As filed with the Securities and Exchange Commission on October ___, 1996
Securities Act File No. 33-
Investment Company Act File No. 811-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form N-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [x]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. [ ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
[x]
Amendment No. [ ]
MANDATORY COMMON EXCHANGE TRUST I
(Exact Name of Registrant as Specified in its Charter)
c/o Bear, Stearns & Co. Inc.
245 Park Avenue
New York, New York 10167
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code:
(212) 272-7332
Wesley M. Jones
245 Park Avenue
New York, New York 10167
(Name and Address of Agent for Service)
Copies to:
Richard T. Prins, Esq.
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
Approximate Date of Proposed Public Offering: As soon as
practicable after the effective date of this Registration
Statement.
If any securities being registered on this form will be
offered on a delayed or continuous basis in reliance on Rule 415
under the Securities Act of 1933, other than securities offered
in connection with a dividend reinvestment plan, check the
following box. [ ]
[ ] This form is filed to register additional securities for
an offering pursuant to Rule 462(b) under the Securities Act and
the Securities Act registration statement number of the earlier
effective registration statement for the same offering is
33-_________.
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
Title of Securities Proposed Maximum Aggregate Amount of
Being Registered Offering Price Registration Fee
Mandatory Exchange Securities
$2,000,000
Estimated solely for the purpose of calculating the
registration fee.
The registrant hereby amends this registration statement on
such date or dates as may be necessary to delay its effective
date until the registrant shall file a further amendment which
specifically states that this registration statement shall
thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement
shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
MANDATORY COMMON EXCHANGE TRUST I
CROSS-REFERENCE SHEET
(Pursuant to Rule 404(c) under the Securities Act of 1933)
Part A & B of Prospectus*
Item
Number Caption Location in Prospectus
1. Outside Front Cover . . . . . . . . . Front Cover Page
2. Inside Front and Outside
Back Cover Page . . . . . . . . . . . Front Cover Page; Inside
Front Cover Page; Outside
Back Cover Page
3. Fee Table and Synopsis . . . . . . . Prospectus Summary;
Fee Table
4. Financial Highlights . . . . . . . . Not Applicable
5. Plan of Distribution . . . . . . . . Front Cover Page;
Prospectus Summary;
Underwriting
6. Selling Shareholders . . . . . . . . Not Applicable
7. Use of Proceeds . . . . . . . . . . . Use of Proceeds;
Investment Objective and
Policies
8. General Description of the
Registrant . . . . . .. . . . . . . . Front Cover Page;
Prospectus Summary; The
Trust; Investment
Objective and Policies;
Risk Factors
9. Management . . . . . . . . . . . . . Management and Administra-
tion of the Trust
10. Capital Stock, Long-Term Debt
and Other Securities . . . . . . . . Description of the
Securities
11. Defaults and Arrears
on Senior Securities . . . . . . . . Not Applicable
12. Legal Proceedings . . . . . . . . . . Not Applicable
13. Table of Contents of the Statement
of Additional Information . . . . . Not Applicable
14. Cover Page . . . . . . . . . . . . . Not Applicable
15. Table of Contents . . . . . . . . . . Not Applicable
16. General Information and History . . . The Trust
17. Investment Objective and Policies . . Investment Objective
and Policies
18. Management . . . . . . . . . . . . . Management and
Administration of the Trust
19. Control Persons and Principal
Holders of Securities . . . . . . . Management and
Administration of the Trust
20. Investment Advisory
and Other Services . . . . . . . . Management and Administration
of the Trust
21. Brokerage Allocation and
Other Practices . . . . . . . . . . Investment Objective and
Policies
22. Tax Status . . . . . . . . . . . . Certain Federal
Income Tax Considerations
23. Financial Statements . . . . . . . Statement of Assets and
Liabilities
* Pursuant to the General Instructions to Form N-2, all
information required to be set forth in Part B: Statement of
Additional Information has been included in Part A: The
Prospectus. Information required to be included in Part C is set
forth under the appropriate item, so numbered in Part C of this
Registration Statement.
SUBJECT TO COMPLETION, DATED OCTOBER __, 1996
[ ] SHARES
[NAME OF COMPANY]
MANDATORY COMMON EXCHANGE TRUST I
[ ] TRUST ISSUED MANDATORY EXCHANGE SECURITIES (TIMES)
(SUBJECT TO EXCHANGE INTO SHARES OF COMMON STOCK OF [NAME OF COMPANY])
___________________
Each of the $[ ] (Trust Issued Mandatory Exchange
Securities, or "Securities") of Mandatory Common Exchange Trust I
(the "Trust") represents the right to receive an annual
distribution of $[ ], and will be exchanged for
between [ ] shares and 1 share of common stock, no par
value (the "Common Stock"), [
] (the "Company") on ________ __, ____ (the "Exchange
Date"), subject to a cash settlement feature. The annual
distribution of $[ ] per Security is payable quarterly
on each , , and ,
commencing , 1997. The Securities are not subject to
redemption.
The Trust is a newly organized, finite-term Trust
established to purchase and hold a portfolio of stripped U.S.
Treasury securities maturing on a quarterly basis through the
Exchange Date, and a forward purchase contract (the "Contract")
with an existing shareholder (the "Seller") of the Company
relating to the Common Stock. The Trust's investment objective
is to provide each holder of the Securities with a quarterly
distribution of $[ ] per Security and, on the Exchange
Date, a number of shares of Common Stock per Security equal to
the Exchange Rate or the cash equivalent. The Exchange Rate is
equal to (i) if the Reference Market Price on the Exchange Date
is less than $[ ] but equal to or greater than $[
], a number (or fractional number) of shares of Common Stock
per Security having a value (determined at the Reference Market
Price) equal to $ [ ], (ii) if the Reference
Market Price on the Exchange Date is equal to or greater than
$ , [ ] shares of Common Stock per Security
and (iii) if the Reference Market Price on the Exchange Date is
less than $ , 1 share of Common Stock per Security,
subject in each case to adjustment in certain events. The
"Reference Market Price" means the average Closing Price per
share of Common Stock for the 20 Trading Days immediately prior
to, but not including, the Exchange Date. In lieu of delivery of
the Common Stock, the Seller may elect under the Contract to pay
cash on the Exchange Date in an amount equal to the Reference
Market Price times the number of shares of the Common Stock
determined under the above formula (the "Cash Settlement
Alternative"). [The Seller must elect the Cash Settlement
Alternative within the 20 day period prior to the Exchange Date.]
To the extent the Seller elects the Cash Settlement Alternative,
holders of the Securities will receive cash instead of shares of
Common Stock on the Exchange Date. Holders otherwise entitled to
receive fractional shares in respect of their aggregate holdings
of the Securities will receive cash in lieu thereof.
Holders of the Securities will receive distributions at a
higher annual rate than the current annual dividends paid on the
Common Stock. There is no assurance, however, that the yield on
the Securities 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 Securities is less than that afforded by an investment in the
Common Stock because holders of Securities will realize no equity
appreciation unless, the Reference Market Price of the Common
Stock on the Exchange Date is above $ , and less than
all of the appreciation even if at that time the Reference Market
Price is above the [$ ]. Holders of Securities will
realize the entire depreciation if the Reference Market Price on
the Exchange Date is less than the price to public per Security
shown below.
The Company is not affiliated with the Trust.
The Securities have been approved for listing on the
American Stock Exchange under the symbol [ ]. Prior to
this offering there has been no public market for the Securities.
The last reported sale price of the Common Stock on the New York
Stock Exchange on [ ], was $[ ] per
share.
(CONTINUED ON NEXT PAGE)
SEE "RISK FACTORS" ON PAGE [ ] OF THIS PROSPECTUS FOR A
DISCUSSION OF CERTAIN FACTORS RELEVANT TO AN INVESTMENT IN THE
SECURITIES.
