Prospectus
3,100,000 DECS SM
DECS TRUST
(Subject to Exchange into Shares of Common Stock, without
Par Value , of DIMON Incorporated)
The issue price (the "Initial Price") of each of the DECS
(each, a "DECS") of the DECS Trust (the "Trust") being offered
hereby will be $23,625 (the last sale price of the common stock,
without par value (the "Common Stock"), of DIMON Incorporated, a
Virginia corporation (the "Company") on September 25, 1997, as
reported on the New York Stock Exchange Composite Tape). Each of
the DECS represents the right to receive (a) an annual
distribution of $2,008, payable quarterly on each February 15,
May 15, August 15 and November 15, during the term of the Trust,
beginning November 15, 1997 and (b) upon the conclusion of the
term of the Trust on August 15, 2000 (the "Exchange Date"),
between 0.8333 and 1.0 shares of Common Stock or cash with an
equivalent value. The DECS are not subject to redemption prior to
the Exchange Date or the earlier termination of the Trust.
The Trust is a newly organized Delaware business trust esta-
blished to purchase and hold (a) a series of zero-coupon U.S.
Treasury securities maturing on a quarterly basis during the term
of the Trust (the "Treasury Securities") and (b) forward purchase
contracts (the "Contracts") with certain stockholders (the
"Sellers") of the Company relating to the Common Stock.
The investment objectives of the Trust are to provide holders
of DECS with a quarterly distribution of $0.502 per DECS over
the term of the Trust and to provide holders of DECS, at the
Exchange Date, a number of shares of Common Stock (or, if some or
all of the Sellers exercise their cash settlement option in the
Contracts under the circumstances described herein, the cash
equivalent of all or part thereof or a combination of Common
Stock and cash) at the Exchange Rate (as defined herein). The
Exchange Rate is equal to, subject to certain adjustments, (a) if
the Exchange Price (as defined herein) is greater than $28.35 per
share of Common Stock (the "Threshold Appreciation Price"),
0.8333 shares of Common Stock per DECS, (b) if the Exchange Price
is less than or equal to the Threshold Appreciation Price but is
greater than the Initial Price, a fraction equal to the Initial
Price divided by the Exchange Price of one share of Common Stock
per DECS such that the value (determined at the Exchange Price)
of the Common Stock delivered at the Exchange Date equals the
Initial Price and (c) if the Exchange Price is less than or equal
to the Initial Price, one share of Common Stock per DECS. The
"Exchange Price" means the average Closing Price (as defined
herein) per share of Common Stock on the 20 Trading Days (as
defined herein) immediately prior to the Exchange Date, except as
otherwise described herein. Accordingly, the value of the Common
Stock to be received by holders of the DECS at the Exchange Date
will not necessarily equal the Initial Price. If the Exchange
Price is less than the Initial Price, the value of the Common
Stock to be received at the Exchange Date will generally be less
than the price paid for the DECS.
SEE "INVESTMENT OBJECTIVES AND POLICIES." SEE "RISK FACTORS
RELATING TO DECS" BEGINNING ON PAGE 19 FOR A DISCUSSION OF
CERTAIN FACTORS THAT SHOULD BE CAREFULLY CONSIDERED BY
PROSPECTIVE PURCHASERS.
(Cover continued on next page)
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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Price to Proceeds to
Public Sales Load the Trust(2)
Per DECS $ 23,625 $ -- (3) $ 23,625
Total (1) $73,237,500 $ -- (3) $73,237,500
- -----------------------------------------------------------------
(1) The Trust has granted to the Underwriter an option,
exercisable within 30 days from the date hereof, to purchase
up to an additional 379,871 DECS to cover over-allotments, if
any. If the Underwriter exercises such option in full, the
total Price to Public, Sales Load and Proceeds to the Trust
will be $82,211,952, $-- and $82,211,952, respectively. See
"Underwriting."
(2) Before deducting estimated expenses of $371,000, payable by
Salomon Brothers Inc, which will be reimbursed by the
Sellers.
(3) In light of the fact that the proceeds of the sale of the
DECS will be used in part by the Trust to purchase the
Contracts from the Sellers, the Underwriting Agreement
provides that the Sellers will pay to the Underwriter as
compensation $0.70 per DECS. See "Underwriting."
The DECS are offered subject to receipt and acceptance by the
Underwriter, to prior sales and to the Underwriter's right to
reject any order in whole or in part and to withdraw, cancel or
modify the offer without notice. It is expected that delivery of
the DECS will be made at the office of Salomon Brothers Inc,
Seven World Trade Center, New York, New York, or through the
facilities of The Depository Trust Company, on or about October 1,
1997.
- --------------------
Salomon Brothers Inc
- -----------------------------------------------------------------
The date of this Prospectus is September 25, 1997.
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE
PRICE OF THE DECS OR THE COMMON STOCK, INCLUDING PURCHASES OF THE
DECS OR THE COMMON STOCK TO STABILIZE THEIR MARKET PRICE AND
PURCHASES OF THE DECS OR THE COMMON STOCK TO COVER SOME OR ALL OF
A SHORT POSITION IN THE DECS OR THE COMMON STOCK MAINTAINED BY
THE UNDERWRITERS AND THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES SEE "UNDERWRITING."
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(Continued from previous page)
In the event of certain Adjustment Events (as defined herein),
holders may receive property other than (or in addition to)
Common Stock or a combination of such property and cash. See
"Investment Objectives and Policies--The Contracts--Dilution
Adjustments; Adjustment Events." In addition, holders otherwise
entitled to receive fractional shares in respect of their
aggregate holdings of DECS will receive cash in lieu thereof.
The Trust has adopted a policy that the Contracts may not be
disposed of during the term of the Trust. The Trust will continue
to hold the Contracts despite any significant decline in the
market price of the Common Stock or adverse changes in the
financial condition of the Company.
This Prospectus sets forth information about the Trust that
a prospective investor ought to know before investing. Potential
investors are advised to read this Prospectus and to retain it
for future reference.
DECS may be a suitable investment for those investors who
are capable of evaluating the risks involved in making an
investment in the Common Stock of the Company and the advantages
and disadvantages of doing so in a manner which will give
investors in the DECS a potentially higher yield but a lesser
opportunity for equity appreciation than would be afforded by a
direct investment in the Common Stock. There is no assurance that
the yield on the DECS will be higher than the dividend yield on
the Common Stock over the term of the Trust. See "Investment
Objectives and Policies."
Attached hereto for convenience of reference is a prospectus
of the Company relating to the shares of Common Stock that may be
received by holders of DECS at the Exchange Date. The Company is
not affiliated with the Trust, will not receive any of the
proceeds from the sale of the DECS and will have no obligations
with respect to the DECS or the Contracts. The Common Stock is
listed on the New York Stock Exchange ("NYSE") under the symbol
"DMN."
The Trust will be a grantor trust owned solely by the
present and furute holders of DECS for U.S. federal income tax
purposes and each holder will be treated as the owner of its pro
rata portion of the Treasury Securities and the Contracts. The
Treasury Securities will be treated as having "original issue
discount" which holders must recognize currently as income as it
accrues. Holders will not recognize income, gain or loss upon the
Trust's entry into the Contracts nor will the delivery of Common
Stock pursuant to the Contracts be taxable to holders. Holders
should not recognize income, gain or loss with respect to the
Contracts over their term. See "Certain United States Federal
Income Tax Considerations."
THE TRUST IS A NEWLY ORGANIZED CLOSED-END INVESTMENT COMPANY
WITH NO PREVIOUS HISTORY OF PUBLIC TRADING. APPLICATION HAS BEEN
MADE TO LIST THE DECS ON THE NYSE UNDER THE SYMBOL "DET." TYPICAL
CLOSED-END FUND SHARES FREQUENTLY TRADE AT A DISCOUNT FROM NET
ASSET VALUE. THIS CHARACTERISTIC OF INVESTMENTS IN A CLOSED-END
INVESTMENT COMPANY IS A RISK SEPARATE AND DISTINCT FROM THE RISK
THAT THE TRUST'S NET ASSET VALUE WILL DECREASE. THE TRUST CANNOT
PREDICT WHETHER THE DECS WILL TRADE AT, BELOW OR ABOVE NET ASSET
VALUE. THE RISK OF PURCHASING INVESTMENTS IN A CLOSED-END COMPANY
THAT MIGHT TRADE AT A DISCOUNT IS MORE PRONOUNCED FOR INVESTORS
WHO WISH TO SELL THEIR INVESTMENTS SOON AFTER COMPLETION OF AN
INITIAL PUBLIC OFFERING.
The address of the Trust is c/o Puglisi & Associates, 850 Library
Avenue, Suite 204, Newark, Delaware 19715, and the Trust's telephone
number is (302) 738-6680. Investors are advised to read this Prospectus
and to retain it for future reference.
"DECS" is a service mark of Salomon Brothers Inc.
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PROSPECTUS SUMMARY
The following is qualified in its entirety by reference to
the more detailed information included elsewhere in this
Prospectus.
The Trust
DECS Trust (the "Trust") is a newly organized Delaware
business trust that is registered as a non-diversified closed-end
management investment company under the Investment Company Act of
1940, as amended (the "Investment Company Act"). The term of the
Trust will expire on or shortly after August 15, 2000 (the "Exchange
Date"), except that the Trust may be dissolved prior to such date
under certain limited circumstances. The Trust will be treated as
a grantor trust owned solely by the present and future holders of
DECS for U.S. federal income tax purposes.
The Offering
DECS representing shares of beneficial interest in the
Trust are being offered for sale by Salomon Brothers Inc (the
"Underwriter") to the public at a purchase price of $23.625 per
DECS (the "Initial Price") (which is equal to the last sale price
of the common stock, without par value (the "Common Stock"), of
DIMON Incorporated, a Virginia corporation (the "Company") on
September 25, 1997, as reported on the New York Stock Exchange
Composite Tape). In addition, the Underwriter has been granted an
option to purchase up to an additional 384,104 DECS (subject to
decrease as a result of the issuance and sale of DECS in
connection with the formation of the Trust) to cover
over-allotments, if any. See "Underwriting."
Purpose of the Trust
The DECS are designed to provide investors (the "Holders")
with a higher yield than the current dividend yield paid on the
Common Stock, while also providing the opportunity for Holders to
share in the appreciation, if any, of the Common Stock above the
Threshold Appreciation Price (as defined below). The annual
calendar year distribution on the DECS is $2.008 per DECS. The
annual fiscal year dividend currently paid per share of Common
Stock is $0.60.
The yield on the DECS is higher than the current dividend
yield on the Common Stock. However, there is no assurance that
the yield on the DECS will be higher than the dividend yield on
the Common Stock over the term of the Trust. In addition, the
opportunity for equity appreciation afforded by an investment in
the DECS is less than the opportunity for equity appreciation
afforded by a direct investment in the Common Stock because the
value of the Common Stock to be received by Holders of the DECS
at the Exchange Date (the "Amount Receivable at the Exchange
Date") will generally exceed the Initial Price only if the
Exchange Price (as defined herein) exceeds $28.35 per share of
Common Stock (the "Threshold Appreciation Price", which
represents an appreciation of 20% over the Initial Price) and
because Holders will be entitled to receive at the Exchange Date
only 83.33% of any appreciation of the value of the Common Stock
in excess of the Threshold Appreciation Price. Moreover, if the
Exchange Price is less than the Initial Price, the value of the
Common Stock to be received at the Exchange Date will generally
be less than the price paid for the DECS.
Distributions Prior to Exchange Date
The Holders are entitled to receive distributions at the
rate per DECS of $2.008 per annum or $0.502 per quarter, payable
quarterly on each February 15, May 15, August 15 and November 15
or, if any such date is not a Business Day (as defined herein),
on the next succeeding Business Day (each a "Distribution Date"),
to Holders of record as of each February 1, May 1, August 1 and
November 1, respectively. The first distribution will be payable
on November 15, 1997 to Holders of record as of October 31, 1997.
See "Investment Objectives and Policies--Trust Assets."
Distributions on Exchange Date
At the Exchange Date, in respect of each outstanding DECS, Hold-
ers will have the right to receive between 0.8333 and 1.0 shares of Com-
mon Stock, subject to adjustment in the event of certain dividends or
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distributions, subdivisions, splits, combinations, issuances
of certain rights or warrants or distributions of certain assets
with respect to the Common Stock. In the event of a merger of the
Company into another entity, or the liquidation of the Company,
or in certain related events, Holders would receive consideration
in the form of cash, Reported Securities (as defined under
"Investment Objectives and Policies--The Contracts--Dilution
Adjustments; Adjustment Events") or a combination thereof, rather
than (or in addition to) shares of Common Stock. If some or all
of the Sellers exercise their cash settlement option, Holders
would receive cash in lieu of all or part of the Common Stock or
Reported Securities that would otherwise be deliverable. See
"Investment Objectives and Policies--The Contracts--General."
Additionally, the occurrence of certain defaults by a Seller
under its Contract or the related collateral arrangements would
cause the acceleration of such Contract and the distribution to
the Trust for distribution pro rata to Holders of all or a
portion of the Common Stock, Reported Securities, cash or a
combination thereof subject to such Contract and of a portion of
the Treasury Securities (as defined below) then held by the
Trust. See "Investment Objectives and Policies--The
Contracts--Collateral Requirements of the Contracts;
Acceleration" and "--The Treasury Securities."
Voting Rights
Holders will not have voting rights with respect to the
Common Stock unless and until the Sellers have delivered shares
of Common Stock to the Trust pursuant to the Contracts and the
Trust has distributed such shares to the Holders. See "Investment
Objectives and Policies--The Company." The Holders have the right
to vote on matters affecting the Trust, as described under
"Description of DECS."
Assets of the Trust; Investment Objectives and Policies
The Trust will purchase and hold (i) a series of zero-coupon
U.S. Treasury securities (the "Treasury Securities") maturing on
a quarterly basis during the term of the Trust and representing
in the aggregate approximately 22% of the initial assets of the
Trust and (ii) one or more forward purchase contracts (the
"Contracts") with certain existing stockholders (the "Sellers")
of the Company relating to the Common Stock and representing
approximately 78% of the initial assets of the Trust. The Trust's
investment objective is to provide each Holder with a quarterly
distribution of $0.502 per DECS over the term of the Trust, equal
to the pro rata portion of the quarterly cash distributions from
the Treasury Securities. It is also the Trust's investment
objective to provide each Holder, at the Exchange Date, a number
of shares of Common Stock (or, if any Seller exercises its cash
settlement option in the Contracts under the circumstances
described herein, the cash equivalent of all or part thereof) at
the Exchange Rate. The Exchange Rate is equal to, subject to
certain adjustments, (a) if the Exchange Price (as defined
herein) is greater than the Threshold Appreciation Price, 0.8333
shares of Common Stock per DECS, (b) if the Exchange Price is
less than or equal to the Threshold Appreciation Price but is
greater than the Initial Price, a fraction equal to the Initial
Price divided by the Exchange Price of one share of Common Stock
per DECS such that the value (determined at the Exchange Price)
of the Common Stock delivered at the Exchange Date equals the
Initial Price and (c) if the Exchange Price is less than or equal
to the Initial Price, one share of Common Stock per DECS. Holders
otherwise entitled to receive fractional shares of Common Stock
or Reported Securities in respect of their aggregate holdings of
DECS will receive cash in lieu thereof. See "Investment
Objectives and Policies--The Contracts" and "--Delivery of Common
Stock and Reported Securities; No Fractional Shares of Common
Stock or Reported Securities."
