under the laws of the United States or of 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. Under current U.S. federal income tax law, it is unclear whether the Reset PERQS will be treated, in whole or in part, as forward contracts to purchase Cisco Stock, as indebtedness of the Company, as one or more options or other derivative instruments, or as a combination thereof. No statutory, judicial or administrative authority definitively addresses the characterization for U.S. federal income tax purposes of the Reset PERQS or instruments similar to the Reset PERQS. As a result, significant aspects of the U.S. federal income tax treatment of an investment in the Reset PERQS are uncertain. No ruling has been or will be requested from the IRS with respect to the Reset PERQS and no assurance can be given that the IRS or a court will agree with the analysis set forth herein. ACCORDINGLY, PROSPECTIVE INVESTORS IN THE RESET PERQS SHOULD CONSULT THEIR OWN TAX ADVISORS IN DETERMINING THE TAX CONSEQUENCES OF INVESTMENTS IN THE RESET PERQS IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES, INCLUDING THE APPLICATION OF STATE, LOCAL OR OTHER TAX LAWS. Pursuant to the terms of the Reset PERQS, the Company and all holders of the Reset PERQS will be obligated (in the absence of an administrative ruling or judicial determination to the contrary) to treat the Reset PERQS as a forward contract for the purchase of Cisco Stock at maturity (including as a result of acceleration) coupled with a cash deposit pledged by the holders to the Company. Under this characterization, for U.S. federal income tax purposes (i) the Company and each holder of the Reset PERQS should treat amounts paid to the Company in respect of the original issuance of the Reset PERQS as allocable in their entirety to a cash deposit attributable to such forward contract; (ii) amounts denominated as interest on the Reset PERQS should be treated as interest payable on the amount of such cash deposit, includible annually in the income of a U.S. Holder as interest income in accordance with such holder's method of accounting; and (iii) a U.S. Holder's tax basis in any Reset PERQS should equal the cost of the Reset PERQS. In addition, under the characterization of the Reset PERQS described above, a U.S. Holder would recognize no gain or loss upon the delivery of the Cisco Stock at maturity, other than short-term capital gain or loss with respect to any cash received in lieu of fractional shares in an amount equal to the difference between the cash received and the portion of the tax basis of the Reset PERQS allocable to such fractional shares. A U.S. Holder would have a tax basis in the Cisco Stock received equal to such holder's tax basis in the Reset PERQS less the portion thereof allocable to the fractional shares. Alternatively, if, at maturity, the Company is unable to deliver the Cisco Stock, a U.S. Holder would recognize gain or loss, as the case may be, to the extent that the portion of the Exchange Property consisting of cash, if any, differs in amount from such holder's tax basis in the Reset PERQS allocable to such cash. If a U.S. Holder sells or otherwise disposes of a Reset PERQS prior to maturity, such holder generally would, under the characterization of the Reset PERQS described above, recognize gain or loss equal to the difference between the amount realized on the sale or other disposition and the U.S. Holder's tax basis in the Reset PERQS. Such gain or loss generally will be long-term capital gain or loss if the U.S. Holder has held the Reset PERQS for more than one year at the time of disposition. Although counsel does not believe that it is more likely, it is possible that the Reset PERQS would be treated as debt instruments, the principal amount of which is wholly dependent upon the future value of Cisco Stock. In such case, the Reset PERQS would be subject to the "original issue discount" provisions of the Code and the Treasury regulations issued thereunder, and the Company would be required to determine a comparable yield for the Reset PERQS. Such comparable yield would take into account the yield at which the Company would issue a fixed rate debt instrument with terms similar to those of the Reset PERQS (excluding any adjustments for liquidity or for the riskiness of the contingencies). Based on that comparable yield and the Issue Price of the Reset PERQS, a U.S. Holder (regardless of accounting method) would be required to accrue as original issue