________________________
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
PRICE TO PROCEEDS TO THE
PUBLIC SALES LOAD(1) TRUST (2)
Per Security. $[ ] $ [ ] $[ ]
Total(3) . . $[ ] $ [ ] $[ ]
(1) The Company and the Seller have agreed to indemnify the
Underwriters against certain liabilities, including
liabilities under the Securities Act of 1933. See
"Underwriting".
(2) Expenses of the offering, which are payable by Bear, Stearns
& Co. Inc., are estimated to be $[ ].
(3) The Trust has granted to the Underwriters an option for 30
days to purchase up to an additional [ ] Securities
at the price to the public per Security, solely to cover
over-allotments. If the option is exercised in full, the
total Price to Public and Proceeds to the Trust will be
$[ ]. See "Underwriting".
(4) In light of the fact that the proceeds of the sale of the
Securities will be used in part by the Trust to purchase the
Contract from the Seller, the Underwriting Agreement
provides that the Seller will pay to the Underwriters as
compensation ("Underwriters Compensation") $[ ] per
Security. See "Underwriting".
_________________________
The Securities are offered by Bear, Stearns & Co. Inc., as
specified herein, subject to receipt and acceptance by them and
subject to their right to reject any order in whole or in part.
It is expected that certificates for the Securities will be ready
to delivery through the Facilities of the Depository Trust
Company, on or about [_______ __, ____]
BEAR,.STERNS & CO. INC.
______________
THE DATE OF THIS PROSPECTUS IS [_______ __, _____]
The Trust has adopted a policy that the Contract may not be
disposed of during the term of the Trust. The Trust will
continue to hold the Contract 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 concisely 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.
The Securities may be a suitable investment for those
investors who are able to understand the unique nature of the
Trust and the economic characteristics of the Contract and the
U.S. Treasury securities held by the Trust.
The Trust will be a grantor trust for federal income tax
purposes and each holder of the Securities will be treated as the
owner of its pro rata portions of the stripped U.S. Treasury
securities and the Contract. For a discussion of certain of the
material United States federal income tax consequences of
ownership of the Securities, see "Certain Federal Income Tax
Considerations."
THE TRUST IS A NEWLY ORGANIZED CLOSED-END INVESTMENT COMPANY
WITH NO PREVIOUS HISTORY OF PUBLIC TRADING. TYPICAL CLOSED-END
FUND SHARES FREQUENTLY TRADE AT A PREMIUM TO OR 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 ITS SHARES 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 MAY BE GREATER FOR
INVESTORS WHO WISH TO SELL THEIR INVESTMENTS SOON AFTER
COMPLETION OF AN INITIAL PUBLIC OFFERING.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-
ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE
MARKET PRICE OF THE SECURITIES OR THE COMMON STOCK AT LEVELS
ABOVE THOSE THAT MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE,
THE AMERICAN STOCK EXCHANGE OR OTHERWISE. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
PROSPECTUS SUMMARY
THIS SUMMARY OF THE PROVISIONS RELATING TO THE SECURITIES
DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY
BY THE DETAILED INFORMATION APPEARING ELSEWHERE IN THIS
PROSPECTUS. CERTAIN TERMS USED IN THIS SUMMARY ARE DEFINED
ELSEWHERE IN THIS PROSPECTUS.
THE TRUST
GENERAL. The Trust is a newly organized, finite-term trust.
The Trust will be registered as a non-diversified closed-end
management investment company under the Investment Company Act of
1940 (the "Investment Company Act"). Under 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.
INVESTMENT OBJECTIVE AND POLICIES. The Trust will purchase
and hold a portfolio of stripped U.S. Treasury securities
maturing on a quarterly basis through the Exchange Date and the a
forward purchase contract (the "Contract") with the Seller
obligating the Seller, on the Exchange Date, to deliver to the
Trust a number of shares of Common Stock equal to the product of
the Exchange Rate times the initial number of shares subject to
the Contract (or the Reference Market Price thereof). It is the
Trust's investment objective to provide the holders of the
Securities ("Holders") with a quarterly distribution of $[ ]
per Security (which amount equals pro rata portion of the
fixed quarterly cash distributions from the proceeds of the
maturing U.S. Treasury securities) and, on the Exchange Date, a
number of shares of Common Stock per Security equal to the
Exchange Rate or, if the Seller elects the Cash Settlement
Alternative, an amount in cash equal to the Reference Market
Price thereof. The Exchange Rate is equal to (i) if the
Reference Market Price is less than the [$ ] but
equal to or greater than the [ ], a number (or
fractional number) of shares of Common Stock per Security having
a value (determined at the Reference Market Price) equal to the
[ ], (ii) if the Reference Market Price is equal
to or greater than the [$ ], [ ]
shares of Common Stock per Security and (iii) if the Reference
Market Price is less than the [ ], 1 share of
Common Stock per Security, subject in each case to adjustment in
certain events. This provides the Trust with the potential for a
portion of any capital appreciation above the [$ ]
on the Common Stock, but no protection from depreciation of the
Common Stock and no participation in appreciation through
Appreciation Threshold Price. Holders otherwise entitled to
receive fractional shares in respect of their aggregate holdings
of the Securities will receive cash in lieu thereof. See
"Investment Objective and Policies Trust Termination".
The purchase price under the Contract is equal to $[ ]
per share of Common Stock initially subject thereto and $[ ]
([ ] shares of Common Stock) in the aggregate
(exclusive of the over-allotment option) and is payable
to the Seller by the Trust at the closing of the offering of the
Securities. The obligations of the Seller under the Contract
will be secured by a pledge of the Common Stock or, at the
election of the Seller, by substitute collateral consisting of
short-term, direct obligations of the U.S. Government. See
"Investment Objective and Policies The Contract Collateral
Arrangements; Acceleration".
THE OFFERING
The Trust is offering [ ] Securities to
the public at a purchase price of $______ per Security (which is
equal to the last reported sale price of the Common Stock on the
date of the Offering) through Bear, Stearns & Co. ("Bear Stearns"
or the "Underwriters"). In addition, the Underwriters have been
granted options to purchase up to [ ] additional
Securities solely for the purpose of covering over-allotments.
See "Underwriting".
THE SECURITIES
GENERAL. The Securities are designed to provide investors
with a higher distribution per Security than the dividend
currently paid per share on the Common Stock. The annual
distribution on the Securities is $[ ] per share.
Based on the current annual dividend rate of $ [ ] per share
of Common Stock, the annual per share distribution per Security
is $[ ] greater than the current annual per share
dividend rate on the Common Stock. Future declarations of
dividends on the Common Stock by the Company and the amount of
such dividends are discretionary with its Board of Directors and
subject to legal and other factors, including the Company's
future earnings, cash flow, financial condition and capital
requirements. Quarterly distributions on the Securities will
consist solely of the cash received from the U.S. Treasury
securities held by the Trust. The Trust will not be entitled to
any dividends that may be declared on the Common Stock.
Holders will receive distributions at a higher annual rate
than the current annual dividends paid on the Common Stock.
There is no assurance, however, that the yield on the Securities
will be higher than the dividend yield on the Common Stock over
the term of the Trust. In addition, the opportunity for equity
appreciation afforded by an investment in the Securities is less
than that afforded by an investment in the Common Stock because
Holders will realize no equity appreciation if, on the Exchange
Date, the Reference Market Price of the Common Stock is below the
[$ ] (which represents an appreciation of
[ ] of the [ ]). Moreover, because a Holder
will only receive [ ] shares of Common Stock per
Security (or the current Market Price thereof) if the Reference
Market Price exceeds the [$ ], Holders will only
be entitled to receive upon exchange [ ] of any
appreciation of the value of the Common Stock in excess of the
[$ ]. Holders of Securities will realize the entire
decline in equity value if the Reference Market Price is less
than the price to public per Security shown on the cover page
hereof.