The Trust will enter into Contracts with the Sellers
obligating the Sellers, severally and not jointly, at the
Exchange Date, to deliver to the Trust 3,100,000 shares of Common
Stock in the aggregate (excluding shares required to be delivered
in respect of DECS issued to cover the Underwriter's
over-allotment option and DECS issued in connection with the
formation of the Trust), except that (i) if the Exchange Price
per share of Common Stock is greater than the Threshold
Appreciation Price, each Seller will be obligated to deliver
under its Contract a number of shares of Common Stock equal to
the product of 0.8333 times the initial number of shares of
Common Stock subject to such Contract, (ii) if the Exchange Price
per share of Common Stock is less than or equal to the Threshold
Appreciation Price but greater than the Initial Price, each
Seller will be obligated to deliver under its Contract a number
of shares of Common Stock equal to the product of (A) the Initial
Price divided by the Exchange Price multiplied by (B) the initial
number of shares of Common Stock subject to such Contract and
(iii) if the Exchange Price per share of Common Stock is less
than or equal to the Initial Price, each Seller will be obligated
to deliver under its contract a number of shares of Common Stock
equal to the initial number of shares of Common Stock subject to such
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Contract. This provides the Trust with the opportunity to share
in the appreciation, if any, of the Common Stock above the
Threshold Appreciation Price. Each Seller has the right to
deliver cash in lieu of all (but not part) of its Common Stock
delivery obligation. The purchase price under the Contracts is
equal to $18.343 per share of Common Stock and $56,863,300 in the
aggregate and is payable to the Sellers by the Trust on the
closing of this offering.
The obligations of each Seller under its Contract will be
secured by a pledge of one share of Common Stock for each share
subject to the Contract or, at the election of such Seller, by
substitute collateral consisting of U.S. Government securities.
See "Investment Objectives and Policies--The
Contracts--Collateral Requirements of the Contracts;
Acceleration."
Certain United States Federal Income Tax Considerations
There are no regulations, published rulings or judicial
decisions addressing the characterization for federal income tax
purposes of securities with terms substantially the same as the
DECS. The Trust intends to treat a DECS for U.S. federal income
tax purposes as a beneficial interest in a grantor trust owned
solely by the present and future Holders of the DECS that
holds the Treasury Securities and Contracts, and to report
Holders' income to the Internal Revenue Service in accordance
with this treatment. Under this approach, the tax consequences of
holding a DECS will be as described below and as described in
"Certain United States Federal Income Tax Considerations."
Prospective investors in the DECS should be aware that the
Internal Revenue Service might take a different view as to the
proper characterization of the DECS and of the tax consequences
to a Holder.
The Treasury Securities held by the Trust will be treated
for U.S. federal income tax purposes as having "original issue
discount" that will accrue over the term of the Treasury
Securities. It is currently anticipated that a substantial
portion of each quarterly cash distribution to the Holders will
be treated as a tax-free return of the Holders' costs of the
Treasury Securities and therefore will not be considered current
income for U.S. federal income tax purposes. However, a Holder
(whether on the cash or accrual method of tax accounting) must
recognize currently as income original issue discount on the
Treasury Securities as it accrues.
A Holder will not recognize income, gain or loss upon the
Trust's entry into the Contracts and should not recognize income,
gain or loss with respect to the Contracts over their term.
Prospective investors in the DECS should be aware that it is
possible that the Internal Revenue Service will assert that a
Holder should include in income over the term of the Contracts
additional amounts which together with the original issue
discount on such Holder's pro rata portion of the Treasury
Securities may exceed the aggregate amount of the quarterly cash
distributions to such Holder. See "Certain United States Federal
Income Tax Considerations."
The delivery of Common Stock to the Trust pursuant to the
Contracts will not be taxable to the Holders. The distribution of
Common Stock upon the termination of the Trust will not be
taxable to the Holders. A Holder will have taxable gain or loss
upon receipt of cash in lieu of fractional shares of Common Stock
distributed upon termination of the Trust. Each Holder's
aggregate basis in its shares of Common Stock will be equal to
its basis in its pro rata portion of the Contracts less the
portion of such basis allocable to pay any fractional shares of
Common Stock for which cash is received. A Holder will have
taxable gain or loss upon receipt of cash, if any, upon
dissolution of the Trust or if a Seller elects to exercise the
Cash Delivery Option and satisfy its obligations under the
contrast with cash.
The Company
The Company is an international company primarily engaged in
purchasing, processing, storing and selling leaf tobacco. The
Company acquired Intabex Holdings Worldwide S.A. ("Intabex") in
April 1997, and is the successor to Dibrell Brothers,
Incorporated and Monk-Austin, Inc., which merged in April 1995.
The Company purchases tobacco in approximately 32 countries,
processes purchased tobacco in 30 facilities located throughout
the world and sells its tobacco to manufacturers of cigarettes
and other consumer
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tobacco products located in about 60 countries. Following
its acquisition of Intabex, the Company's market share in the
leaf tobacco industry has increased from approximately 30% to
approximately 37% on a pro forma basis. Of the independent leaf
tobacco merchants, the Company ranks second in established
worldwide market share.
Attached hereto is a prospectus of the Company which
describes the Company and the Common Stock that may be delivered
to the Trust by the Sellers, and by the Trust to the Holders, at
the Exchange Date or upon earlier acceleration of a Contract. The
Company is not affiliated with the Trust, will not receive any of
the proceeds from the sale of the DECS and will have no
obligations with respect to the DECS or the Contracts. THE
PROSPECTUS OF THE COMPANY IS BEING ATTACHED HERETO AND DELIVERED
TO PROSPECTIVE PURCHASERS OF DECS TOGETHER WITH THIS PROSPECTUS
FOR CONVENIENCE OF REFERENCE ONLY. THE PROSPECTUS OF THE COMPANY
DOES NOT CONSTITUTE A PART OF THIS PROSPECTUS, NOR IS IT
INCORPORATED BY REFERENCE HEREIN.
Management and Administration of the Trust
The Trust will be internally managed and will not have an
investment adviser. The administration of the Trust will be
overseen by three Trustees. The day-to-day administration of the
Trust will be carried out by The Bank of New York (or its
successor) as trust administrator (the "Administrator"). The Bank
of New York (or its successor) will also act as custodian for the
Trust's assets (the "Custodian") and as paying agent, registrar
and transfer agent (the "Paying Agent") with respect to the DECS.
Except as aforesaid, and except for its role as Collateral Agent
under the Collateral Agreements between each Seller, the Trust
and the Collateral Agent (see "Investment Objectives and
Policies--The Contracts--Collateral Requirements of the
Contracts; Acceleration"), The Bank of New York has no other
affiliation with, and is not engaged in any other transaction
with, the Trust.
Term of the Trust
The Trust will terminate automatically on or shortly after
the Exchange Date, except that the Trust may expire prior to such
date under certain limited circumstances. Promptly after the
Exchange Date the shares of Common Stock delivered under the
Contracts (or the equivalent amount of cash, to the extent any
Seller exercises its cash settlement option) and other remaining
Trust assets, if any, will be distributed pro rata to Holders.
See "Investment Objectives and Policies--Trust Termination."
Risk Factors
The Trust has adopted a policy that the Contracts may not
be disposed of during the term of the Trust and that the Treasury
Securities held by the Trust may not be disposed of prior to the
earlier of their respective maturities and the termination of the
Trust except upon the acceleration of one or more Contracts as
described herein. The Trust will continue to hold the Contracts
despite any significant decline in the market price of the Common
Stock or adverse changes in the financial condition of the Company.
The yield on the DECS is higher than the current dividend
yield on the Common Stock. However, there is no assurance that
the yield on the DECS will be higher than the dividend yield on
the Common Stock over the term of the Trust.
The Amount Receivable at the Exchange Date is not fixed,
but is based on the market price of the Common Stock as reflected
in the Exchange Rate. There can be no assurance that the Amount
Receivable at the Exchange Date will be equal to or greater than
the Initial Price of the DECS. If the Exchange Price is less than
the Initial Price, the Amount Receivable at the Exchange Date
will generally be less than the amount paid for the DECS, in
which case an investment in DECS will result in a loss and, if
the Company became insolvent or bankrupt, could result in a total
loss. Holders of the DECS, therefore, bear the full risk of a decline
in the value of the Common Stock prior to the Exchange Date.
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In addition, the opportunity for equity appreciation
afforded by an investment in the DECS is less than the
opportunity for equity appreciation afforded by a direct
investment in the Common Stock because the Amount Receivable at
the Exchange Date will generally exceed the Initial Price only if
the Exchange Price exceeds the Threshold Appreciation Price,
which represents an appreciation of 20% over the Initial Price.
Moreover, Holders will be entitled to receive at the Exchange
Date only 83.33% of any appreciation of the value of the Common
Stock in excess of the Threshold Appreciation Price. Because the
market price of the Common Stock is subject to market
fluctuations, the Amount Receivable at the Exchange Date may be
more or less than the Initial Price of the DECS. Additionally,
because the Exchange Price is generally determined based on a
20-Trading Day average, the value of a share of Common Stock
distributed on the Exchange Date may be more or less than the
Exchange Price used to determine the Amount Receivable at the
Exchange Date.
The Trust is classified as a "non-diversified" investment
company under the Investment Company Act. Consequently, the Trust
is not limited by the Investment Company Act in the proportion of
its assets that may be invested in the securities of a single
issuer. Since the only securities held by the Trust will be the
Treasury Securities and the Contracts, the Trust may be subject
to greater risk than would be the case for an investment company
with more diversified investments.
The trading prices of the DECS in the secondary market will
be directly affected by the trading prices of the Common Stock in
the secondary market. Trading prices of the Common Stock will be
influenced by the Company's operating results and prospects and
by economic, financial and other factors and market conditions.
Holders of the DECS will not be entitled to any rights with
respect to the Common Stock (including, without limitation,
voting rights and rights to receive any dividends or other
distributions in respect thereof) unless and until such time, if
any, as the Sellers deliver shares of Common Stock to the Trust
pursuant to the Contracts and the Trust has distributed such
shares to the Holders.
A bankruptcy of a Seller could adversely affect the timing
of settlement and, as a result, the amount received by the
Holders in respect of the DECS.
Listing
Application has been made to list the DECS on the New York
Stock Exchange ("NYSE") under the symbol "DET."
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FEES AND EXPENSES
In light of the fact that proceeds from the sale of the
DECS will be used by the Trust to purchase the Contracts from the
Sellers, the Underwriting Agreement provides that the Sellers
will pay to the Underwriter as compensation $0.70 per DECS. See
"Underwriting." Estimated organization costs of the Trust in the
amount of $10,000 and estimated costs of the Trust in connection with
the initial registration and public offering of the DECS in the
amount of approximately $75,000 will be paid by Salomon Brothers Inc
("Salomon") at the closing of this offering. In addition, each of the
Administrator, the Custodian and the Paying Agent, and each
Trustee will be paid by Salomon at the closing of this offering a
one-time, up-front amount in respect of its ongoing fees and, in
the case of the Administrator, anticipated expenses of the Trust
(estimated to be $286,000 in the aggregate) over the term of the Trust.
Salomon has agreed to pay any on-going expenses of the Trust in
excess of these estimated amounts and to reimburse the Trust for
any amounts it may be required to pay as indemnification to any
Trustee, the Administrator, the Custodian or the Paying Agent.
Salomon will be reimbursed by the Sellers for all expenses of the
Trust and reimbursements of indemnifications paid by it. See
"Management and Administration of the Trust--Estimated Expenses."
Regulations of the Securities and Exchange Commission (the
"Commission") applicable to closed-end investment companies
designed to assist investors in understanding the costs and
expenses that an investor will bear directly or indirectly
require the presentation of Trust expenses in the following
format. Because the Trust will not bear any ongoing fees or
expenses, investors will not bear any direct expenses. The only
expenses that an investor might be considered to be bearing
indirectly are (a) the Underwriter's compensation payable by the
Sellers with respect to such investor's DECS and (b) the ongoing
expenses of the Trust (including fees of the Administrator,
Custodian, Paying Agent and Trustees), estimated at $95,333 per year
in the aggregate, payable by Salomon at the closing of the offering.
Investor Transaction Expenses
Sales Load (as a percentage of offering price).......... 2.96%
Annual Expenses
Management Fees......................................... 0%
Other Expenses (after reimbursement)*................... 0%
Total Annual Expenses*................................ 0%
- ----------------------
* Absent the reimbursement, the Trust's "total annual expenses"
would be equal to approximately 0.13% of the Trust's average net
assets.
Commission regulations also require that closed-end investment
companies present an illustration of cumulative expenses (both
direct and indirect) that an investor would bear. The example is
required to factor in the applicable Sales Load and to assume, in
addition to a 5% annual return, the reinvestment of all
distributions at net asset value. INVESTORS SHOULD NOTE THAT THE
ASSUMPTION OF A 5% ANNUAL RETURN DOES NOT ACCURATELY REFLECT THE
FINANCIAL TERMS OF THE TRUST. SEE "INVESTMENT OBJECTIVES AND
POLICIES--TRUST ASSETS." ADDITIONALLY, THE TRUST DOES NOT PERMIT
THE REINVESTMENT OF DISTRIBUTIONS.