discount the product of the comparable yield (adjusted to reflect the length of the accrual periods) and the "adjusted issue price" of the Reset PERQS, for each accrual period. The adjusted issue price of the Reset PERQS at the beginning of the first accrual period would equal the Issue Price and for any accrual period thereafter would be (x) the sum of the Issue Price of such Reset PERQS and the accrued original issue discount for all prior accrual periods minus (y) the amount of any prior payments on the Reset PERQS. On a sale, exchange or retirement of the Reset PERQS, a U.S. Holder generally would treat any gain as interest income and any loss as ordinary loss to the extent of previous interest inclusions and the balance as capital loss. It is also possible that the Reset PERQS could be characterized in a manner that results in tax consequences different from those described above, including treating the Reset PERQS as evidencing constructive ownership of Cisco Stock or as a unit consisting of (i) a debt obligation with a fixed principal amount unconditionally payable at maturity equal to the principal amount of the Reset PERQS, bearing interest at the stated interest rate of the Reset PERQS (the "Exchange Note"), and (ii) a forward purchase contract pursuant to which the holder agrees to use the principal payment due on the Exchange Note to purchase at maturity the Cisco Stock which the holder is entitled to receive at that time. Under alternative characterizations of the Reset PERQS, it is possible, for example, that (i) a U.S. Holder could be taxable upon the receipt of Cisco Stock with a value in excess of the principal amount of the Exchange Note, rather than upon the sale or such stock, (ii) gain could be treated as ordinary income, instead of capital gain, or (iii) a portion of the Issue Price of the Reset PERQS could be allocated to the forward purchase contract and a U.S. Holder could be required to accrue original issue discount on the Exchange Note equal to that amount. DUE TO THE ABSENCE OF AUTHORITY AS TO THE PROPER CHARACTERIZATION OF THE RESET PERQS, NO ASSURANCE CAN BE GIVEN THAT THE IRS WILL ACCEPT OR THAT A COURT WOULD UPHOLD ANY OF THE CHARACTERIZATIONS DESCRIBED ABOVE. Backup Withholding and Information Reporting A holder of the Reset PERQS may be subject to information reporting and to backup withholding at a rate of 31 percent of certain 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. Any 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. HYPOTHETICAL PAYMENTS ON THE RESET PERQS Based on an Initial Price of $66.50 per share of Cisco Stock and a first year cap of 132.25564% and a second year cap of 132.25%, the following table illustrates, for a range of First Year Closing Prices and Maturity Prices, the consequent adjustments to the Exchange Ratio, Second Year Cap Prices, the Payments at Maturity Based on Cisco Stock for each $66.50 principal amount of Reset PERQS and the total return including interest payments, based on an interest rate of 6% per annum, for each $66.50 principal amount of Reset PERQS. For purposes of this table, all Adjusted Exchange Ratios are rounded to the nearest one-hundredth of a percentage point with five one-hundredths of a percentage point being rounded upwards.
Reset Reset PERQS PERQS 12/1/97 12/1/98 Payment Payment Initial Adjusted Second Adjusted at Maturity at Maturity Initial Exchange First Year First Year Exchange Year Maturity Exchange Based on plus 6.00% Coupon Price Ratio Cap Price Closing Price Ratio Cap Price Price Ratio Cisco Stock ("Total Payment") - --------- -------- ---------- ------------- -------- ---------- --------- -------- ----------- --------------- $66.50 1.00 $87.95 $100.00 0.8795 $132.2500 $140.00 0.8308 $116.31 $124.29 $66.50 1.00 $87.95 $ 90.00 0.9772 $119.0250 $115.00 0.9772 $112.38 $120.36 $66.50 1.00 $87.95 $ 90.00 0.9772 $119.0250 $ 70.00 0.9772 $ 68.40 $ 76.38 $66.50 1.00 $87.95 $ 75.00 1.0000 $ 99.1875 $100.00 0.9919 $ 99.19 $107.17 $66.50 1.00 $87.95 $ 80.00 1.0000 $105.8000 $ 70.00 1.0000 $ 70.00 $ 77.98 $66.50 1.00 $87.95 $ 50.00 1.0000 $ 87.9500 $100.00 0.8795 $ 87.95 $ 95.93 $66.50 1.00 $87.95 $100.00 0.8795 $132.2500 $ 50.00 0.8795 $ 43.98 $ 51.96 $66.50 1.00 $87.95 $ 50.00 1.0000 $ 87.9500 $ 35.00 1.0000 $ 35.00 $ 42.98 132.25564% Greater of Maturity Price of Initial (x) times Adjusted Price 132.25% Exchange Rate of First Year Closing Price and (y) First Year Cap Price
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