DISTRIBUTIONS. Holders are entitled to receive
distributions at the rate per Security of $[ ] per
annum or $[ ] per quarter, payable quarterly on each
________ __, ________, __, ________ __ and _________ __ or, if
any such date is not a business day, on the next succeeding
business day, to Holders of record as of each ________ __,
_______ __, ________ __ and _________ __, respectively. The
first distribution, in respect of the period from Closing until
________ __, ____, will be payable on ________ __, ____ to
Holders of record as of November 1, 1996 and will equal
$[ ] per Security. See "Investment Objective and Policies
General".
MANDATORY EXCHANGE. On the Exchange Date, each outstanding
Security will be exchanged automatically for between [ ]
shares and __ share of Common Stock, subject to adjustment in
the event of certain dividends or distributions, subdivisions,
splits, combinations, issuances of certain rights or warrants or
distributions of certain assets with respect to the Common Stock.
Further, in lieu of delivering the Common Stock, the Seller may
elect under the Contract to pay cash on the Exchange Date in an
amount equal to the then Market Price of such number of shares of
the Common Stock (the "Cash Settlement Alternative"). If the
Seller elects the Cash Settlement Alternative, Holders will
receive cash instead of Common Stock on the Exchange Date. In
addition, 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
or Marketable Securities (as defined below under the caption
"Investment Objective and Policies The Contract Dilution
Adjustments") rather than shares of Common Stock. Further, the
occurrence of certain defaults by the Seller under the Contract
or the collateral arrangements would cause the acceleration of
the Contract and the exchange of each Security for an amount of
shares of Common Stock (or Marketable Securities), cash, or a
combination thereof, in respect of the shares of Common Stock and
the U.S. Treasury Securities. See "Investment Objective and
Policies The Contract Collateral Arrangements; Acceleration";
" The U.S. Treasury Securities" and " Trust Termination".
VOTING RIGHTS. Holders will have the right to vote on
matters affecting the Trust, as described below under the caption
"Description of the Securities", but will have no voting rights
with respect to the Common Stock prior to receipt of shares of
Common Stock by the Holders as a result of the exchange of the
Securities for the Common Stock on the Exchange Date. See
"Investment Objective and Policies The Company'' and
"Description of the Securities".
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The Trust will be treated as a grantor trust for federal
income tax purposes. Accordingly, each Holder will be treated
for federal income tax purposes as the owner of its pro rata
portion of the U.S. Treasury securities and the Contract, and
income received (including original issue discount treated as
received) by the Trust generally will be treated as income of the
Holders. The U.S. Treasury securities held by the Trust will be
treated for federal income tax purposes as having "original issue
discount" that will accrue over the term of the U.S. 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' investment in the
U.S. Treasury securities and therefore will not be considered
current income for federal income tax purposes. However, a
Holder (whether on the cash or accrual method of tax accountings)
must recognize currently as income original issue discount on the
U.S. Treasury securities as it accrues. A Holder will have
taxable gain or loss upon receipt of cash marketable Securities,
or a combination thereof in lieu of Common Stock distributed on
the Exchange Date. Each Holder's basis in its Common Stock will
be equal to its basis in its pro rata portion of the Contract
less the portion of such basis allocable to any shares of Common
Stock for which cash is received. See "Certain Federal Income
Tax Considerations."
ALTERNATIVE FEDERAL INCOME TAX CHARACTERIZATIONS
Holders also should be aware that there are alternative
characterizations of the assets of the Trust which could require
Holders to include more interest in income than they would
include in income under the analysis set out above. See "Certain
Federal Income Tax Considerations."
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 [ ] Trustees. The day-to-day
administration of the Trust will be carried out by [
] (or its successor) as trust
administrator (the "Administrator"). [
] (or its successor) will also act as custodian
(the "Custodian") for the Trust's assets and as paying agent (the
"Paying Agent"), registrar and transfer agent with respect to the
Securities. Except as aforesaid, [
] has no other affiliation with, and is not engaged in any
other transaction with, the Trust. See "Management and
Administration of the Trust".
LIFE OF THE TRUST
The Trust will terminate automatically on or shortly after
the Exchange Date. Promptly after the Exchange Date the shares
of Common Stock or cash, as the case may be, to be exchanged for
the Securities and other remaining Trust assets, if any, will be
distributed pro rata to Holders. See "Investment Objective and
Policies Trust Termination".
RISK FACTORS
The Trust will not be managed in the traditional sense. The
Trust has adopted a policy that the Contract may not be disposed
of during the term of the Trust and that the U.S. 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. The Trust will continue to hold the Contract despite any
significant decline in the market price of the Common Stock or
adverse changes in the financial condition of the Company. See
"Risk Factors Internal Management; No Portfolio Management" and
"Management and Administration of the Trust Trustees.
Holders will receive distributions at a higher annual rate
than the current annual dividends paid on the Common Stock.
There is no assurance, however, that the yield on the Securities
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 Securities is less
than that afforded by an investment in the Common Stock because
Holders will realize no equity appreciation unless at the
Exchange Date the Market Price of the Common Stock exceeds the
[$ ] (which represents an appreciation of [ ]%
of the [ ]). Moreover, because a Holder
will only receive [ ] shares of Common Stock per
Security (or the Market Price thereof) if the Market Price on the
Exchange Date exceeds the [ ], Holders
will only be entitled to receive upon exchange [ ]%
of any appreciation of the value of the Common Stock in excess of
the [$ ]. Holders of the Securities will
realize the entire decline in equity value if the Reference
Market Price is less than the price to public per Security shown
on the cover page hereof.
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 U.S. Treasury securities and the Contract, the Trust
may be subject to greater risk than would be the case for an
investment company with diversified investments. See "Investment
Objective and Policies" and "Risk Factors Non-Diversified
Status".
The trading prices of the Securities in the secondary market
will be directly affected by the trading prices of the Common
Stock in the secondary market. Trading prices of 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 Securities 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 Seller shall have delivered shares of Common Stock
pursuant to the Contract at the Exchange Date.
A bankruptcy of the Seller could adversely affect the timing
of exchange or, as a result, the amount received by the Holders
in respect of the Securities. See "Risk Factors Risk Relating
to Bankruptcy of Seller."
LISTING
The Securities have been approved for listing on the [
] Stock Exchange (the "[ ]") under
the symbol [ ].
FEES AND EXPENSES
In light of the fact that the proceeds of the sale of the
Securities will be used in part by the Trust to purchase the
Contract from the Seller, the Underwriting Agreement provides
that the Seller will pay Underwriters Compensation to the
Underwriters of $[ ] per Security. See "Underwriting".
Estimated organization costs of the Trust in the amount of
$[ ] and estimated costs of the Trust in connection with the
initial registration and public offering of the Securities in the
amount of $[ ] will be paid by [the Trust]. Other
estimated costs of the Trust in connection with the public
offering of the Securities in the amount of $[ ]
will be paid by the [Trust]. Each of the Administrator, the
Custodian and the Paying Agent, and each Trustee will be paid by
[Bear Stearns] at the closing of the offering of the Securities 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 $[ ] in the aggregate), over
the term of the Trust. [The Administrator] 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, except that any
extraordinary expense shall be payable by the Trust]. See
"Management and Administration of the Trust Estimated Expenses".]
Regulations of the Securities and Exchange Commission
("SEC") applicable to closed-end investment companies designed to
assist investors in understanding the costs and expenses that an
investor will bear directly or indirect require the presentation
of Trust expenses in the following format. Because the Trust
will not bear any fees or expenses, investors will not bear any
direct expenses. The only expenses that an investor might be
considered to be bearing indirectly are (i) the Underwriters'
Compensation payable by the Seller with respect to such
investor's Securities and (ii) the organizational and offering
expenses of the Trust, an estimated $[ ] of which
would be allocable to each year of the Trust's existence, and the
ongoing expenses of the trust (including fees of the
Administrator, Custodian, Paying Agent and Trustees), estimated
at $[ ] per year payable by Bear Stearns at the
closing of the offering. See "Investment Objective and Policies
General".