1 Year 3 Years
------ -------
You would pay the following expenses (i.e.,
the applicable sales load and allocable
portion of ongoing expenses paid by Salomon
and the Sellers) on a $1,000 investment,
assuming a 5% annual return $ $ .............. $33.53 $33.53
8
<PAGE>
THE TRUST
DECS Trust is a newly organized Delaware business trust that
is registered as a closed-end management investment company under
the Investment Company Act. The Trust was formed on November 21,
1995 pursuant to a Declaration of Trust dated as of November 21,
1995, as amended and restated in its entirey by the Amended and
Restated declaration of Trust, dated as of September 22, 1997,
among the Trustees, Salomon Brothers Inc, the initial trustee and
the initial sponsor (as so amended and restated, the "Declaration
of Trust"). The term of the Trust will expire on or shortly after
August 15, 2000, except that the Trust may be dissolved prior to
such date under certain limited circumstances. The address of the
Trust is c/o Puglisi & Associates, 850 Library Avenue, Suite 204,
Newark, Delaware 19175 (telephone number: (302) 738-6680)
USE OF PROCEEDS
The net proceeds of this offering will be used on or
shortly after the date on which this offering is completed to
purchase a fixed portfolio comprised of a series of zero-coupon
U.S. Treasury securities maturing quarterly during the term of
the Trust and to pay the purchase price under the Contracts to
the Sellers.
INVESTMENT OBJECTIVES AND POLICIES
Trust Assets
The Trust's investment objectives are to provide Holders
with a quarterly distribution of $0.502 per DECS on each
Distribution Date during the term of the Trust (representing the
pro rata portion of the quarterly distributions in respect of the
maturing Treasury Securities held by the Trust) and to provide
Holders, at the Exchange Date, a number of shares of Common Stock
at the Exchange Rate (as defined below) or, to the extent that
some or all of the Sellers elect the Cash Delivery Option (as
defined below), an amount in cash equal to the Exchange Price (as
defined below) of all or part thereof. On or prior to the 25th
Business Day prior to the Exchange Date, each of the Sellers will
be obligated to notify the Trust concerning its exercise of the
Cash Delivery Option, and the Trust in turn will notify The
Depository Trust Company and publish a notice in a daily
newspaper of national circulation stating whether Holders of DECS
will receive shares of Common Stock, cash or a combination
thereof and, if a combination of Common Stock and cash, the
relative proportion of each. See "--The Contracts--General"
below. "Business Day" means any day that is not a Saturday, a
Sunday or a day on which the NYSE or banking institutions or
trust companies in The City of New York are authorized or
obligated by law or executive order to close.
The "Exchange Rate" is equal to, subject to certain
adjustments, (a) if the Exchange Price (as defined below) is
greater than the Threshold Appreciation Price, 0.8333 shares of
Common Stock per DECS, (b) if the Exchange Price is less than the
Threshold Appreciation Price but is greater than or equal to the
Initial Price, a fraction, equal to the Initial Price divided by
the Exchange Price, of one share of Common Stock per DECS and (c)
if the Exchange Price is less than or equal to the Initial Price,
one share of Common Stock per DECS. ACCORDINGLY, THE VALUE OF THE
COMMON STOCK TO BE RECEIVED BY HOLDERS OF THE DECS (OR, AS
DISCUSSED BELOW, THE CASH EQUIVALENT TO BE RECEIVED IN LIEU OF
SUCH COMMON STOCK) AT THE EXCHANGE DATE WILL NOT NECESSARILY
EQUAL THE INITIAL PRICE OF THE DECS. The numbers of shares of
Common Stock per DECS specified in clauses (a), (b) and (c) of
the Exchange Rate are hereinafter referred to as the "Share
Components." Any shares of Common Stock delivered by the Trust to
the Holders of the DECS that are not affiliated with the Company
will be free of any transfer restrictions and the Holders of the
DECS will be responsible for the payment of any and all brokerage
costs upon the subsequent sale of such shares. Holders otherwise
entitled to receive fractional shares in respect of their
aggregate holdings of DECS will receive cash in lieu thereof. See
"--Delivery of Common Stock and Reported Securities; No
Fractional Shares of Common Stock or Reported Securities" below.
Notwithstanding the foregoing, (i) in the case of certain
dilution events, the Exchange Rate will be subject to adjustment
and (ii) in the case of certain adjustment events, the
consideration received by Holders at the Exchange Date will be
cash or Reported Securities (as defined herein) or a combination
thereof, rather than (or in addition to) shares of Common Stock.
See "--The Contracts--Dilution Adjustments; Adjustment Events"
below.
9
<PAGE>
The Trust has adopted a fundamental policy to invest at
least 65% of its portfolio in the Contracts. The Contracts will
comprise approximately 78% of the Trust's initial assets. The Trust
has also adopted a fundamental policy that the Contracts may not
be disposed of during the term of the Trust and that the Treasury
Securities held by the Trust may not be disposed of prior to the
earlier of their respective maturities and the termination of the
Trust except for the partial liquidation of Treasury Securities
following acceleration of any Contract as described below under
"--The Treasury Securities." The foregoing fundamental policies
of the Trust may not be changed without the vote of a majority in
interest of the Holders. A "majority in interest of the Holders"
means the lesser of (i) 67% of the DECS represented at a meeting
at which more than 50% of the outstanding DECS are represented
and (ii) more than 50% of the outstanding DECS.
The "Exchange Price" means the average Closing Price per
share of Common Stock on the 20 Trading Days immediately prior to
(but not including) the Exchange Date; provided, however, that if
there are not 20 Trading Days for the Common Stock occurring
later than the 60th calendar day immediately prior to, but not
including, the Exchange Date, the Exchange Price shall be defined
as the market value per share of the Common Stock as of the
Exchange Date as determined by a nationally recognized
independent investment banking firm retained for this purpose by
the Administrator. The "Closing Price" of any security on any
date of determination means (i) the closing sale price (or, if no
closing price is reported, the last reported sale price) of such
security (regular way) on the NYSE on such date, (ii) if such
security is not listed for trading on the NYSE on any such date,
as reported in the composite transactions for the principal
United States securities exchange on which such security is so
listed, (iii) if such security is not so listed on a United
States national or regional securities exchange, as reported by
The Nasdaq Stock Market, (iv) if such security is not so
reported, the last quoted bid price for such security in the
over-the-counter market as reported by the National Quotation
Bureau or similar organization or (v) if such security is not so
quoted, the average of the mid-point of the last bid and ask
prices for such security from at least three nationally
recognized investment banking firms selected by the Administrator
for such purpose. A "Trading Day" is defined as a day on which
the security the Closing Price of which is being determined (A)
is not suspended from trading on any national or regional
securities exchange or association or over-the-counter market at
the close of business and (B) has traded at least once on the
national or regional securities exchange or association or
over-the-counter market that is the primary market for the
trading of such security.
For illustrative purposes only, the following chart shows
the number of shares of Common Stock or the amount of cash that a
Holder would receive for each DECS at various Exchange Prices.
The chart assumes that there would be no adjustments to the
Exchange Rate by reason of the occurrence of any of the events
described under "--The Contracts--Dilution Adjustments;
Adjustment Events" below, that no Contracts will be accelerated
and that either no Sellers exercise the Cash Delivery Option or
all Sellers do. There can be no assurance that the Exchange Price
will be within the range set forth below. Given the Initial Price
of $28.35, per DECS and the Threshold Appreciation Price of $23.625,
a Holder would receive at the Exchange Date the following number of
shares of Common Stock or amount of cash (if all Sellers exercise
the Cash Delivery Option) per DECS:
Exchange Price of Number of Shares of
Common Stock Common Stock Amount of Cash
$23.00 1 $23.00
23.63 1 23.63
25.00 .9450 23.63
28.35 .8333 23.63
30.00 .8333 25.00
As the foregoing chart illustrates, if at the Exchange Date,
the Exchange Price is greater than $28.35, the Trust will be
obligated to deliver 0.8333 shares of Common Stock per DECS,
resulting in the DECS Holder receiving only 83.33 percent of the
appreciation in market value above $28.35. If at the Exchange
Date, the Exchange Price is greater than $23.63 and less than or
equal to $28.35, the Trust will be obligated to deliver only a
fraction of a share of Common Stock having a value at the
Exchange Price equal to $23.63, resulting in the DECS Holder
receiving none of the appreciation in market value. If at the
Exchange Date, the Exchange Price is less than or equal to
$23.63, the Trust will be obligated to deliver one share of
Common Stock per DECS, regardless of the market price of such
share, resulting in the DECS Holder realizing the entire loss on
the decline in market value of the Common Stock.
10
<PAGE>
The following table sets forth information regarding the
distributions to be received on the Treasury Securities held by
the Trust, the portion of each year's distributions that will
constitute a return of capital for U.S. federal income tax
purposes and the amount of original issue discount accruing on
the Treasury Securities with respect to a Holder who acquires its
DECS at the issue price from the Underwriter in the original
offering. See "Certain United States Federal Income Tax
Considerations."
Annual
Inclusion
Annual Gross of
Annual Gross Distributions Annual Original
Distributions from Return of Issue
from Treasury Capital Discount
Treasury Securities Capital in Income
Securities per DECS per DECS per DECS
---------- -------- -------- --------
Year
----
1997 $ 760,856 $ .2454 $ .2439 $ .0735
1998 6,225,188 2.008 1.9266 .2423
1999 6,225,188 2.008 1.8165 .1399
2000 4,668,891 1.5061 1.2928 .0324
The annual distribution of $2.008 per DECS is payable
quarterly on each February 15, May 15, August 15 and November 15
(or, if any such date is not a Business Day, on the next
succeeding Business Day), commencing November 15, 1997. Quarterly
distributions on the DECS will consist solely of the cash
received from the Treasury Securities. The Trust will not be
entitled to any dividends that may be declared on the Common
Stock.
Enhanced Yield; Less Potential for Equity Appreciation
than Common Stock; No Depreciation Protection
The yield on the DECS is higher than the current dividend
yield on the Common Stock. However, there is no assurance that
the yield on the DECS will be higher than the dividend yield on
the Common Stock over the term of the Trust. In addition, the
opportunity for equity appreciation afforded by an investment in
the DECS is less than the opportunity for equity appreciation
afforded by a direct investment in the Common Stock because the
Amount Receivable at the Exchange Date will generally exceed the
Initial Price only if the Exchange Price exceeds the Threshold
Appreciation Price (which represents an appreciation of 20% over
the Initial Price) and because Holders will be entitled to
receive at the Exchange Date only 83.33% (the percentage equal to
the Initial Price divided by the Threshold Appreciation Price) of
any appreciation of the value of the Common Stock in excess of
the Threshold Appreciation Price. Moreover, Holders of DECS will
realize the entire decline in value if the Exchange Price on the
Exchange Date is less than the Initial Price. Additionally,
because the Exchange Price is generally determined based on a
20-Trading Day average, the value of a share of Common Stock
distributed on the Exchange Date may be more or less than the
Exchange Price used to determine the Amount Receivable at the
Exchange Date.
The Company
The Company is an international company primarily engaged in
purchasing, processing, storing and selling leaf tobacco. The
Company acquired Intabex Holdings Worldwide S.A. ("Intabex") in
April 1997, and is the successor to Dibrell Brothers,
Incorporated and Monk-Austin, Inc., which merged in April 1995.
The Company purchases tobacco in approximately 32 countries,
processes purchased tobacco in 30
11
<PAGE>
facilities located throughout the world and sells its tobacco to
manufacturers of cigarettes and other consumer tobacco products
located in about 60 countries. Following its acquisition of Intabex,
the Company's market share in the leaf tobacco industry has increased
from approximately 30% to approximately 37% on a pro forma basis. Of
the independent leaf tobacco merchants, the Company ranks second in
established worldwide market share.
Holders will not be entitled to rights with respect to the
Common Stock (including, without limitation, voting rights and
rights to receive dividends or other distributions in respect
thereof) unless and until such time, if any, as the Sellers
deliver shares of Common Stock to the Trust pursuant to the
Contracts and the Trust has distributed such shares to the
Holders.
Attached hereto is a prospectus of the Company which
describes the Company and the Common Stock that may be delivered
to the Trust by the Sellers, and by the Trust to the Holders, at
the Exchange Date or upon earlier acceleration of a Contract.
The shares of Common Stock are traded on the NYSE. The
following table sets forth, for the indicated periods, the
reported high and low sales prices of the shares of Common Stock
on the NYSE Composite Tape and the cash dividends per share of
Common Stock. As of June 30, 1997, there were 1,198 record
holders of the Common Stock, including The Depository Trust
Company, which holds shares of Common Stock on behalf of an
indeterminate number of beneficial owners.
Dividend
Declared
High Low Per Share
---- --- ---------
Fiscal Year ending
June 30, 1998
First Quarter (through
September 25, 1997)...... $ 26 1/2 $ 21 1/2 $ .150
Fiscal Year ending
June 30, 1997
Fourth Quarter............ $ 26 3/4 $ 19 3/4 $ .150
Third Quarter............. 26 21 3/4 .150
Second Quarter............ 23 1/4 17 7/8 .150
First Quarter............. 19 7/8 17 7/8 .135
Fiscal Year ending
June 30, 1996
Fourth Quarter............ $ 19 1/2 $ 16 1/8 $ .135
Third Quarter............. 20 7/8 16 .135
Second Quarter............ 18 3/4 13 3/4 .135
First Quarter............. 17 5/8 14 5/8 .135
The Company is not affiliated with the Trust, will not
receive any of the proceeds from the sale of the DECS and will
have no obligations with respect to the DECS or the Contracts.
This Prospectus relates only to the DECS offered hereby and does
not relate to the Company or the Common Stock. The Company has
filed a registration statement on Form S-3 with the Commission
with respect to the shares of Common Stock that may be delivered to
the Trust by the Sellers, and by the Trust to the Holders of DECS,
at the Exchange Date or upon earlier acceleration of a Contract. The
prospectus of the Company constituting a part of such registration
12
<PAGE>
statement includes information relating to the Company and Common
Stock, including certain risk factors relevant to an investment
in Common Stock. THE PROSPECTUS OF THE COMPANY IS BEING ATTACHED
HERETO AND DELIVERED TO PROSPECTIVE PURCHASERS OF DECS TOGETHER
WITH THIS PROSPECTUS FOR CONVENIENCE OF REFERENCE ONLY. THE
PROSPECTUS OF THE COMPANY DOES NOT CONSTITUTE A PART OF THIS
PROSPECTUS, NOR IS IT INCORPORATED BY REFERENCE HEREIN.