INVESTOR TRANSACTION EXPENSES
Sales Load (as a percentage of [ ]%
offering price) . . . . . . . . . .
Dividend Reinvestment and Cash [ ]
Purchase Plan Fees . . . . . . . .
ANNUAL EXPENSES
Management Fees . . . . . . . . . . . . . . . . [ ]%
Other Expenses (after reimbursement by Bear
Stearns)* . . . . . . . . . . . . . . . . . . . [ ]%
------------
Total Annual Expenses (after reimbursement
by Bear Stearns)* . .. . . . . . . . . . [ ]%
* Absent the reimbursement, the Trust's "total annual
expenses" would be equal to approximately [ ]% of
the Trust's average net assets. Bear Stearns is paying
expenses on behalf of the Trust out of its normal
underwriting compensation.
SEC 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 OBJECTIVE AND
POLICIES GENERAL." ADDITIONALLY, THE TRUST DOES NOT PERMIT THE
REINVESTMENT OF DISTRIBUTIONS.
EXAMPLE 1 YEAR 3 YEAR
-------------------------------- ------------- --------------
You would bear the following $ [ ] $ [ ]
expenses (I.e., the applicable
sales load and allocable portion
of ongoing expenses paid by Bear
Stearns and the Seller) on a
$_____ investment, assuming a 5%
annual return . . . . . . . . . .
THE TRUST
The Trust is a newly organized Delaware trust and is
registered as a closed-end investment company under the
Investment Company Act. The Trust was formed on ________ __,
____ pursuant to a trust agreement dated as of such date and
amended and restated as of _______ __, ____. The address of the
Trust is 245 Park Avenue, New York, New York 10167 (telephone no.
(212) 272-2000).
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 stripped U.S. Treasury securities
with face amounts and maturities corresponding to the quarterly
distributions payable with respect to the Securities and the
payment dates thereof, and to pay the purchase price under the
Contract to the Seller.
INVESTMENT OBJECTIVE AND POLICIES
GENERAL
The Trust will purchase and hold a portfolio of stripped
U.S. Treasury securities maturing on a quarterly basis through
the Exchange Date and the Contract relating to the Common Stock
of the Company. The Trust's investment objective is to provide
each Holder with a quarterly cash distribution of $[
] per Security (which amount equals the portion of the fixed
quarterly distributions from the proceeds of the maturing U.S.
Treasury securities held by the Trust) and, on the Exchange Date,
a number of shares of Common Stock per Security equal to the
Exchange Rate or, if the Seller elects the Cash Settlement
Alternative, an amount in cash equal to the Reference Market
Price thereof. The Exchange Rate is equal to (i) if the
Reference Market Price is less than the [$ ] but
equal to or greater than the [ ], a number (or
fractional number) of shares of common Stock ]per Security equal
to the [ ] divided by the Reference Market
Price (i.e., the value of such shares of Common Stock (determined
at the Reference Market Price) shall equal the [
]), (ii) if the Reference Market Price is equal to or greater
than the [$ ], [ ] shares of Common
Stock per Security and (iii) if the Reference Market Price is
less than the [ ], 1 share of Common Stock per
Security, subject in each case to adjustment in certain events.
See " The Contract Dilution Adjustments". For purposes of the
preceding clause (i) the Exchange Rate will be rounded upward or
downward to the nearest 1/10,000 (or if there is not a nearest
1/10,000, to the next lower 1/10,000). Holders otherwise
entitled to receive fractional shares in respect of their
aggregate holdings of Securities will receive cash in lieu
thereof. See " Trust Termination". The Reference Market Price
per share of Common Stock means the average Closing Price (as
defined below of a share of Common Stock on the 20 Trading Days
(as defined below) immediately prior to but not including the
Exchange Date. The Closing Price of the Common Stock on any date
of determination means the daily closing sale price (or, if no
closing sale price is reported, the last reported sale price) of
the Common Stock as reported on the New York Stock Exchange
Consolidated Tape on such date of determination or, if the Common
Stock is not listed for trading on the New York Stock Exchange on
any such date, as reported in the composite transactions for the
principal United States securities exchange on which the Common
Stock is so listed, or if the Common Stock is not so listed on a
United States national or regional securities exchange, as
reported by The Nasdaq National Market or, if the Common Stock is
not so reported, the last quoted bid price for the Common Stock
in the over-the-counter market as reported by the National
Quotation Bureau or similar organization, provided that if any
event that results in an adjustment to the number of shares of
Common Stock deliverable under the Contract as described under "
The Contract Dilution Adjustments" occurs prior to the Exchange
Date, the Closing Price as determined pursuant to the foregoing
will be appropriately adjusted to reflect the occurrence of such
event. A "Trading Day" means a day on which the Common Stock (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.
A fundamental policy of the Trust is to invest at least __%
of its total assets in the Contract. The Trust has also adopted
a fundamental policy that the Contract may not be disposed of
during the term of the Trust and that the U.S. 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. The foregoing investment objective and policies are
fundamental policies of the Trust that may not be changed without
the approval of a majority of the Fund's outstanding Securities.
A "majority of the Fund's outstanding Securities" means the
lessor of __% of the outstanding Securities are represented, and
(ii) more than __% of the outstanding Securities.
The value of the Common Stock (or cash or Marketable
Securities received in lieu thereof) that will be received by
Holders in respect of the Securities on the Exchange Date may be
more or less than the amount paid for the Securities offered
hereby.
For illustrative purposes only, the following chart shows
the number of shares of Common Stock that a Holder would receive
for each Security at various Reference Market Prices. The chart
assumes that there would be no adjustments to the number of
shares of Common Stock deliverable under the Contract by reason
of the occurrence of any of the events described under " The
Contract Dilution Adjustments". There can be no assurance that
the Reference Market Price will be within the range set forth
below. Given the [ ] of $[ ] per
Security and the [$ ] of $[ ], a
Holder would receive in connection with the exchange of
Securities on the Exchange Date the following number of shares of
Common Stock:
Reference Market Price NUMBER OF SHARES
OF COMMON STOCK OF COMMON STOCK
[ ] [ ]
[ ] [ ]
[ ] [ ]
[ ] [ ]
[ ] [ ]
[ ] [ ]
The following table sets forth information regarding the
distributions to be received on the U.S. Treasuries, the portion
of each year's distributions that will constitute a return of
capital for federal income tax purposes and the amount of original
issue discount accruing, assuming yield-to-maturity accrual
election, on the U.S. Treasuries with respect to a Holder who
acquires its Securities at the issue price from an Underwriter
pursuant to the original offering. See "Certain Federal Income
Tax Considerations Recognition of Interest on the U.S. Treasury
Securities".
ANNUAL ANNUAL
GROSS INCLUSION
ANNUAL DISTRIBU- OF ORIGINAL
GROSS TIONS ISSUE
DISTRIBU- FROM U.S. ANNUAL DISCOUNT
TIONS FROM TREASURIES RETURN OF IN INCOME
U.S. PER CAPITAL PER PER
TREASURIES SECURITY SECURITY SECURITY
---------- ---------- ----------- ----------
[ ] . . $ [ ] $ [ ] $ [ ] $ [ ]
[ ] . . [ ] [ ] [ ] [ ]
[ ] . . [ ] [ ] [ ] [ ]
[ ] . . [ ] [ ] [ ] [ ]
The annual distribution of $[ ] per Security is
]payable quarterly on each ______ __, _______ __, ________ __ and
_______ __, commencing ________ __, ____. Quarterly distributions
on the Securities will consist solely of the cash received from
the U.S. Treasury securities. The Trust will not be entitled to
any dividends that may be declared on the Common Stock. See
"Management and Administration of the Trust Distributions".
ENHANCED YIELD; LESS EQUITY APPRECIATION THAN COMMON STOCK; NO
DEPRECIATION PROTECTION
Holders will receive distributions at a higher annual rate
than the current annual dividends paid on the Common Stock.
However, there is no assurance that the yield on the Securities
will be higher than the dividend yield on the Common Stock over
the term of the Trust. In addition, the opportunity for equity
appreciation afforded by an investment in the Securities is less
than that afforded by an investment in the Common Stock because
Holders will realize no equity appreciation if, on the Exchange
Date, the Reference Market Price of the Common Stock is below the
[$ ] (which represents an ap recitation of
[ ]% of the [ ]). Moreover, because Holders
will only receive [ ] shares of Common Stock per
Security (or the Reference Market Price thereof) if the Reference
Market Price exceeds the [$ ], Holders will only
be entitled to receive upon exchange [ ]% (the
percentage equal to the initial Price divided by the [$ ])
of any appreciation of the value of the Common Stock in excess of
the AppreciationThreshold Price. Holders of Securities will
realize the entire decline in value if the Reference Market Price
is less than the price to public per Security shown on the cover
page hereof.
THE CONTRACT
GENERAL. The Trust will enter into the Contract with the
Seller obligating the Seller to deliver to the Trust on the
Exchange Date a number of shares of Common Stock equal to the
product of the Exchange Rate times the initial number of shares of
Common Stock subject to the Contract. The_aggregate initial
number of shares of Common Stock under the Contract will equal the
aggregate number of Securities offered hereby (subject to increase
in the event the Underwriters exercise their overallotment
option). The Contract also provides that the Seller may deliver
to the Trust on the Exchange Date, at the Seller's option, an
amount of cash equal to the value of the Common Stock deliverable
pursuant to the Contract (the "Cash Settlement Alternative"). If
the Seller elects to deliver cash in lieu of shares of Common
Stock, he would be required to deliver cash in respect of all
shares deliverable pursuant to the Contract.
The purchase price of the Contract was arrived at by arm's-
length negotiation between the Trust and the Seller taking into
consideration factors including the price, expected dividend level
and volatility of the Common Stock, current interest rates, the
term of the Contract, current market volatility generally the
collateral security pledged by the Seller, the value of other
similar instruments and the costs and anticipated proceeds of the
offering of the Securities. All matters relating to the
administration of the Contract will be the responsibility of
either the Administrator or the Custodian.
DILUTION ADJUSTMENTS. The Exchange Rate is subject to
adjustment if the Company shall (i) pay a stock dividend or make a
distribution with respect to the Common Stock in shares of such
stock, (ii) subdivide or split its outstanding shares of Common
Stock, (iii) combine its outstanding shares of Common Stock into a
smaller number of shares, or (iv) issue by reclassification of its
shares of Common Stock any shares of other common stock of the
Company. In any such event, the Exchange Rate shall be multiplied
by a dilution adjustment equal to 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), or fraction thereof, that a
shareholder who held one share of Common Stock immediately prior
to such event would be entitled solely by reason of such event to
hold immediately after such event.
In addition, if the Company shall issue rights or warrants 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
Then-Reference Market Price of the Common Stock (as defined below)
(other than rights to purchase Common Stock pursuant to a plan for
the reinvestment of dividends or interest) then the Exchange Rate
shall be multiplied by a dilution adjustment equal to a fraction,
of which the numerator shall be the number of shares of Common
Stock outstanding immediately prior to the time (determined as
described below) the adjustment is calculated by reason of the
issuance of such rights or warrants plus the number of an
additional shares offered for subscription or purchase pursuant to
such rights or warrants, and of which the denominator shall be the
number of shares of Common Stock outstanding immediately prior to
the time such adjustment is calculated plus the number of
additional shares that the aggregate offering price of the shares
so offered for subscription or purchase would purchase at the
Then-Reference Market Price. To the extent that, after expiration
of such rights or warrants, the shares offered thereby shall not
have been delivered, the Exchange Rate shall be further adjusted
to equal the Exchange Rate that would have been in effect had the
foregoing adjustment been made upon the basis of delivery of only
the number of shares of Common Stock actually delivered. The
"Then-Reference Market Price" of the Common Stock means the
average Closing Price per share of Common Stock for a Calculation
Period of five Trading Days immediately prior to the time such
adjustment is calculated (or, in the case of an adjustment
calculated at the opening of business on the business day
following a record date, as described Below, immediately prior to
the earlier of the time such adjustment is calculated and the
related "ex-date" on which the shares of Common Stock first trade
regular way on their principal market without the right to receive
the relevant dividend, distribution or issuance); provided that if
no Closing Price for the Common Stock is determined for one or
more (but not all) of such Trading Days, such Trading Day shall be
disregarded in the calculation of the Then-Reference Market Price
(but no additional Trading Days shall be added to the Calculation
Period). If no Closing Price for the Common Stock is determined
for any of such Trading Days, the most recently available Closing
Price for the Common Stock prior to such five Trading Days shall
be the Then-Reference Market Price.
Further, if the Company any shall pay a dividend or make a
distribution to all holders of Common Stock, in either case, of
evidences of its indebtedness or other non-cash assets (excluding
an any stock dividends or distributions in shares of Common Stock)
or issue to al holders of Common Stock rights or warrants to
subscribe for or purchase any of its securities (other than rights
or warrants referred to in the previous paragraph), then the
Exchange Rate shall be multiplied by a dilution adjustment equal
to a fraction, of which the numerator shall be the Then-Reference
Market Price per share of Common Stock, and the denominator shall
be such price less the fair market value (as determined by a
nationally recognized independent investment banking firm retained
for this purpose by the Administrator) as of the time the
adjustment is calculated of the portion of such evidences of
indebtedness, non-cash assets or rights or warrants payable in
respect of one share of Common Stock.
Further, if the Company distributes cash (other than an
Permitted Dividend (as defined below), any cash distributed in
consideration of fractional shares of Common Stock and any cash
distributed in a Reorganization Event (as defined below)
("Excluded Distributions")), by dividend or otherwise, to all
holders of Common Stock or makes an Excess Purchase Payment (as
defined below) then the Exchange Rate shall be multiplied by a
dilution adjustment equal to a fraction, of which the numerator
shall be the Then-Reference Market Price on the record date in
respect of such distribution and of which the denominator shall be
such price less the amount of such distribution applicable to one
share of Common Stock that would not be a Permitted Dividend (or
in the case of an Excess Purchase Payment, less the aggregate
amount of such Excess Purchase Payments made to all shareholders
divided by the number of outstanding shares of Common Stock on
such record date). For purposes of these adjustments, (a) the
term "Permitted Dividend" means any quarterly cash dividend in
respect of the Common Stock, other than a quarterly cash dividend
that exceeds the immediately preceding quarterly cash dividend,
and then only to the extent that the per share amount of such
dividend results in an annualized dividend yield on the Common
Stock in excess of [ ] and (b) the term "Excess Purchase
Payment" means the excess, if any, of (i) the cash and the value
(as determined by a national recognized independent investment
banking firm retained for this purpose by the Administrator, whose
determination shall be conclusive) of all other consideration paid
by the Company with respect to one share of Common Stock acquired
in a tender offer or exchange offer by the Company over (ii) the
Then-Reference Market Price per share of Common Stock.
If any adjustment in the Exchange Rate is required to be
calculated as described above, corresponding adjustments to the
[ ] and the [$ ] shall be
calculated.