The Contracts
General. The Trust will enter into one or more Contracts
with the Sellers obligating each Seller, severally and not
jointly, at the Exchange Date to deliver to the Trust a number of
shares of Common Stock equal to the initial number of shares of
Common Stock subject to such Seller's Contract multiplied by the
Exchange Rate. The Exchange Rate is equal to, subject to
adjustment as described in "--Dilution Adjustments; Adjustment
Events" below, (i) if the Exchange Price per share of Common
Stock is greater than the Threshold Appreciation Price, 0.8333,
(ii) if the Exchange Price per share of Common Stock is less than
or equal to the Threshold Appreciation Price but greater than the
Initial Price, the Initial Price divided by the Exchange Price
and (iii) if the Exchange Price per share of Common Stock is less
than or equal to the Initial Price, one. The purchase price under
the Contracts is equal to $18.343 per share of Common Stock and
$56,863,300 in the aggregate and is payable to the Sellers by the
Trust on the closing of this offering. The purchase price of the
Contracts was arrived at by arm's length negotiations between the
Trust and the Sellers taking into consideration factors including
the price, expected dividend level and volatility of the Common
Stock, current interest rates, the term of the Contracts, current
market volatility generally, the collateral security pledged by
the Sellers, the value of other similar instruments and the costs
and anticipated proceeds of the offering of the DECS. All matters
relating to the administration of the Contracts will be the
responsibility of either the Trust's Administrator or Custodian.
Although it is the Sellers' current intention to deliver
shares of Common Stock at the Exchange Date, each Seller may, at
its option, deliver cash in lieu of delivering all, but not less
than all, of the shares of Common Stock otherwise deliverable by
it on the Exchange Date (the "Cash Delivery Option"), except
where such delivery would violate applicable state law. The
amount of cash deliverable by a Seller upon the exercise of the
Cash Delivery Option will be equal to the product of the number
of shares of Common Stock otherwise deliverable by such Seller on
the Exchange Date multiplied by the Exchange Price. On or prior
to the 25th Business Day prior to the Exchange Date, each of the
Sellers will be obligated to notify the Trust concerning its
exercise of the Cash Delivery Option, and the Trust in turn will
notify The Depository Trust Company and publish a notice in a
daily newspaper of national circulation stating whether the
Holders of DECS will receive shares of Common Stock, cash or a
combination thereof and, if a combination of Common Stock and
cash, the relative proportion of each.
Dilution Adjustments; Adjustment Events. The Exchange Rate
is subject to adjustment if the Company shall (i) pay a stock
dividend or make a distribution, in either case, with respect to
Common Stock in shares of such stock, (ii) subdivide or split its
outstanding shares of Common Stock into a greater number of
shares, (iii) combine its outstanding shares of Common Stock into
a smaller number of shares, (iv) issue by reclassification (other
than a reclassification pursuant to clause (ii), (iii), (iv) or
(v) of the definition of Adjustment Event below) of its shares of
Common Stock any shares of common stock of the Company or (v)
issue rights or warrants (other than rights to purchase Common
Stock pursuant to a plan for the reinvestment of dividends or
interest) to all holders of Common Stock entitling them to
subscribe for or purchase shares of Common Stock at a price per
share less than the Market Price (as defined below) of the Common
Stock on the Business Day next following the record date for the
determination of holders of Common Stock entitled to receive such
rights or warrants.
In the case of the events referred to in clauses (i), (ii),
(iii) and (iv) above, the Exchange Rate shall be adjusted by
adjusting each of the Share Components of the Exchange Rate in
effect immediately prior to such event so that the Trust will be
entitled to receive at the Exchange Date, with respect to each
Contract, the number of shares of Common Stock (or, in the case
of a reclassification referred to in clause (iv) above, the
number of shares of other common stock of the Company issued
pursuant thereto) which it would have owned or been entitled to
receive immediately following such event had the Exchange Date
occurred immediately prior to such event or any record date with
respect thereto. In the case of the event referred to in clause
(v) above, the Exchange Rate shall
13
<PAGE>
be adjusted by multiplying each of the Share Components of the
Exchange Rate in effect on the record date for the issuance of
the rights or warrants referred to in clause (v) above, by a
fraction, of which the numerator shall be (A) the number of
shares of Common Stock outstanding on the record date for the
issuance of such rights or warrants plus (B) the number of
additional shares of Common Stock offered for subscription or
purchase pursuant to such rights or warrants, and of which the
denominator shall be (x) the number of shares of Common Stock
outstanding on the record date for the issuance of such rights or
warrants plus (y) the number specified in clause (B) above
multiplied by the quotient of the exercise price of such rights
or warrants divided by the Market Price of the Common Stock on
the Business Day next following the record date for the
determination of holders of Common Stock entitled to receive such
rights or warrants. To the extent that such rights or warrants
expire prior to the Exchange Date of the DECS and shares of
Common Stock are not delivered pursuant to such rights or
warrants prior to such expiration, the Exchange Rate shall be
readjusted to the Exchange Rate which would then be in effect had
such adjustments for the issuance of such rights or warrants been
made upon the basis of delivery of only the number of shares of
Common Stock actually delivered pursuant to such rights or
warrants. For purposes of this paragraph, dividends will be
deemed to be paid as of the record date for such dividend.
"Market Price" means, as of any date of determination, the
average Closing Price per share of Common Stock on the 20 Trading
Days immediately prior to (but not including) the date of
determination; provided, however, that if there are not 20
Trading Days for the Common Stock occurring later than the 60th
calendar day immediately prior to, but not including, such date,
the Market Price shall be determined as the market value per
share of Common Stock as of such date as determined by a
nationally recognized investment banking firm retained for such
purpose by the Administrator. All adjustments to the Exchange
Rate will be calculated to the nearest 1/10,000th of a share of
Common Stock (or, if there is not a nearest 1/10,000th of a
share, to the next higher 1/10,000th of a share). No adjustment
in the Exchange Rate shall be required unless such adjustment
would require an increase or decrease of at least one percent
therein; provided, however, that any adjustments which by reason
of the foregoing are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. If
an adjustment is made to the Exchange Rate pursuant to clauses
(i), (ii), (iii), (iv) or (v) above, an adjustment will also be
made to the Exchange Price as such term is used throughout the
definition of Exchange Rate. The required adjustment to the
Exchange Price shall be made at the Exchange Date by multiplying
the Exchange Price by the cumulative number or fraction
determined pursuant to the Exchange Rate adjustment procedure
described above. In the case of the reclassification of any
shares of Common Stock into any shares of common stock of the
Company other than the Common Stock, such shares of common stock
shall be deemed shares of Common Stock for all purposes. Each such
adjustment to the Exchange Rate and the Exchange Price shall be made
successively.
In the event of (i) any dividend or distribution by the
Company to all holders of Common Stock of evidences of its
indebtedness or other assets (excluding any dividends or
distributions referred to in clause (i) of the first paragraph
under the caption "--Dilution Adjustments; Adjustment Events,"
any shares of common stock issued pursuant to a reclassification
referred to in clause (iv) of such paragraph and any Ordinary
Cash Dividends (as defined below)) or any issuance by the Company
to all holders of Common Stock of rights or warrants to subscribe
for or purchase any of its securities (other than rights or
warrants referred to in clause (v) of the first paragraph under
the caption "--Dilution Adjustments; Adjustment Events"), (ii)
any consolidation or merger of the Company with or into another
entity (other than a merger or consolidation in which the Company
is the continuing corporation and in which the Common Stock
outstanding immediately prior to the merger or consolidation is
not exchanged for cash, securities or other property of the
Company or another corporation), (iii) any sale, transfer, lease
or conveyance to another corporation of the property of the
Company as an entirety or substantially as an entirety, (iv) any
statutory exchange of securities of the Company with another
corporation (other than in connection with a merger or
acquisition) or (v) any liquidation, dissolution or winding up of
the Company (any such event, an "Adjustment Event"), each Seller
will be obligated to deliver at the Exchange Date, in lieu of or
(in the case of an Adjustment Event described in clause (i)
above) in addition to, shares of Common Stock as described above,
cash in an amount equal to (A) if the Exchange Price is greater
than the Threshold Appreciation Price, 0.8333 multiplied by the
Transaction Value (as defined below), (B) if the Exchange Price
is less than or equal to the Threshold Appreciation Price but is
greater than the Initial Price, the product of (x) the Initial
Price divided by the Exchange Price multiplied by (y) the
Transaction Value and (C) if the Exchange Price is less than
or equal to the Initial Price, the Transaction Value. Following
an Adjustment Event, the Exchange Price, as such
14
<PAGE>
term is used in this paragraph and throughout the definition of
Exchange Rate, shall be deemed to equal (A) if shares of Common
Stock are outstanding at the Exchange Date, the Exchange Price of
the Common Stock, as adjusted pursuant to the method set forth in
the preceding paragraph, otherwise zero, plus (B) the Transaction
Value.
Notwithstanding the foregoing, with respect to any
securities received by holders of Common Stock in an Adjustment
Event that (A) are (i) listed on a United States national
securities exchange, (ii) reported on a United States national
securities system subject to last sale reporting, (iii) traded in
the over-the-counter market and reported on the National
Quotation Bureau or similar organization or (iv) for which bid
and ask prices are available from at least three nationally
recognized investment banking firms and (B) are either (x)
perpetual equity securities or (y) non-perpetual equity or debt
securities with a stated maturity after the Exchange Date of the
DECS ("Reported Securities"), each Seller is obligated, in lieu
of delivering cash in respect of such Reported Securities
received in an Adjustment Event, to deliver a number of such
Reported Securities with a value equal to all cash amounts that
would otherwise be deliverable in respect of Reported Securities
received in such Adjustment Event, as determined in accordance
with clause (ii) of the definition of Transaction Value, unless
such Seller has made an election to exercise the Cash Delivery
Option or such Reported Securities have not yet been delivered to
the holders entitled thereto following such Adjustment Event or
any record date with respect thereto. If a Seller delivers any
Reported Securities, upon distribution thereof by the Trust to
Holders of DECS, each Holder of a DECS will be responsible for
the payment of any and all brokerage and other transaction costs
upon the sale of such Reported Securities. If, following any
Adjustment Event, any Reported Security ceases to qualify as a
Reported Security, then (x) the Sellers shall not deliver such
Reported Security but instead shall deliver an equivalent amount
of cash and (y) notwithstanding clause (ii) of the definition of
Transaction Value, the Transaction Value of such Reported
Security shall mean the fair market value of such Reported
Security on the date such security ceases to qualify as a
Reported Security, as determined by a nationally recognized
investment banking firm retained for this purpose by the
Administrator.
Because each DECS represents the Holder's right to receive
a pro rata portion of the Common Stock or other assets delivered
by the Sellers pursuant to the Contracts, the amount of cash
and/or the kind and number of securities which the Holders of
DECS are entitled to receive after an Adjustment Event shall be
subject to adjustment following the date of such Adjustment Event
in the same manner and upon the occurrence of the same type of
events as described under this caption "--Dilution
Adjustments; Adjustment Events" with respect to Common Stock and
the Company.
For purposes of the foregoing, the term "Ordinary Cash
Dividend" means, with respect to any consecutive 365-day period,
any dividend with respect to Common Stock paid in cash to the
extent that the amount of such dividend, together with the
aggregate amount of all other dividends on the Common Stock paid
in cash during such 365-day period, does not exceed on a per
share basis 10% of the average of the Closing Prices of the
Common Stock over such 365-day period.
The term "Transaction Value" means (i) for any cash
received in any Adjustment Event, the amount of cash received per
share of Common Stock, (ii) for any Reported Securities received
in any Adjustment Event, an amount equal to (x) the average
Closing Price per security of such Reported Securities on the 20
Trading Days immediately prior to (but not including) the
Exchange Date multiplied by (y) the number of such Reported
Securities (as adjusted pursuant to the second preceding
paragraph) received per share of Common Stock and (iii) for any
property received in any Adjustment Event other than cash or such
Reported Securities, an amount equal to the fair market value of
the property received per share of Common Stock on the date such
property is received, as determined by a nationally recognized
investment banking firm retained for this purpose by the
Administrator; provided, however, that in the case of clause
(ii), (x) with respect to securities that are Reported Securities
by virtue of only clause (iv) of the definition of Reported
Securities above, Transaction Value with respect to any such
Reported Security means the average of the mid-point of the last
bid and ask prices for such Reported Security as of the Exchange
Date from each of at least three nationally recognized investment
banking firms retained for such purpose by the Administrator
multiplied by the number of such Reported Securities (as adjusted
pursuant to the method set forth in the third preceding
paragraph) received per share of Common Stock and (y)
15
<PAGE>
with respect to all other Reported Securities, if there are not
20 Trading Days for any particular Reported Security occurring
after the 60th calendar day immediately prior to, but not
including, the Exchange Date, Transaction Value with respect to
such Reported Security means the fair market value per security of
such Reported Security as of the Exchange Date as determined by a
nationally recognized investment banking firm retained for such
purpose by the Administrator multiplied by the number of such
Reported Securities (as adjusted pursuant to the method set forth
in the third preceding paragraph) received per share of Common
Stock. For purposes of calculating the Transaction Value, any
cash, Reported Securities or other property receivable in an
Adjustment Event shall be deemed to have been received
immediately prior to the close of business on the record date for
such Adjustment Event or, if there is no record date for such
Adjustment Event, immediately prior to the close of business on
the effective date of such Adjustment Event.
No adjustments will be made for certain other events, such
as offerings of Common Stock by the Company for cash or in
connection with acquisitions. Likewise, no adjustments will be
made for any sales of Common Stock by the Sellers.
Each Seller is required under its Contract to notify the
Trust promptly upon becoming aware that an event that requires an
adjustment to the Exchange Rate or an Adjustment Event is pending
or has occurred. The Trust is required, within ten Business Days
following the occurrence of an event that requires an adjustment
to the Exchange Rate or the occurrence of an Adjustment Event
(or, in either case, if the Trust is not aware of such
occurrence, as soon as practicable after becoming so aware), to
provide written notice to each Holder of DECS of the occurrence
of such event including a statement in reasonable detail setting
forth the method by which the adjustment to the Exchange Rate or
change in the consideration to be received by Holders of DECS
following the Adjustment Event was determined and setting forth
the revised Exchange Rate or consideration, as the case may be;
provided, however, that, in respect of any adjustment to the
Exchange Price, such notice will only disclose the factor by
which the Exchange Price is to be multiplied in order to
determine which clause of the Exchange Rate definition will apply
at the Exchange Date.
Collateral Requirements of the Contracts; Acceleration.
Each Seller's obligations under its Contract will be secured by a
security interest in one share of Common Stock for each share of
Common Stock subject to such Contract (subject to adjustment in
accordance with the dilution provisions of such Contract),
pursuant to a Collateral Agreement among such Seller, the Trust
and The Bank of New York, as collateral agent (the "Collateral
Agent"). Unless a Seller is in default in its obligations under
the Collateral Agreement, the Seller will be permitted to
substitute for the pledged shares of Common Stock collateral
consisting of short-term, direct obligations of the U.S.
Government. Any U.S. Government obligations pledged as substitute
collateral for shares of Common Stock will be required to have an
aggregate market value at the time of substitution and at daily
mark-to-market valuations thereafter of not less than 150% (or,
from and after any Insufficiency Determination that shall not be
cured by the close of business on the next business day
thereafter, as described below, 200%) of the product of the
market price of the Common Stock at the time of each valuation
times the number of shares of Common Stock for which such
obligations are being substituted. Each Collateral Agreement will
provide that, in the event of an Adjustment Event, the relevant
Seller will pledge as alternative collateral any Reported
Securities, plus cash in an amount at least equal to the
Transaction Value of any consideration other than Reported
Securities, received by it in respect of the maximum number of
shares of Common Stock subject to such Seller's Contract at the
time of the Adjustment Event. The number of Reported Securities
required to be pledged shall be subject to adjustment if any
event requiring a dilution adjustment under the Contracts shall
occur. Each Seller will be permitted to substitute U.S.
Government obligations for Reported Securities or cash pledged
after any Adjustment Event. Any U.S. Government obligations so
substituted will be required to have an aggregate market value at
the time of substitution and at daily mark-to-market valuations
thereafter of: (A) in the case of obligations substituted for
pledged Reported Securities, not less than 150% (or, from and
after any Insufficiency Determination that shall not be cured by
the close of business on the next business day thereafter, as
described below, 200%) of the product of the market price per
security of Reported Securities at the time of each valuation
times the number of Reported Securities for which such
obligations are being substituted; and (B) in the case of
obligations substituted for pledged cash, not less than 105% of
the amount of cash for which such obligations are being
substituted. The Collateral Agent will promptly pay over to each
Seller any dividends, interest, principal or other payments
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received by the Collateral Agent in respect of any collateral,
including any substitute collateral, unless the relevant Seller
is in default of its obligations under its Collateral Agreement,
or unless the payment of such amount to the relevant Seller would
cause the collateral to become insufficient under the Collateral
Agreement.
If the Collateral Agent shall determine (an "Insufficiency
Determination") that U.S. Government obligations pledged by any
Seller as substitute collateral shall fail to meet the foregoing
requirements at any valuation, or that such Seller has failed to
pledge additional collateral required as a result of a dilution
adjustment increasing the maximum number of shares of Common
Stock or Reported Securities subject to such Contract, and such
failure shall not be cured by the close of business on the next
business day after such determination, then, unless a Collateral
Event of Default (as defined below) under such Collateral
Agreement shall have occurred and be continuing, the Collateral
Agent shall commence (i) sales of the collateral consisting of
U.S. Government obligations and (ii) purchases, using the
proceeds of such sales, of shares of Common Stock or Reported
Securities, in an amount sufficient to cause the collateral to
meet the requirements under such Collateral Agreement. The
Collateral Agent shall discontinue such sales and purchases if at
any time the Collateral Event of Default under such Collateral
Agreement shall have occurred and be continuing.
The occurrence of a Collateral Event of Default (as defined
below) under any Collateral Agreement, or the bankruptcy or
insolvency of any Seller, will cause an automatic acceleration of
such Seller's obligations under its Contract. A "Collateral Event
of Default" under any Collateral Agreement shall mean, at any
time, (A) if no U.S. Government obligations shall be pledged as
substitute collateral at such time, failure of the collateral to
consist of at least the maximum number of shares of Common Stock
subject to the relevant Seller's Contract at such time (or, if an
Adjustment Event shall have occurred at or prior to such time,
failure of the collateral to include the amount of cash and the
maximum number of any Reported Securities required to be pledged
as described above); (B) if any U.S. Government obligations shall
be pledged as substitute collateral for shares of Common Stock
(or Reported Securities) at such time, failure of such U.S.
Government obligations to have a market value at such time of at
least 105% of the market price of the Common Stock (or the
then-current market price per security of Reported Securities, as
the case may be) times the difference between (x) the maximum
number of shares of Common Stock (or Reported Securities) subject
to the relevant Seller's Contract at such time and (y) the number
of shares of Common Stock (or Reported Securities) pledged as
collateral at such time; and (C) if any U.S. Government
obligations shall be pledged as substitute collateral for any
cash at such time, failure of such U.S. Government obligations to
have a market value at such time of at least 105% of such cash,
if such failure shall not be cured within one Business Day after
notice thereof is delivered to the relevant Seller.
Except as described below, upon acceleration of any
Seller's Contract, the Collateral Agent will to the extent
permitted by law distribute to the Trust for distribution pro
rata to the Holders, with respect to such Seller's Contract, the
maximum number of shares of Common Stock subject to such
Contract, in the form of the shares of Common Stock then pledged
by that Seller, or cash generated from the liquidation of U.S.
Government obligations then pledged by that Seller, or a
combination thereof (or, after an Adjustment Event, in the form
of Reported Securities then pledged, cash then pledged, cash
generated from the liquidation of U.S. Government obligations
then pledged, or a combination thereof). In addition, in the
event that by the Exchange Date any substitute collateral has not
been replaced by shares of Common Stock (or, after an Adjustment
Event, cash or Reported Securities) sufficient to meet the
obligations under any Contract, the Collateral Agent will
distribute to the Trust for distribution pro rata to the Holders,
with respect to such Contract, the market value of the shares of
Common Stock required to be delivered thereunder, in the form of
any shares of Common Stock then pledged by the relevant Seller
plus cash generated from the liquidation of U.S. Government
obligations then pledged by such Seller (or, after an Adjustment
Event, the market value of the alternative consideration required
to be delivered thereunder, in the form of any Reported
Securities then pledged, plus any cash then pledged, plus cash
generated from the liquidation of U.S. Government obligations
then pledged).
If upon acceleration of a Seller's Contract, such Seller is
subject to a Bankruptcy Code or similar proceeding, the Collateral
Agent will to the extent permitted by law distribute to the Trust
for distribution pro rata to the Holders, with respect to such
Seller's Contract, a number of shares of Common Stock, in the
form of the shares of Common Stock then pledged by that Seller,
or cash generated from the liquidation of U.S. Government
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obligations then pledged by that Seller, or a combination thereof
(or, after an Adjustment Event, in the form of Reported
Securities then pledged, cash then pledged, cash generated from
the liquidation of U.S. Government obligations then pledged, or a
combination thereof), with an aggregate value equal to such
Seller's "Acceleration Value." The Acceleration Value will be
determined by the Administrator on the basis of quotations from
independent dealers. Each quotation will be for an amount that
would be paid to the relevant dealer in consideration of an
agreement that would have the effect of preserving the Trust's
rights to receive the number of shares of Common Stock (or, after
an Adjustment Event, Reported Securities, cash or a combination
thereof) subject to such Seller's Contract on the Exchange Date.
The Administrator will request quotations from four nationally
recognized independent dealers on or as soon as reasonably
practicable following the date of acceleration. If four
quotations are provided, the Acceleration Value will be the
arithmetic mean of the two quotations remaining after
disregarding the highest and lowest quotations. If two or three
quotations are provided, the Acceleration Value will be the
arithmetic mean of such quotations. If one quotation is provided,
the Acceleration Value will be such quotation. If no quotations
are provided, the Acceleration Value will be the aggregate value
of the number of shares of Common Stock (or, after an Adjustment
Event, Reported Securities, cash or a combination thereof) that
would be required to be delivered under such Seller's Contract on
the date of acceleration if the Exchange Date were redefined to
be the date of acceleration.
Description of Sellers. The Sellers are various individual
members of the Monk family and trusts through which certain of
such individuals hold their shares of Common Stock. Specific
information on the holdings of the Sellers, as required by the
Securities Act of 1933, as amended (the "Securities Act"), is
included in the prospectus of the Company attached hereto under
"Selling Stockholders".
The Treasury Securities
The Trust will purchase and hold a series of zero-coupon
("stripped") U.S. Treasury securities with such face amounts and
maturities as will provide Holders with a quarterly distribution
of $0.502 per DECS on each Distribution Date during the term of the
Trust. Up to 35% of the Trust's total assets may be invested in
these Treasury Securities. If any Contract is accelerated, a
proportionate amount of the Treasury Securities of each maturity
then held in the Trust will be liquidated by the Administrator
and the proceeds thereof distributed pro rata to the Holders,
together with proceeds from the acceleration of such Contract.
See "--The Contracts--Collateral Requirements of the Contracts;
Acceleration" above and "--Trust Termination" below.
Temporary Investments
For cash management purposes, the Trust may invest the
proceeds of the Treasury Securities held by the Trust and any
other cash held by the Trust in short-term obligations of the
U.S. Government maturing no later than the Business Day preceding
the next following Distribution Date.
Trust Termination
The Trust will terminate automatically on or shortly after
the Exchange Date or following the distribution of all Trust
assets to the Holders, if earlier.
In the event that all of the Contracts remaining in effect
at any time are accelerated, then any Treasury Securities then
held by the Trust will be liquidated by the Administrator and the
proceeds thereof distributed pro rata to the Holders, together
with all shares of Common Stock subject to each Seller's Contract
that are pledged by each Seller, or cash generated from the
liquidation of U.S. Government obligations then pledged by each
Seller, or a combination thereof (or, after an Adjustment Event,
in the form of Reported Securities then pledged, cash then
pledged, cash generated from the liquidation of U.S. Government
obligations then pledged, or a combination thereof) or in certain
cases, the Acceleration Value of a Seller's Contract, and the
term of the Trust will expire. See "--The Contracts--Collateral
Requirements of the Contracts; Acceleration" above.
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Delivery of Common Stock and Reported Securities; No
Fractional Shares of Common Stock or Reported Securities
Common Stock and Reported Securities delivered under the
Contracts at the Exchange Date are expected to be distributed by
the Trust to the Holders pro rata shortly after the Exchange
Date, except that no fractional shares of Common Stock or
Reported Securities will be distributed. If more than one DECS
shall be surrendered at one time by the same Holder, the number
of full shares of Common Stock or Reported Securities which shall
be delivered upon termination of the Trust, in whole or in part,
as the case may be, shall be computed on the basis of the
aggregate number of DECS so surrendered at the Exchange Date. In
lieu of delivering any fractional share or security, the Trust
will sell a number of shares or securities equal to the total of
all fractional shares or securities that would otherwise be
delivered to Holders of all DECS, and each such Holder will be
entitled to receive an amount in cash equal to the pro rata
portion of the proceeds of such sale (which may be at a price
lower than the Exchange Price).
INVESTMENT RESTRICTIONS
The Trust has adopted a fundamental policy that the Trust
may not purchase any securities or instruments other than the
Treasury Securities, the Contracts and the Common Stock or other
assets received pursuant to the Contracts and, for cash
management purposes, short-term obligations of the U.S.
Government; issue any securities or instruments except for the
DECS; make short sales or purchase securities on margin; write
put or call options; borrow money; underwrite securities;
purchase or sell real estate, commodities or commodities
contracts; or make loans. The Trust has also adopted a
fundamental policy that the Contracts may not be disposed of
during the term of the Trust and that (except for a partial
liquidation of Treasury Securities following acceleration of any
Contract as described above under "Investment Objectives and
Policies--The Treasury Securities") the Treasury Securities may
not be disposed of prior to the earlier of their respective
maturities and the termination of the Trust.
RISK FACTORS RELATING TO DECS
Internal Management; No Portfolio Management
The Trust will be internally managed by its Trustees and
will not have any separate investment adviser. It is a
fundamental policy of the Trust that the Contracts may not be
disposed of during the term of the Trust and that the Treasury
Securities held by the Trust may not be disposed of prior to the
earlier of their respective maturities and the termination of the
Trust, except for a partial liquidation of Treasury Securities
following acceleration of any Contract. As a result, the Trust
will continue to hold the Contracts despite any significant
decline in the market price of the Common Stock or adverse
changes in the financial condition of the Company (or, after an
Adjustment Event, comparable developments affecting any Reported
Securities or the issuer thereof). The Trust will not be managed
like a typical closed-end investment company.
Relationship to Common Stock; Limitations on Opportunity
for Equity Appreciation; Potential Losses
The yield on the DECS is higher than the current dividend
yield on the Common Stock. However, there is no assurance that
the yield on the DECS will be higher than the dividend yield on
the Common Stock over the term of the Trust.
The Amount Receivable at the Exchange Date is not fixed,
but is based on the market price of the Common Stock as reflected
in the Exchange Rate. There can be no assurance that the Amount
Receivable at the Exchange Date will be equal to or greater than
the Initial Price of the DECS. If the Exchange Price is less than
the Initial Price, the Amount Receivable at the Exchange Date
will generally be less than the amount paid for the DECS, in
which case an investment in DECS will result in a loss and, if
the Company became insolvent or bankrupt, could result in a total
loss. Holders of the DECS, therefore, bear the full risk of a
decline in the value of the Common Stock prior to the Exchange
Date.
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In addition, the opportunity for equity appreciation
afforded by an investment in the DECS is less than the
opportunity for equity appreciation afforded by a direct
investment in the Common Stock because the Amount Receivable at
the Exchange Date will generally exceed the Initial Price only if
the Exchange Price exceeds the Threshold Appreciation Price
(which represents an appreciation of 20% over the Initial Price)
and because Holders will be entitled to receive at the Exchange
Date only 83.33% of any appreciation of the value of the Common
Stock in excess of the Threshold Appreciation Price. See
"Investment Objectives and Policies--Trust Assets" for an
illustration of the Amount Receivable at the Exchange Date that a
DECS Holder would receive at various Exchange Prices. Because the
market price of the Common Stock is subject to market
fluctuations, the Amount Receivable at the Exchange Date may be
more or less than the Initial Price of the DECS. Additionally,
because the Exchange Price is generally determined based on a
20-Trading Day average, the value of a share of Common Stock
distributed on the Exchange Date may be less than the Exchange
Price used to determine the Amount Receivable at the Exchange
Date.
The market price of the DECS at any time will be affected
primarily by changes in the price of Common Stock. It is
impossible to predict whether the price of the Common Stock will
rise or fall. Trading prices of Common Stock will be influenced
by the Company's operational results and by complex and
interrelated political, economic, financial and other factors
that can affect the capital markets generally, the stock exchange
on which Common Stock is traded and the market segment of which
the Company is a part. See the prospectus relating to the Company
and to the Common Stock attached hereto. Trading prices of the
Common Stock also may be influenced if any of the Sellers or
another principal shareholder of the Company hereafter issues
securities with terms similar to those of the DECS or otherwise
transfers shares of the Common Stock. Concurrently with the
offering of the DECS, certain of the Company's common
stockholders (including certain of the Sellers) are offering for
sale in a separate offering (the "Stock Offering") 1,800,000
shares of Common Stock (2,040,000 shares of Common Stock if the
over allotment option granted to the underwriters in the Stock
Offering is exercised in full). As of the date hereof, the
Sellers held an aggregate of 9,611,345 shares of Common Stock
(including shares that may be sold in the Stock Offering as
defined above), 3,100,000 shares of which (3,484,104 shares if
the Underwriter's over allotment option is exercised in full) the
Sellers may deliver to the Trust at the Exchange Date.