Dilution adjustments shall be effected: (i) in the case of
any dividend, distribution or issuance described above, at the
opening of business on the business da following the record date
for determination of holders of Common Stock entitled to receive
such dividend, distribution or issuance or, if the announcement of
any such dividend, distribution or issuance is after such record
date, at the time such dividend, distribution or issuance shall be
announced by the Company; (ii) in the case of any subdivision,
lit, combination or reclassification described above, on the
effective date of such transaction; (iii) in the case of any
Excess Purchase Payment for which the Company shall announce, at
or prior to the time it commences the relevant share repurchase,
the repurchase price for such shares to be repurchased, on the
date of such announcement; and (iv) in the case of any other
Excess Purchase Payment, on the date that the holders of Common
Stock become entitled to.payment with respect thereto. There will
be no adjustment under the Contract in respect of any dividends,
distributions, issuances or repurchases that may be declared or
announced after the Exchange Date. If any announcement or
declaration of a record date in respect of a dividend,
distribution, issuance or repurchase shall subsequently be
cancelled by the Company, or such dividend, distribution, issuance
or repurchase shall fail to receive requisite approvals or shall
fail to occur for any other reason, then the Exchange Rate in
which the Company is outstanding immediately for cash, securities
or (B) any sale, transfer, property of the Company as an entirety,
(C) any shall be further adjusted to equal the Exchange Rate that
would have been in effect had the adjustment for such dividend,
distribution, issuance or repurchase not been made. All
adjustments described herein shall be rounded upward or downward
to the nearest 1/10,000 (or if there is not a nearest 1 10,000, to
the next lower 1/10,000). 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.
In the event of (A) any consolidation or merger of the
Company, or any surviving entity or subsequent surviving entity of
the Company (a "Company" Successor"), with or into another entity
(other than a merger or consolidation the continuing corporation
and in which the Common Stock prior to the merger or consolidation
is not exchanged other property of the Company or another
corporation), lease or conveyance to another corporation of the or
any Company Successor as an entirety or substantially statutory
exchange of securities of the Company or any Company Successor
with another corporation (other than in connection with a merger
or acquisition) or (D) any liquidation, dissolution or winding up
of the Company or any Company Successor (an such event described
in clause (A), (B), (C) or (D), a "Reorganization Event"), the
Exchange Rate will be adjusted such that, on the Exchange Date,
each Holder will receive for each Security cash in an amount equal
to (i) if the Transaction Value (as defined below) is less than
the [$ ] but equal to or greater than the
[ ], the [ ], (ii)
Transaction Value is greater than or equal to the
[$ ], -------------- multiplied by the Transaction
Value and (iii) if the Transaction Value is less than the
[ ], the Transaction Value. Notwithstanding the
foregoing, to the extent that any Marketable Securities (as
defined below) are received by holders of Common Stock in such
Reorganization Event, then in lieu of delivering cash as provided
above, the Seller may at his option deliver a proportional amount
of such Marketable Securities. If a seller elects to deliver
Marketable Securities, Holders will be responsible for the payment
of any and all brokerage and other transaction costs upon the sale
of such securities.
"Transaction Value" means (i) for any cash received in any
such Reorganization Event, the amount of cash received per share
of Common Stock, (ii) for any property other than cash or
Marketable Securities received in any such Reorganization Event,
an amount equal to the market value on the date the Reorganization
Event is consummated of such property received per share of Common
Stock as determined by a nationally recognized independent
investment banking firm retained for this purpose by the
Administrator and (iii) for any Marketable Securities received in
any such Reorganization Event, an amount equal to the average
Closing Price per share of such securities on the 20 Trading days
immediately prior to the Exchange Date multiplied by the number of
such securities received for each share of Common Stock; provided
that if no Closing Price for such Marketable Securities is
determined for one or more (but not all) of such Trading Days,
such Trading Days shall be disregarded in the calculation of such
average Closing Price (but no additional Trading Days shall be
added to the Calculation Period?. If no Closing Price for the
Marketable Securities is determined for all such Trading Days, the
calculation in the preceding clause (iii) shall be based on the
most recently available Closing Price for the Marketable
Securities prior to such 20 Trading Days. The number of shares of
Marketable Securities included in the calculation of Transaction
Value for purposes of the preceding clause (iii) shall be subject
to adjustment if a dilution event of the type described above
shall occur with respect to the issuer of the Marketable
Securities between the time of the Reorganization Event and the
Exchange Date.
"Marketable Securities" means any common equity securities
listed on a U.S. national securities exchange or reported by The
Nasdaq National Market.
No dilution adjustments will be made for events, other than
those described above, such as offerings of Common Stock (other
than through the issuance of rights or warrants described above)
for cash or in connection with acquisitions.
COLLATERAL ARRANGEMENTS; ACCELERATION. The Seller's
obligations under the Contract will be secured by a security
interest in the maximum number of shares of Common Stock subject
to the Contract (subject to adjustment in accordance with the
dilution adjustment provisions of the Contract, described above)
pursuant to a Collateral Agreement between such Seller and
[ ], as collateral agent
(the "Collateral Agent"). Unless the Seller is in default in its
obligations under the Security and Pledge 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. An U.S. Government obligations pledged as
substitute collateral 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 ___% (or, from and after
any Insufficiency Determination that shall not be cured by the
close of business on the tenth 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. The Collateral Agreement will provide that, in the
event of a Reorganization Event, the Seller will pledge as
alternative collateral any Marketable Securities received by it in
respect of the maximum number of shares of Common Stock subject to
the Contract at the time of the Reorganization Event, plus U.S.
Government obligations having an aggregate market value when
pledged and at daily mark-to market valuations thereafter of not
less than ___% of the Seller ' s Cash Delivery Obligations. The
Seller's "Cash Delivery Obligations" shall be the Transaction
Value of any consideration other than Marketable Securities
received by the Seller in respect of the maximum number of shares
subject to the Contract at the time of the Reorganization Event.
The number of shares of Marketable Securities required to be
pledged shall be subject to adjustment if any event requiring a
dilution adjustment under the Contract shall occur. The Seller
will be permitted to substitute U.S. Government obligations for
Marketable Securities pledged at the time of or after any
Reorganization 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 not less than ___% (or, from and after any
Insufficiency Determination that shall not be cured by the close
of business on the tenth business day thereafter, as described
below, ___%) of the product of the market price per share of
Marketable Securities at the time of each valuation times the
number of shares of Marketable Securities for which such
obligations are being substituted. The Collateral Agent will
promptly pay over to the Seller any dividends, interest, principal
or other payments received by the Collateral Agent in respect of
any collateral, including any substitute collateral, unless the
Seller is in default of its obligations under the Collateral
Agreement, or unless the payment of such amount to the Seller
would cause the co lateral to become insufficient under the
Collateral Agreement. The Seller shall have the right to vote any
pledged shares of Marketable Securities for so long as such shares
are owned by him and pledged under the Collateral Agreement,
including after an event of default under the Contract or the
Collateral Agreement.
If the Collateral Agent shall determine (an "Insufficiency
Determination") that U.S. Government obligations pledged as
substitute collateral shall fail to meet the foregoing
requirements at any valuation, or that the 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 shares of Marketable Securities subject to the Contract, and
such failure shall not be cured by the close of business on the
tenth business day after such determination, then, unless a
Collateral Event of Default (as defined below) under the
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
shares of Marketable Securities, in an amount sufficient to cause
the collateral to meet the requirements under the Collateral
Agreement. The Collateral Agent shall discontinue such sales and
purchases if at any time a Collateral Event of Default under the
Collateral Agreement shall have occurred and be continuing. A
"Collateral Event of Default under the 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 Contract at such time (or, if a
Reorganization Event shall have occurred at or prior to such time,
failure of the collateral to include the maximum number of shares
of any Marketable Securities required to be pledged as described
above); (B) if an U.S. Government obligations shall be pledged as
substitute collateral for shares of Common Stock (or shares of
Marketable Securities) at such time, failure of such U.S.