Impact of the DECS on the Market for the Common Stock
It is not possible to predict accurately how or whether the
DECS will trade in the secondary market or whether such market
will be liquid. Any market that develops for the DECS is likely
to influence and be influenced by the market for the Common
Stock. For example, the price of the Common Stock could become
more volatile and could be depressed by investors' anticipation
of the potential distribution into the market of substantial
additional amounts of Common Stock at the termination of the
Trust, by possible sales of the Common Stock by investors who
view the DECS as a more attractive means of equity participation
in the Company and by hedging or arbitrage trading activity that
may develop involving the DECS and the Common Stock.
Dilution Adjustments; Stockholder Rights
The number of shares of Common Stock that Holders are
entitled to receive at the termination of the Trust is subject to
adjustment for certain events arising from stock splits and
combinations, stock dividends and certain other actions of the
Company that modify its capital structure. See "Investment
Objectives and Policies--The Contracts--Dilution Adjustments;
Adjustment Events." Such number of shares to be received by
Holders may not be adjusted for other events, such as offerings
of Common Stock for cash or in connection with acquisitions, that
may adversely affect the price of the Common Stock and, because
of the relationship of the number of shares of Common Stock to be
received pursuant to the Contracts to the price of the Common
Stock, such other events may adversely affect the trading price
of the DECS. There can be no assurance that the Company will not
take any of the foregoing actions, or that it will not make
offerings of, or that major shareholders will not sell any,
Common Stock in the future, or as to the amount of any such
offerings or sales. In addition, until the receipt of the Common
Stock by Holders upon a distribution thereof by the Trust,
Holders will not be entitled to any rights with respect to the
Common Stock (including without limitation voting rights and the
rights to receive any dividends or other distributions in respect
thereof).
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No Obligation on the Part of the Company With Respect
to the DECS or the Contracts
The Company has no obligations with respect to the DECS,
the Contracts or the Amount Receivable at the Exchange Date,
including any obligation to take the needs of the Trust or of
Holders of the DECS into consideration for any reason. The
Company will not receive any of the proceeds of the offering of
the DECS made hereby and is not responsible for, and has not
participated in, the determination of the time of sale of,
quantities of or prices for the DECS to be issued or the
determination or calculation of the Amount Receivable at the
Exchange Date. The Company is not involved with the
administration or trading of the DECS.
Trading Value; Listing
The DECS are innovative securities and have no trading
history, and it is not possible to predict how they will trade in
the secondary market. The trading price of the DECS may vary
considerably prior to the Exchange Date due to, among other
things, fluctuations in the price of the Common Stock (which may
occur due to changes in the Company's financial condition,
results of operations or prospects, or because of complex and
interrelated political, economic, financial and other factors
that can affect the capital markets generally, the stock
exchanges or quotation systems on which the Common Stock is
traded and the market segment of which the Company is a part) and
fluctuations in interest rates and other factors that are
difficult to predict and beyond the Trust's control.
The Underwriter currently intends, but is not obligated, to
make a market in the DECS and any such market-making may be
discontinued at any time in the sole discretion of the
Underwriter without notice. There can be no assurance that a
secondary market will develop or, if a secondary market does
develop, that it will provide the Holders of the DECS with
liquidity of investment or that it will continue for the life of
the DECS.
Application has been made to list the DECS on the NYSE.
Assuming the approval of such application, there can be no
assurance that the DECS will not later be delisted or that
trading in the DECS on the NYSE will not be suspended. In the
event of a delisting or suspension of trading on such exchange,
the Trust will apply for listing of the DECS on another national
securities exchange or for quotation on another trading market.
If the DECS are not listed or traded on any securities exchange
or trading market, or if trading of the DECS is suspended,
pricing information for the DECS may be more difficult to obtain,
and the price and liquidity of the DECS may be adversely
affected.
Net Asset Value
The Trust is a newly organized closed-end investment
company with no previous operating history. Shares of closed-end
investment companies frequently trade at a discount from their
net asset value, which is a risk separate and distinct from the
risk that the Trust's net asset value will decrease. The Trust
cannot predict whether the DECS will trade at, below or above
their net asset value. The risk of purchasing investments that
might trade at a discount is more pronounced for investors who
wish to sell their investments in a relatively short period of
time after completion of the Trust's initial public offering
because for those investors realization of a gain or loss on
their investments is likely to be more dependent upon the
existence of a premium or discount than upon portfolio
performance. The DECS are not subject to redemption prior to the
Exchange Date or the earlier termination of the Trust.
Non-Diversified Status
The Trust is considered non-diversified under the
Investment Company Act, which means that the Trust is not limited
in the proportion of its assets that may be invested in the
obligations of a single issuer. Because the only securities held
or received by the Trust will be the Treasury Securities and the
Contracts or other assets subject to the Contracts, the Trust may
be subject to greater risk than would be the case for an
investment company with more diversified investments.
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Uncertainty of Federal Income Tax Consequences
No statutory, judicial or administrative authority directly
addresses the characterization of the DECS or instruments similar
to the DECS for U.S. federal income tax purposes. As a result,
significant aspects of the U.S. federal income tax consequences
of an investment in the DECS are not certain. No ruling is being
requested from the Internal Revenue Service with respect to the
DECS and no assurance can be given that the Internal Revenue
Service will agree with the conclusions expressed under "Certain
United States Federal Income Tax Considerations."
Risk Factors Relating to the Company
Investors in the DECS should carefully consider the
information in the prospectus of the Company attached hereto,
including the information contained therein under "Risk Factors."
Risk Relating to Bankruptcy of the Sellers
The Trust believes that the Contracts constitute
"securities contracts" for purposes of the Bankruptcy Code,
liquidation of which would not be subject to the automatic stay
provisions of the Bankruptcy Code in the event of the bankruptcy
of the Sellers. It is, however, possible that the Contracts will
be determined not to qualify as "securities contracts" for this
purpose, in which case a Seller's bankruptcy may cause a delay in
settlement of such Seller's Contract, or otherwise subject such
Contract to bankruptcy proceedings, which could adversely affect
the timing of settlement and could impair the Trust's ability to
distribute the Common Stock or other assets subject to such
Contract and the related Collateral Agreement to the Holders on a
timely basis and, as a result, could adversely affect the amount
received by the Holders in respect of the DECS.
NET ASSET VALUE
The net asset value of the portfolio will be calculated by
the Administrator no less frequently than quarterly by dividing
the value of the net assets of the Trust (the value of its assets
less its liabilities) by the total number of DECS outstanding.
The Trust's net asset value will be published semi-annually as
part of the Trust's semi-annual report to Holders and at such
other times as the Trustees may determine. The Treasury
Securities held by the Trust will be valued at the mean between
the last current bid and asked prices or, if quotations are not
available, as determined in good faith by the Trustees.
Short-term investments having a maturity of 60 days or less will
be valued at cost with accrued interest or discount earned
included in interest to be received. The Contracts will be valued
at the mean of the bid prices received by the Trust from at least
three independent broker-dealer firms unaffiliated with the Trust
who are in the business of making bids on financial instruments
similar to the Contracts and with terms comparable thereto.
DESCRIPTION OF THE DECS
Each DECS represents an equal proportional interest in the
Trust. Upon liquidation of the Trust, Holders are entitled to
share pro rata in the net assets of the Trust available for
distribution. DECS have no preemptive, redemption or conversion
rights. The DECS, when issued and outstanding, will be fully paid
and nonassessable. The only securities that the Trust is
authorized to issue are the DECS offered hereby and those sold to
the initial Holder referred to below. See "Underwriting."
Holders are entitled to one vote for each DECS held on all
matters to be voted on by Holders and are not able to cumulate
their votes in the election of Trustees. The Trustees of the
Trust have been selected initially by Salomon as the initial
Holder of the Trust. The Trust intends to hold annual meetings as
required by the rules of the NYSE. The Trustees may call special
meetings of Holders for action by Holder vote as may be required
by either the Investment Company Act or the Declaration of Trust.
The Holders have the right, upon the declaration in writing or
vote of more than two-thirds of the outstanding DECS, to remove a
Trustee. The Trustees will call a meeting of Holders to vote on
the removal of a Trustee upon the written request of the record
Holders of 10% of
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the DECS or to vote on other matters upon the written request of
the record Holders of 51% of the DECS (unless substantially the
same matter was voted on during the preceding 12 months). The
Trustees shall establish, and notify the Holders in writing of,
the record date for each such meeting, which shall be not less
than 10 nor more than 50 days before the meeting date. Holders at
the close of business on the record date will be entitled to vote
at the meeting. The Trust will also assist in communications with
other Holders as required by the Investment Company Act.
Book-Entry System
The DECS will be issued in the form of one or more global
securities (the "Global Securities") deposited with The
Depository Trust Company (the "Depositary") and registered in the
name of a nominee of the Depositary.
The Depositary has advised the Trust and the Underwriter as
follows: The Depositary is a limited-purpose trust company
organized under the laws of the State of New York, a member of
the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code and a "clearing
agency" registered pursuant to Section 17A of the Exchange Act.
The Depositary was created to hold securities of persons who have
accounts with the Depositary ("participants") and to facilitate
the clearance and settlement of securities transactions among its
participants in such securities through electronic book-entry
changes in accounts of the participants, thereby eliminating the
need for physical movement of certificates. Such participants
include securities brokers and dealers, banks, trust companies
and clearing corporations. Indirect access to the Depositary's
book-entry system is also available to others, such as banks,
brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a participant, either
directly or indirectly.
Upon the issuance of a Global Security, the Depositary or
its nominee will credit the respective DECS represented by such
Global Security to the accounts of participants. The accounts to
be credited shall be designated by the Underwriter. Ownership of
beneficial interests in such Global Securities will be limited to
participants or persons that may hold interests through
participants. Ownership of beneficial interests by participants
in such Global Securities will be shown on, and the transfer of
those ownership interests will be effected only through, records
maintained by the Depositary or its nominee for such Global
Securities. Ownership of beneficial interests in such Global
Securities by persons that hold through participants will be
shown on, and the transfer of that ownership interest within such
participant will be effected only through, records maintained by
such participant. The laws of some jurisdictions require that
certain purchasers of securities take physical delivery of such
securities in definitive form. Such limits and such laws may
impair the ability to transfer beneficial interests in a Global
Security.
So long as the Depositary for a Global Security, or its
nominee, is the registered owner of such Global Security, such
Depositary or such nominee, as the case may be, will be
considered the sole owner or holder of the DECS. Except as set
forth below, owners of beneficial interests in such Global
Securities will not be entitled to have the DECS registered in
their names and will not receive or be entitled to receive
physical delivery of the DECS in definitive form and will not be
considered the owners or holders thereof.
Shares of Common Stock or other assets deliverable in
respect of, and any quarterly distributions on, DECS registered
in the name of or held by the Depositary or its nominee will be
made to the Depositary or its nominee, as the case may be, as the
registered owner or the holder of the Global Security. None of
the Trust, any Trustee, the Paying Agent, the Administrator or
the Custodian for the DECS will have any responsibility or
liability for any aspect of the records relating to, or payments
made on account of, beneficial ownership interests in a Global
Security or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests.
The Trust expects that the Depositary, upon receipt of any pay-
ment in respect of a permanent Global Security, will credit immediate-
ly participants' accounts with payments in amounts proportionate to
their respective beneficial interests in the principal amount of
such Global Security as shown on the records of the Depositary.
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The Trust also expects that payments by participants to owners of
beneficial interests in such Global Security held through such
participants will be governed by standing instructions and
customary practices, as is now the case with securities held for
the accounts of customers in bearer form or registered in "street
name," and will be the responsibility of such participants.
A Global Security may not be transferred except as a whole
by the Depositary to a nominee or a successor of the Depositary.
If the Depositary is at any time unwilling or unable to continue
as depositary and a successor depositary is not appointed by the
Trust within ninety days, the Trust will issue DECS in definitive
registered form in exchange for the Global Security representing
such DECS. In that event, an owner of a beneficial interest in a
Global Security will be entitled to physical delivery in
definitive form of DECS represented by such Global Security equal
in number to that represented by such beneficial interest and to
have such DECS registered in its name.
MANAGEMENT AND ADMINISTRATION OF THE TRUST
Trustees
The Trust will be internally managed by three Trustees,
none of whom is an "interested person" of the Trust as defined in
the Investment Company Act, and will not have an investment
adviser. Under the provisions of the Internal Revenue Code of
1986, as amended (the "Code"), applicable to grantor trusts, the
Trustees will not have the power to vary the investments held by
the Trust. It is a fundamental policy of the Trust that the
Contracts may not be disposed of during the term of the Trust and
that the Treasury Securities held by the Trust may not be
disposed of prior to the earlier of their respective maturities
and the termination of the Trust, except for a partial
liquidation of Treasury Securities following acceleration of any
Contract.
The names of the persons who have been elected by Salomon,
the initial Holder of the Trust, to serve as the Trustees are set
forth below. The positions and the principal occupations of the
individual Trustees during the past five years are also set forth
below.
Principal
Occupation
During Past
Name, Age and Address Title Five Years
- --------------------- ----- ----------
Donald J. Puglisi, 50 Managing Trustee Professor of Finance
Department of Finance University of Delaware
University of Delaware
Newark, DE 19716
William R. Latham III, 51 Trustee Professor of Economics
Department of Economics University of Delaware
University of Delaware
Newark, DE 19716
James B. O'Neill, 57 Trustee Professor of Economics
Center for Economic University of Delaware
Education &
Entrepreneurship
University of Delaware
Newark, DE 19716
Each Trustee who is not a director, officer or employee of
the Underwriter or the Administrator, or of any affiliate
thereof, will be paid by Salomon (which will be reimbursed by the
Sellers), in respect of its annual fee and anticipated
out-of-pocket expenses, a one-time, up-front fee of $10,800. The
Trust's Managing Trustee will also receive an additional up-front
fee of $3,600 for serving in that capacity. The Trustees will not
receive, either directly or indirectly, any compensation,
including any pension or retirement benefits, from the Trust.
None of the Trustees receives any compensation for serving as a
trustee or director of any other affiliated investment company.