Government obligations to have a market value at such time of at
least [ ] of the market price per share of Common Stock (or
the then current market price per share of Marketable Securities,
as the case may be) times the difference between (x) the maximum
number of shares of Common Stock (or shares of Marketable
Securities) subject to the Contract at such time and (y) the
number of shares of Common Stock (or shares of Marketable
Securities) pledged as collateral at such time; and (C) at any
time after a Reorganization Event in which consideration other
than Marketable Securities shall have been delivered, failure of
the U.S. Government obligations pledged in respect of the Cash
Delivery Obligations to have a market value at such time of at
least ___% of the Cash Delivery Obligations, if such failure shall
not be cured within ten business days after notice thereof is
delivered to the Seller.
The occurrence of a Collateral Event of Default under the
Collateral Agreement, or the bankruptcy or insolvency of the
Seller, will cause an automatic acceleration of the Seller's
obligations under the Contract. In any such event, the Seller
will become obligated to deliver shares of Common Stock (or, after
a Reorganization Event, Marketable Securities or cash or a
combination thereof) having an aggregate value equal to the
"Aggregate Acceleration Value" under the Contract. The Aggregate
Acceleration Value will be based on an "Acceleration Value,
determined by the Administrator on the basis of quotations from
independent dealers. Each quotation will be for the amount that
would be paid to the relevant dealer in consideration of an
agreement between the Trust and such dealer that would have the
effect of preserving the Trust's rights to receive Common Stock
(or, after a Reorganization Event, the alternative consideration
provided under the Contract) under a portion of the Contract that
corresponds to an initial number of shares of Common Stock equal
to [ ]. The Administrator will request quotations from
four national recognized independent dealers on or as soon as
reasonably practicable following the ate 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 equal to such quotation. The Aggregate Acceleration
Value will be computed by dividing the Acceleration Value by
[ ] and multiplying the quotient by the initial number of
shares of Common Stock subject to the Contract, except that, if no
quotations are provided, the Aggregate Acceleration Value will be
(A) the Reference Market Price per share of Common Stock on the
acceleration date times the number of shares of Common Stock that
would be required to be delivered on such date under the Contract
if the Exchange Date were redefined to be the acceleration date or
(B) after a Reorganization Event, the value of the alternative
consideration that would be required to be delivered on such date
under the Contract if the Exchange Date were redefined to be the
acceleration date. Upon the occurrence of a Collateral Event of
Default or the bankruptcy or insolvency of the Seller, the Common
Stock (or, after a Reorganization Event, Marketable Securities or
cash or a combination thereof) deliverable for each Security will
be based solely on the Aggregate Acceleration Value described
above for the Contract. [From time to time, as determined in
good faith by the Trustees of the Fund, the Fund also may engage
third parties to provide additional valuations.]
Upon any acceleration, the Collateral Agent will distribute
to the Trust, for distribution pro rata to the Holders, the
Aggregate Acceleration Value in the form of shares of Common Stock
then pledged, or cash generated from the liquidation of U.S.
Government obligations then pledged, or a combination thereof (or,
after a Reorganization Event, in the form of Marketable Securities
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 Common Stock (or, after a
Reorganization Event, cash or Marketable Securities) sufficient to
meet the obligations under the Contract, the Collateral Agent will
distribute to the Trust for distribution pro rata to the Holders
the market value of the Common Stock required to be delivered
thereunder, in the form of any shares of Common Stock then pledged
by the Seller plus cash generated from the liquidation of U.S.
Government obligations then pledged by the Seller (or, after a
Reorganization Event, the market value of the alternative
consideration required to be delivered thereunder, in the form of
any Marketable Securities then pledged, plus any cash then
pledged, plus cash generated from the liquidation of U.S.
Government obligations then pledged). See Trust Termination".
DESCRIPTION OF SELLER. [ ]
THE U.S. TREASURY SECURITIES
The Trust will purchase and hold a series of zero-coupon
("stripped") U.S. Treasury securities with face amounts and
maturities corresponding to the distributions payable with respect
to the Securities and the payment dates thereof. Up to __% of the
Trust's total assets may be invested in these U.S. Treasury
Securities. In the event that the Contract is accelerated or
disposed of as described under the caption "Management
Administration of the Trust Trustees", then an such U.S. Treasury
securities then held in the Trust shall be liquidated by the
Administrator and distributed pro rata to the Holders, together
with the amounts distributed upon acceleration or any
consideration received by the Trust upon disposition of the
Contract. See " Collateral Arrangements; Acceleration" and "
Trust Termination".
TEMPORARY INVESTMENTS
For cash management purposes, the Trust may invest the
proceeds of the U.S. Treasury securities 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 ate. Not more than __% of the Trust's
total assets will be invested in such short-term obligations or
held in cash at any one time.
INVESTMENT RESTRICTIONS
As a matter of fundamental policy, the Trust may not purchase
any securities or instruments other than the U.S. Treasury
securities, the Contract and the Common Stock or other assets
received pursuant to the Contract and, for cash management
purposes, short-term obligations of the U.S. Government; issue any
securities or instruments except for the Securities; 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 including futures contracts;
or make loans. The Trust also has adopted a fundamental policy
that the Contract may not be disposed of during the term of the
Trust and that the U.S. 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.
TRUST TERMINATION
The Trust will terminate automatically on or shortly after
the Exchange Date. Alternatively, in the event that the Contract
is accelerated, then any U.S. Treasury securities then held in the
Trust shall be liquidated by the Administrator and distributed pro
rata to the Holders, together with the amounts distributed upon
acceleration, and the Trust shall be terminated. See "
Collateral Arrangements; Acceleration" and " The U.S. Treasury
Securities".
RISK FACTORS
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 Contract may not be disposed of
during the term of theTrust and that the U.S. 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. As
a result, the Trust will continue to hold the Contract despite
significant declines in the market price of the Common Stock or
adverse changes in the financial condition of the Company (or,
after a Reorganization Event, comparable developments affecting
any Marketable Securities or the issuer thereof). The Trust will
not be managed like a typical closed-end investment company.
LIMITED APPRECIATION POTENTIAL; COMMON STOCK DEPRECIATION RISK
The Trust anticipates that on the Exchange Date it will
receive the Common Stock deliverable pursuant to the Contract,
which it will then distribute to Holders. Although the yield on
the Securities is higher than the current dividend yield on the
Common Stock, there is no assurance that the yield on the
Securities will be higher than the dividend yield on the Common
Stock over the term of the Trust. In addition, because the
Contract calls for the Seller to deliver less than the full number
of shares of Common Stock subject to the Contract where the
Reference Market Price exceeds the [ ] (and
therefore less than one full share of Common Stock for each
outstanding Security), the Securities have more limited
appreciation potential than the Common Stock. Therefore, the
Securities may trade below the value of the Common Stock if the
Common Stock appreciates in value. The value of the Common Stock
to be received by Holders on the Exchange Date (and any cash
received in lieu thereof) may be less than the amount paid for the
Securities. Holders of Securities will realize the entire decline
in value if the Reference Market Price is less than the price to
public per Security shown on the cover page hereof.
DILUTION ADJUSTMENTS; SHAREHOLDER 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
Objective and Policies The Contract Dilution Adjustments".
The 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 amount
to be received pursuant to the Contract to the.price of the Common
Stock, such other events may adversely affect the trading price of
the Securities. 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 as a result of the exchange of the Securities for the
Common Stock, 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).
TRADING VALUE; LISTING
The Trust is a newly organized closed-end investment company
with no previous operating history and the Securities are
innovative securities. It is not possible to predict how the
Securities will trade in the secondary market. The trading price
of the Securities 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 Trust
believes, however, that because of the yield on the Securities and
the formula for determining the number of shares of Common Stock
to be delivered on the Exchange Date, the Securities will tend to
trade at a premium to the market value of the Common Stock to the
extent the Common Stock price falls and at a discount to the
market value of the Common Stock to the extent the Common Stock
price rises.
Shares of closed-end investment companies frequently trade at
a premium to or 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 its
shares 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 may be greater for investors who wish to sell their
investments soon after completion of an 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.