Administrator
The day-to-day affairs of the Trust will be managed by The
Bank of New York, as Trust Administrator pursuant to an
Administration Agreement. Under the Administration Agreement, the
Trustees have delegated most of their operational duties to the
Administrator, including without limitation, the duties to: (i)
receive invoices for and pay, or cause to be paid, all expenses
incurred by the Trust; (ii) with the approval of the Trustees,
engage legal and other professional advisors (other than the
independent public accountants for the Trust); (iii) instruct the
Paying Agent to pay distributions on DECS as described herein;
(iv) prepare and mail, file or publish all notices, proxies,
reports, tax returns and other communications and documents, and
keep all books and records,
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for the Trust; (v) at the direction of the Trustees, institute
and prosecute legal and other appropriate proceedings to enforce
the rights and remedies of the Trust; and (vi) make all necessary
arrangements with respect to meetings of Trustees and any
meetings of holders of DECS. The Administrator will not, however,
select the independent public accountants for the Trust or sell
or otherwise dispose of the Trust assets (except in connection
with an acceleration of the Contracts, or the settlement of the
Contracts at the Exchange Date, and upon termination of the
Trust).
The Administration Agreement may be terminated by either
the Trust or the Administrator upon 60 days' prior written
notice, except that no termination shall become effective until a
successor Administrator has been chosen and has accepted the
duties of the Administrator.
Except for its roles as Administrator, custodian, paying
agent, registrar and transfer agent of the Trust, and except for
its role as Collateral Agent under the Collateral Agreements, The
Bank of New York has no other affiliation with, and is not
engaged in any other transactions with, the Trust.
The address of the Administrator is 101 Barclay, New York,
New York 10286.
Custodian
The Trust's custodian (the "Custodian") is The Bank of New
York pursuant to a custodian agreement (the "Custodian
Agreement"). In the event of any termination of the Custodian
Agreement by the Trust or the resignation of the Custodian, the
Trust must engage a new Custodian to carry out the duties of the
Custodian as set forth in the Custodian Agreement. Pursuant to
the Custodian Agreement, all net cash received by the Trust will
be invested by the Custodian in short-term U.S. Government
securities maturing on or shortly before the next quarterly
distribution date. The Custodian will also act as Collateral
Agent under the Collateral Agreement and will hold a perfected
security interest in the Common Stock and U.S. Government
obligations or other assets consistent with the terms of the
Contracts.
Paying Agent
The transfer agent, registrar and paying agent (the "Paying
Agent") for the DECS is The Bank of New York pursuant to a paying
agent agreement (the "Paying Agent Agreement"). In the event of
any termination of the Paying Agent Agreement by the Trust or the
resignation of the Paying Agent, the Trust will use its best
efforts to engage a new Paying Agent to carry out the duties of
the Paying Agent.
Indemnification
The Trust will indemnify each Trustee, the Administrator,
the Custodian and the Paying Agent with respect to any claim,
liability, loss or expense (including the costs and expenses of
the defense against any claim or liability) which it may incur in
acting as Trustee, Administrator, Custodian or Paying Agent, as
the case may be, except in the case of willful misfeasance, bad
faith, gross negligence or reckless disregard of their respective
duties or where applicable law prohibits such indemnification.
Salomon has agreed to reimburse the Trust for any amounts it may
be required to pay as indemnification to any Trustee, the
Administrator, the Custodian or the Paying Agent. Salomon will in
turn be reimbursed by the Sellers for all such reimbursements
paid by it.
Distributions
The Trust intends to distribute to Holders on a quarterly
basis the proceeds of the Treasury Securities held by the Trust.
The first distribution, reflecting the Trust's operations from
the date of the offering, will be made on November 15, 1997 to
Holders of record as of November 1, 1997. Thereafter,
distributions will be made on February 15, May 15, August 15 and
November 15 or, if any such date is not a Business Day, on the
next succeeding Business Day, of each year to Holders of record
as of each February 1, May 1, August 1 and November 1,
respectively. A portion of each such distribution should be
treated as a tax-free return of the Holder's investment. See
"Investment Objective and Policies--Trust Assets" and "Certain
United States Federal Income Tax Considerations." If any Contract
is accelerated as described in "Investment Objectives and
Policies --The Contracts--Collateral Requirements of the
Contracts;
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<PAGE>
Acceleration," each Holder will receive its pro rata share of the
proceeds from the acceleration of such Contract and from the
liquidation of a proportionate amount of the Treasury Securities
then held in the Trust. Upon termination of the Trust as
described in "Investment Objectives and Policies--Trust
Termination," each Holder will receive its pro rata share of any
remaining net assets of the Trust.
The Trust does not permit the reinvestment of distributions.
Estimated Expenses
At the closing of this offering Salomon will pay to each of
the Administrator, the Custodian and the Paying Agent, and to
each Trustee, a one-time, up-front amount in respect of its fee
and, in the case of the Administrator, anticipated expenses of
the Trust over the term of the Trust. The anticipated Trust
expenses to be borne by the Administrator include, among other
things, expenses for legal and independent accountants' services,
costs of printing proxies, DECS certificates and Holder reports,
expenses of the Trustees, fidelity bond coverage, stock exchange
listing fees and expenses of qualifying the DECS for sale in the
various states. The aggregate of the one-time, up-front payments
described above will be in the amount of $286,000. Salomon will also
pay estimated organization costs of the Trust in the amount of
$10,000 and estimated costs of the Trust in connection with the
initial registration and public offering of the DECS in the amount
of $75,000 at the closing of the offering. Salomon will be reimbursed
by the Sellers for such payments.
The amount payable to the Administrator in respect of
ongoing expenses of the Trust was determined based on estimates
made in good faith on the basis of information currently
available to the Trust, including estimates furnished by the
Trust's agents. There cannot, however, be any assurance that
actual operating expenses of the Trust will not be substantially
more than this amount. Any excess expenses will be paid by
Salomon or, in the event of its failure to pay such amounts, the
Trust. Salomon will be reimbursed by the Sellers for all expenses
of the Trust paid by it.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the principal U.S. federal
income tax consequences that may be relevant to a holder of a
DECS that is a citizen or resident of the United States, a
corporation, partnership or other entity created or organized
under the laws of the United States, an estate the income of
which is subject to U.S. federal income taxation regardless of
its source, or a trust if (i) a U.S. court is able to exercise
primary supervision over the trust's administration and (ii) one
or more United States persons have the authority to control all
of the trust's substantial decisions (a "U.S. person") or a
holder that is otherwise subject to U.S. federal income taxation
on a net income basis in respect of a DECS (such a holder and any
U.S. person, a "U.S. Holder"). The discussion below is based on
the advice of Cleary, Gottlieb, Steen & Hamilton.
This summary is based on the U.S. federal income tax laws,
regulations, rulings and decisions now in effect, all of which
are subject to change. Except to the extent discussed below under
"Non-United States Persons," this summary deals only with U.S.
Holders that will hold DECS as capital assets. This summary deals
only with initial Holders and does not address tax considerations
applicable to investors that may be subject to special tax rules,
such as banks, insurance companies, dealers in securities,
persons that will hold DECS as a position in a "straddle" for tax
purposes or as a part of a "synthetic security" or a "conversion
transaction" or other integrated investment comprised of a DECS
and one or more other investments, or persons that have a
functional currency other than the U.S. dollar. It does not
include any description of the tax laws of any state or local
governments or of any foreign government that may be applicable
to the DECS or to the Holders thereof. It also does not discuss
the tax consequences of the ownership of the Common Stock or
Reported Securities. Prospective purchasers of DECS are urged to
review the discussion under "Taxation" in the accompanying prospectus
of the Company concerning the federal income tax consequences of an
investment in the Common Stock. Investors should consult their own
tax advisors in determining the tax consequences to them of
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<PAGE>
holding DECS, including the application to their particular
situation of the U.S. federal income tax considerations discussed
below, as well as the application of state, local or other tax
laws.
There are no regulations, published rulings or judicial
decisions addressing the characterization for federal income tax
purposes of securities with terms substantially the same as the
DECS. The Trust intends to treat a DECS for U.S. federal income
tax purposes as a beneficial interest in a trust that holds
zero-coupon U.S. Treasury securities and Contracts, and to report
Holders' income to the Internal Revenue Service in accordance
with this treatment. Under this approach, the tax consequences of
holding a DECS will be as described below. However, prospective
investors in the DECS should be aware that the Internal Revenue
Service might take a different view as to the proper
characterization of the DECS and of the tax consequences to a
Holder.
Tax Status of the Trust
The Trust will be taxable as a grantor trust owned solely by
the present and future Holders of the DECS for federal
income tax purposes, and income received by the Trust will be
treated as income of the Holders in the manner set forth below.
Tax Consequences to United States Holders
Tax Basis of the Treasury Securities and the Contracts.
Each Holder will be considered the owner of its pro rata portion
of the Treasury Securities and the Contracts in the Trust. The
cost to the Holder of its DECS will be allocated among the
Holder's pro rata portion of the Treasury Securities and the
Contracts (in proportion to the fair market values thereof on the
date on which the Holder acquires its DECS) in order to determine
the Holder's tax bases. It is currently anticipated that 22%
and 78% of the net proceeds of the offering will be used by the
Trust to purchase the Treasury Securities and as payments under
the Contracts, respectively.
Recognition of Original Issue Discount on the Treasury
Securities. The Treasury Securities in the Trust will consist of
zero-coupon U.S. Treasury securities. A Holder will be required
to treat its pro rata portion of each Treasury Security in the
Trust as a bond that was originally issued on the date the Holder
purchased its DECS and at an original issue discount equal to the
excess of the Holder's pro rata portion of the amounts payable on
such Treasury Security over the Holder's tax basis therefor as
discussed above. The Holder (whether on the cash or accrual
method of tax accounting) is required to include original issue
discount (other than original issue discount on short-term
Treasury Securities as described below) in income for federal
income tax purposes as it accrues, in accordance with a constant
yield method, prior to the receipt of cash attributable to such
income. Because it is expected that more than 20% of the Holders
will be accrual basis taxpayers, original issue discount on any
short-term Treasury Security (i.e., any Treasury Security with a
maturity of one year or less from the date it is purchased) held
by the Trust will also be required to be included in income by
the Holders as it is accrued. Unless a Holder elects to accrue
the original issue discount on a short-term Treasury Security
according to a constant yield method based on daily compounding,
such original issue discount will be accrued on a straight-line
basis. The Holder's tax basis in a Treasury Security will be
increased by the amount of any original issue discount included
in income by the Holder with respect to such Treasury Security.
Treatment of the Contracts. Each Holder will be treated as
having entered into a pro rata portion of the Contracts and, at
the Exchange Date, as having received a pro rata portion of the
Common Stock (or cash, Reported Securities or combination
thereof) delivered to the Trust. Under existing law, a Holder
will not recognize income, gain or loss upon entry into the
Contracts. A Holder should not be required under existing law to
include in income additional amounts over the term of the
Contracts.
The Internal Revenue Service may contend that a DECS should
be characterized for federal income tax purposes in a manner
different from the approach described above. For example, the
Internal Revenue Service might assert that the Contracts should
be treated as contingent debt obligations of the Sellers that are
subject to Treasury regulations promulgated in June 1996
governing contingent payment debt instruments. If the Internal
Revenue Service were to prevail in making such an assertion,
original issue discount would accrue with respect to each
Contract at a "comparable yield" for the Seller under that
Contract, determined at the time the Contract is
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<PAGE>
entered into. A Holder's pro rata portion of original issue
discount in respect of the Contracts and original issue discount
in respect of the Treasury Securities might exceed the aggregate
amount of the quarterly cash distributions to a Holder. In
addition, under this treatment, a Holder would be required to
treat any gain realized on the sale, exchange or redemption of
the DECS as ordinary income to the extent that such gain is
allocable to the Contracts. Any loss realized on such sale,
exchange or redemption that is allocable to the Contracts would
be treated as an ordinary loss to the extent of the Holder's
original issue discount inclusions with respect to the Contracts,
and as capital loss to the extent of loss in excess of such
inclusions. It is also possible that the Internal Revenue Service
could take the view that a Holder should include in income the
amount of cash actually received each year in respect of the
DECS, or that the DECS as a whole constitute a contingent payment
debt instrument subject to the rules described above.
Sale of the DECS. Upon a sale of all or some of a Holder's
DECS, a Holder will be treated as having sold its pro rata
portion of the Treasury Securities and Contracts underlying the
DECS. The selling Holder will recognize gain or loss equal to the
difference between the amount realized and the Holder's aggregate
tax bases in its pro rata portion of the Treasury Securities and
the Contracts. Any gain or loss will be long-term capital gain or
loss if the Holder has held the DECS for more than one year. The
distinction between capital gain or loss and ordinary income or
loss is important for purposes of the limitations on a Holder's
ability to offset capital losses against ordinary income. In
addition, certain individuals are subject to taxation at a
reduced rate on long-term capital gains. The Taxpayer Relief Act
of 1997 further reduces tax rates on capital gains recognized by
individuals in respect of assets held for more than 18 months.
Holders are advised to consult their own tax advisers as to the
consequences of the Taxpayer Relief Act of 1997 in their
particular circumstances.
Distribution of the Common Stock. The delivery of Common
Stock to the Trust pursuant to the Contracts will not be taxable
to the Holders. The distribution of Common Stock upon the
termination of the Trust will not be taxable to the Holders. A
Holder will have taxable gain or loss (which will be short-term
capital gain or loss) upon receipt of cash in lieu of fractional
shares of Common Stock distributed upon termination of the Trust,
in an amount equal to the difference between the cash received
and the portion of the basis of the Contracts allocable to
fractional shares (based on the relative number of fractional
shares and full shares delivered to the Holder). Each Holder's
aggregate basis in its shares of Common Stock will be equal to
its basis in its pro rata portion of the Contracts less the
portion of such basis allocable to any fractional shares of
Common Stock for which cash is received.
Distribution of Cash. If a Holder receives cash upon
dissolution of the Trust or as a result of a Seller's election to
deliver cash under the Cash Delivery Option, a Holder will
recognize capital gain or loss equal to any difference between
the amount of cash received from the Sellers and the Holder's tax
basis in the DECS at that time. Such gain or loss generally will
be long-term capital gain or loss if the Holder has held the DECS
for more than one year at the Exchange Date.
Distribution of Cash or Reported Securities as a Result of
an Adjustment Event. If as a result of an Adjustment Event, cash,
Reported Securities, or a combination of cash and Reported
Securities is delivered pursuant to the Contracts, a Holder will
have taxable gain or loss upon receipt equal to the difference
between the amount of cash received, including cash received in
lieu of fractional Reported Securities, and its basis in its pro
rata portion of the Contracts allocable to any shares of Common
Stock for which such cash or fractional Reported Securities were
received. Any gain or loss will be capital gain or loss, and if
the Holder has held the DECS for more than one year, such gain or
loss will be long-term capital gain or loss. A Holder's basis in
any Reported Securities received will be equal to its basis in
its pro rata portion of the Contracts less the portion of such
basis allocable to any shares of Common Stock for which cash or
fractional Reported Securities were received. See "Investment
Objectives and Policies--The Contracts."
Fees and Expenses of the Trust. A Holder's pro rata portion
of the expenses in connection with the organization of the Trust,
underwriting discounts and commissions and other offering
expenses should be includable in the cost to the Holder of the
DECS. However, there can be no assurance that the Internal
Revenue Service will not take a contrary view. If the Internal
Revenue Service were to prevail in treating such expenses as
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<PAGE>
excludable from the Holder's cost of the DECS, such expenses
would not be includable in the basis of the assets of the Trust
and should instead be amortizable and deductible over the term of
the Trust. If such expenses were treated as amortizable and
deductible, an individual Holder who itemizes deductions would be
entitled to amortize and deduct (subject to any other applicable
limitations on itemized deductions) such expenses over the term
of the Trust only to the extent that such amortized annual
expenses together with such Holder's other miscellaneous
deductions exceed 2% of such Holder's adjusted gross income.
Non-United States Persons
In the case of a Holder of the DECS that is not a U.S.
person, payments made with respect to the DECS will not be
subject to U.S. withholding tax, provided that such Holder
complies with applicable certification requirements (including in
general the furnishing of an Internal Revenue Service Form W-8 or
a substitute form). Any capital gain realized upon the sale or
other disposition of the DECS by a Holder that is not a U.S.
person will generally not be subject to U.S. federal income tax
if (i) such gain is not effectively connected with a U.S. trade
or business of such Holder and (ii) in the case of an individual,
such individual is not present in the United States for 183 days
or more in the taxable year of the sale or other disposition or
the gain is not attributable to a fixed place of business
maintained by such individual in the United States.
Backup Withholding and Information Reporting
A Holder of a DECS 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 (a) is a
corporation or comes within certain other exempt categories and,
when required, provides proof of such exemption or (b) provides a
correct taxpayer identification number, certifies as to no loss
of exemption from backup withholding and otherwise complies with
applicable requirements of the backup withholding rules.
Information reporting and backup withholding do not apply to
payments made to a Holder of a DECS that is not a U.S. person if
the beneficial owner of the DECS certifies as to its non-U.S.
status or otherwise establishes an exemption, provided that the
Trust or its agent does not have actual knowledge that the Holder
is a U.S. person.
Payment of the proceeds from the sale of a DECS to or
through a foreign office of a broker will not be subject to
information reporting or backup withholding, except that if the
broker is a U.S. person, a controlled foreign corporation for
U.S. tax purposes or a foreign person 50 percent or more of whose
gross income from all sources for the three-year period ending
with the close of its taxable year preceding the payment was
effectively connected with a U.S. trade or business, information
reporting may apply to such payments. Payment of the proceeds
from a sale of a DECS to or through the U.S. office of a broker
is subject to information reporting and backup withholding unless
the Holder or beneficial owner certifies as to its non-U.S.
status or otherwise establishes an exemption from information
reporting and backup withholding.
Any amounts withheld under the backup withholding rules are
not an additional tax and may be credited against the U.S.
Holder's U.S. federal income tax liability, provided that the
required information is furnished to the Internal Revenue
Service.
UNDERWRITING
Subject to the terms and conditions set forth in the
Underwriting Agreement (the "Underwriting Agreement") among the
Trust, the Company, each of the Sellers and Salomon, the Trust
has agreed to sell to the Underwriter, and the Underwriter has
agreed to purchase, the number of DECS set forth below:
Underwriter Number of DECS
----------- --------------
Salomon Brothers Inc .............. 3,100,000
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In the Underwriting Agreement, the Underwriter has agreed,
subject to the terms and conditions set forth therein, that the
obligations of the Underwriter are subject to certain conditions
precedent and that the Underwriter will be obligated to purchase
all the DECS offered hereby if any of the DECS are purchased.
The Underwriter proposes to offer the DECS directly to the
public initially at the public offering price set forth on the
cover of this Prospectus, and to certain dealers at such price
less a concession not in excess of $0.42 per DECS. The Underwriter
may allow, and such dealers may reallow, a concession not in
excess of $0.10 per DECS to other dealers. After the initial public
offering, such public offering price and such concession and
reallowance may be changed. The sales load of $0.70 per DECS is equal
to 2.96% of the initial public offering price.
The Company, its directors and executive officers, and the
Selling Stockholders listed under the caption "Selling
Stockholders" in the prospectus of the Company attached hereto,
including the Sellers, have agreed not to offer for sale, sell or
contract to sell, or otherwise dispose of, or announce the
offering of, or file or cause the filing of any registration
statement under the Securities Act with respect to, without the
prior written consent of the Underwriter, any shares of Common
Stock or any securities convertible into or exchangeable for, or
warrants to acquire, Common Stock for a period of 90 days after
the date of this Prospectus; provided, however, that such
restriction shall not effect the ability of (i) the Company or
the Sellers to take any such actions in connection with the
offering of the DECS made hereby or pursuant to the terms of the
Contracts and the Collateral Agreements, (ii) the Company to take
any such actions in connection with any employee stock option
plan, stock ownership plan or dividend reinvestment plan of the
Company in effect at the date of this Prospectus, (iii) the
Sellers to take any such actions in connection with the offering
of additional shares of Common Stock by certain Sellers in an
underwritten transaction concurrent with the sale of the DECS or
(iv) the Sellers to take any such actions in connection with bona
fide gifts or private transactions.
In light of the fact that proceeds from the sale of the
DECS will be used by the Trust to purchase the Contracts from the
Sellers, the Underwriting Agreement provides that the Sellers
will pay to the Underwriter as compensation $0.70 per DECS.
The Trust has granted to the Underwriter an option,
exercisable for a 30-day period after the date of this
Prospectus, to purchase up to an additional 379,871 DECS at the
same price per DECS as the initial DECS to be purchased by the
Underwriter. The Underwriter may exercise such option only for
the purpose of covering over-allotments, if any, incurred in
connection with the sale of the DECS offered hereby.
The DECS will be a new issue of securities with no
established trading market. The Underwriter intends to make a
market in the DECS, subject to applicable laws and regulations.
However, the Underwriter is not obligated to do so and any such
market-making may be discontinued at any time at the sole
discretion of the Underwriter without notice. Accordingly, no
assurances can be given as to the liquidity of such market.
The Underwriting Agreement provides that the Company and
the Sellers have agreed to indemnify the Underwriter against
certain liabilities, including liabilities under the Securities
Act, or contribute to payments the Underwriter may be required to
make in respect thereof.
In connection with the formation of the Trust, Salomon
subscribed for and purchased 4,233 DECS for a purchase price of
$100,000. Under the Contracts, the Sellers will be obligated to
deliver to the Trust Common Stock in respect of such DECS on the
same terms as the DECS offered hereby.
In connection with this offering, the Underwriter and
certain selling group members and their respective affiliates may
engage in transactions that stabilize, maintain or otherwise
affect the market price of the DECS or the Common Stock. Such
transactions may include stabilization transactions effected in
accordance with Rule 104 of Regulation M under the Securities
Exchange Act pursuant to which such persons may bid for or
purchase DECS or Common Stock for the purpose of stabilizing
their market price. The Underwriter also may create a short
position for its account by selling more DECS in connection with
this offering than it is committed to purchase from the Trust,
and in such case may purchase DECS in the open market following
completion of this offering to
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cover all or a portion of such short position. In addition, the
Underwriter may impose "penalty bids" under contractual
arrangements whereby it may reclaim from a dealer participating
in this offering the selling concession with respect to DECS that
are distributed in this offering but subsequently purchased of
the account of the Underwriter in the open market. Any of the
transactions described in this paragraph may result in the
maintenance of the price of the DECS at a level above that which
might otherwise prevail in the open market. None of the
transactions described in this paragraph is required, and, if
they are undertaken, they may be discontinued at any time.
The Underwriter has from time to time performed various
investment banking and financial advisory services for the
Company and its affiliates, for which customary compensation has
been received.
LEGAL MATTERS
Certain legal matters will be passed upon for the Trust and
the Underwriter by Cleary, Gottlieb, Steen & Hamilton, New York,
New York. Certain matters of Delaware law will be passed upon for
the Trust by Richards, Layton & Finger, Wilmington, Delaware. Certain
legal matters will be passed upon for the Sellers by Hunton & Williams,
Richmond, Virginia, and Womble Carlyle Sandridge & Rice PLLC,
Winston-Salem, North Carolina. Certain legal matters with respect
to the Contracts will be passed upon for the Sellers by Skadden, Arps,
Slate, Meagher & Flom LLP, New York, New York.
EXPERTS
The statement of assets, liabilities and capital included
in this Prospectus has been audited by Arthur Andersen, independent
public accountants, as indicated in their report with respect
thereto, and is included herein in reliance upon the authority
of said firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
The Trust has filed with the Securities and Exchange
Commission, Washington, D.C. 20549, a Registration Statement
under the Securities Act with respect to the DECS offered hereby.
Further information concerning the DECS and the Trust may be
found in the Registration Statement, of which this Prospectus
constitutes a part. The Registration Statement may be inspected
without charge at the Commission's office in Washington, D.C.,
and copies of all or any part thereof may be obtained from such
office after payment of the fees prescribed by the Commission.
Such Registration Statement is also available on the Commission's
website (http://www.sec.gov).
31
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Trustees of DECS Trust:
We have audited the accompanying statement of assets, liabilities and
capital of DECS Trust (a Delaware trust) as of September 9, 1997. This
financial statement is the responsibility of the Trustees of the Trust.
Our responsibility is to express an opinion on this financial statement
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the statement of assets,
liabilities and capital is free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the statement of assets, liabilities and capital.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the statement of assets, liabilities and capital
referred to above presents fairly, in all material respects, the
financial position of DECS Trust as of September 9, 1997, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
New York, New York
September 9, 1997 (except with
respect to the matter discussed
in Note IV, as to which the
date is September 22, 1997).
32
<PAGE>
DECS TRUST
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
September 9, 1997
ASSETS
Cash............................................. $100,000
-------
Total Assets..................................... $100,000
-------
LIABILITIES
Total Liabilities................................ $ --
-------
NET ASSETS....................................... $100,000
-------
CAPITAL
DECS, 1 DECS issued and outstanding.............. $100,000
-------
The accompanying notes are an integral part of this statement.
33
<PAGE>
DECS TRUST
NOTES TO STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
SEPTEMBER 9, 1997
I. Organization
------------
DECS Trust (the "Trust"), organized as a Delaware business trust on
November 21, 1995, is a closed-end management investment company
registered under the Investment Company Act of 1940. The term of
the Trust is anticipated to expire in the year 2000; however, the
exact date will be determined in the future. The Trust may be
dissolved prior to its planned termination date under certain
circumstances as outlined in the registration statement.
The Trust has registered 3,484,104 DECS representing shares of
beneficial interest in the Trust. The only securities that the
Trust is authorized to issue are the DECS. Each of the DECS
represents the right to receive (a) quarterly distributions during
the term of the Trust, and (b) upon the conclusion of the term of
the Trust (the "Exchange Date"), certain shares of common stock
(the "Common Stock") or cash with an equivalent value (such amounts
determined as described in the registration statement). The DECS
are not subject to redemption prior to the Exchange Date or the
earlier termination of the Trust. The Trust will hold a series of
zero-coupon U.S. Treasury securities and one or more forward
purchase contracts relating to the Common Stock. The business
activities of the Trust are limited to the matters discussed above.
The Trust will be treated as a grantor trust owned solely by the
present and future holders of the DECS for U.S. federal
income tax purposes.
On September 9, 1997, the Trust issued one DECS to Salomon Brothers
Inc ("Salomon") in consideration for a purchase price of $100,000.
II. Organizational Costs, Fees and Expenses
---------------------------------------
Organizational costs and ongoing fees of the Trust will be borne
by Salomon.
III. Management and Administration of Trust
--------------------------------------
The Trust will be managed by its trustees and will not have a
separate investment adviser. The Trust will be overseen by three
trustees and the daily administration will be carried out by The
Bank of New York as the administrator. The Bank of New York will
also serve as the Trust's custodian, paying agent, registrar and
transfer agent with respect to the DECS.
IV. Subsequent Event
----------------
Subsequent to September 9, 1997, the Trust intends to register an
additional 100,000 DECS representing shares of beneficial interest
in the Trust.
34
<PAGE>
No dealer, salesperson or any other
person has been authorized to give
any information or to make any
representation not contained in
this Prospectus and, if given or
made, such information or represen-
tation must not be relied upon as
having been authorized by the
Trust or the Underwriter. Neither
the delivery of this Prospectus nor 3,100,000 DECS SM
any sale made hereunder shall, under
any circumstances, create an implica-
tion that there has been no change in DECS TRUST
the affairs of the Trust since the
date hereof or that the information
herein is correct as of any time subse-
quent to its date. However, if any
material change occurs while this
Prospectus is required by law to
be delivered, this Prospectus will
be amended or supplemented according-
ly. This Prospectus does not constitute
an offer or solicitation by anyone in
any jurisdiction in which such
offer or solicitation is not author-
ized or in which the person making
such offer or solicitation is not
qualified to do so or to any person
to whom it is unlawful to make
such an offer or solicitation.
-------------
Table of Contents
Page
----
Prospectus Summary......... 4
Fees and Expenses.......... 9
The Trust.................. 10
Use of Proceeds............ 10
Investment Objectives
and Policies.............. 10
Investment Restrictions.... 19
Risk Factors Relating
to DECS................... 20
Net Asset Value............ 22
Description of the DECS.... 23
Management and Adminis-
tration of the Trust...... 24
Certain United States
Federal Income Tax
Considerations............ 26
Underwriting............... 30
Legal Matters.............. 31
Experts.................... 31
Additional Information..... 31
Report of Independent
Public Accountants........ 32
Statement of Assets,
Liabilities and Capital... 33
-------------
Until November 5, 1997, all dealers
effecting transactions in the DECS,
whether or not participating in Salomon Brothers Inc
this distribution, may be required
to deliver a Prospectus. This is in
addition to the obligation of dealers Prospectus
to deliver a Prospectus when acting Dated September 25, 1997
as underwriters and with respect
to their unsold allotments or sub-
scriptions.