Bear Stearns currently intend, but are not obligated, to make
a market in the Securities. There can be no assurance that a
secondary market will develop or, if a secondary market does
develop, that it will provide the Holders with liquidity of
investment or that it will continue for the life of the
Securities. The Securities have been approved for listing on the
AMEX, but there can be no assurance that the Securities will not
later be desisted or that trading in the Securities on the AMEX
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 securities on another national securities exchange or for
quotation on another trading market. If the Securities are not
listed or traded on any securities exchange or trading market, or
if trading of the Securities is suspended, pricing information for
the Securities may be more difficult to obtain, and the price and
liquidity of the Securities may be adversely affected.
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. Since the only securities or instruments held
or received by the Trust will be U.S. Treasury securities and the
Contract or other assets consistent with the terms of the
Contract, the Trust may be subject to greater risk than would be
the case for an investment company with diversified investments.
RISK RELATING TO BANKRUPTCY OF SELLER
The Trust believes that the Contract constitutes a
"securities contract" for purposes of the Bankruptcy Code,
performance of which would not be subject to the automatic stay
provisions of the Bankruptcy Code in the event of bankruptcy of
the Seller. It is, however, possible that the Contract will be
determined not to qualify as a "securities contract" for this
purpose, in which case the Seller's bankruptcy may cause a delay
in settlement of the Contract, or otherwise subject the Contract
to the bankruptcy proceedings, which could adversely affect the
timing of exchange or, as a result, the amount received by the
Holders in respect of the Securities.
DESCRIPTION OF THE SECURITIES
Each Security represents an equal proportional interest in
the Trust, and a total of Securities will be
issued. Upon liquidation of the Trust, Holders are entitled to
share pro rata in the net assets of the Trust available for
distribution. The Securities have no preemptive, redemption or
conversion rights. Securities are fully paid and nonassessable by
the Trust. The only securities that the Trust is authorized to
issue are the Securities offered hereby and those sold to the
initial Holder referred to below. See "Underwriting".
Holders are entitled to a full vote for each Security 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 Bear Stearns, as the initial
Holder of Securities of the Trust. The Trust intends to hold
annual meetings as required by the rules of the [ ]. 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 Trust Agreement. The Holders have the right, upon the
declaration in writing or vote of more than two-thirds of the
outstanding Securities, 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 Holders of record of __% of the
Securities or to vote on other matters upon the written request of
the Holders of record of __% of the Securities (unless substantial
the same matter was voted on during the preceding __ months). The
Trust will also assist in communications with other Holders as
required by the Investment Company Act.
BOOK-ENTRY-ONLY ISSUANCE
The Depositary Trust Company ("DTC") will act as securities
depository for the Securities. The information in this section
concerning DTC and DTC's book-entry system is based upon
information obtained from DTC. The Securities offered hereby will
initially be issued only as fully-registered securities registered
in the name of __________ (as nominee for DTC). One or more
fully-registered global Security certificates will be issued,
representing in the aggregate the total number of Securities, and
will be deposited with DTC.
DTC is a limited-purpose trust company organized under the
New York Banking Law, a "banking organization" within the meaning
of the New York Banking Law, 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, the provisions of Section __A of the Securities
Exchange Act. DTC holds securities at its participants
("Participants") deposit with DTC. DTC also facilities the
settlement among Participants of securities transactions, such as
transfers and pledges, in deposited securities through electronic
computerized book-entry changes in Participants' accounts, thereby
eliminating the need for physical movement of securities
certificates. Direct Participants include securities brokers and
dealers, banks, trust companies, clearing corporations and certain
other organizations ("Direct Participants"). Access to the DTC
system is also available to others such as securities brokers and
dealers, banks and trust companies that clear through or maintain
a custodial relationship with a Direct Participant, either
directly or indirectly ("Indirect Participants").
Purchases of Securities within the DTC system must be made by
or through Direct Participants, which will receive a credit for
the Securities on DTC's records. The ownership interest of each
actual purchaser of a Security ("Beneficial Owner") is in turn to
be recorded on the Direct or Indirect Participants' records.
Beneficial Owners will not receive written confirmation from DTC
of their purchases, but Beneficial owners are expected to receive
written confirmations providing details of the transactions, as
well as periodic statements of their holdings, rom the Direct or
Indirect Participants through which the Beneficial Owners
purchased Securities. Transfers of ownership interests in
Securities are to be accomplished by entries made on the books of
Participants acting on behalf of Beneficial Owners.
Beneficial Owners will receive certificates representing
their ownership interests in Securities, upon a resignation of
DTC, or upon request delivered to the Trust Administrator.
DTC has no knowledge of the actual Beneficial Owners of the
Securities; DTC's records reflect only the identity of the Direct
Participants to whose accounts such Securities are credited,which
may or may not be the Beneficial Owners. The Participants will
remain responsible for keeping account of their holdings on behalf
of their customers.
Conveyance of notices and other communications by DTC to
Direct Participants, by Direct Participants to Indirect
Participants, and by Direct Participants an Indirect Participants
to Beneficial Owners will be governed by arrangements among them,
subject to any statutory or regulatory requirements as may be in
effect from time to time.
In connection with payments on the Securities, DTC's practice
is to credit Direct Participants' accounts on the relevant payment
date in accordance with their respective holdings shown on DTC's
records unless DTC has reason to believe that it will not receive
payments on such payment date. Payments by Participants to
Beneficial Owners will be governed by standing instructions and
customary practices and will be the responsibility of such
Participant and not of DTC or the Trust, subject to any statutory
or regulatory Requirements as may be in effect from time to time.
Payment of dividends to DTC is the responsibility of the Trust,
disbursement of such payments to Direct Participants is the
responsibility of DTC, and disbursement of such payments to the
Beneficial owners is the responsibility of Direct and Indirect
Participants.
DTC may discontinue providing its services as securities
depository with respect to the Securities at any time by giving
reasonable notice to the Trust. Under such circumstances, in the
event that a successor securities depository is not obtained,
certificates representing the Securities will be printed and
delivered.
MANAGEMENT AND ADMINISTRATION OF THE TRUST
TRUSTEES
The Trust will be internally managed by three Trustees.
Under the provisions of 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
Contract may not be disposed of during the term of the Trust and
that the U.S. Treasury securities held by the Trust may not be
disposed of prior to the earlier of their respective maturities
and termination of the Trust.
The names of the persons who have been elected by Bear
Stearns, the initial Holder of the Trust, and who will 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
NAME, AGE AND DURING PAST FIVE
ADDRESS TITLE YEARS
--------------- ----- -------------------
_______________ [TO BE PROVIDED]
_______________
New York, New York
Each Trustee who is not a director, officer or employee of
any Underwriter or the Administrator, or of any affiliate thereof,
will be paid by the Seller, on behalf of the Trust, in respect of
its annual fee and anticipated out-of-pocket expenses, a one-time,
up-front fee of $[ ]. The Trust's Managing Trustee will
also receive an additional up-front fee of $[ ] 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
[ ] 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 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
Securities as described herein; (iv) prepare and mail, file or
publish all notices, proxies, re torts, tax returns ana other
communications and documents, and keep all books and records, for
the Trust; (v) at the direction of the Trustees, institute and
Prosecute legal and other appropriate proceedings to enforce the
rights an remedies of the Trust; and (VI) make all necessary
arrangements with respect to meetings of Trustees and an meetings
of Holders. The Administrator, however, will not 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 Contract or the settlement of the Contract 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 for the Trust, [
] has no other affiliation with, and is not engaged in
any other transactions with, the Trust.
The address of the Administrator is [ ]. CUSTODIAN
The Trust's custodian (the "Custodian") is [
] 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. Treasury
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
Contract.
PAYING AGENT
The transfer agent, registrar and paying agent (the "Paying
Agent") for the Securities is [ ]
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 Paying Agent, the
Administrator and the Custodian, with respect to any claim,
liability, loss or expense (including the costs and expenses of
the defense against an]( claim or liability) that it may incur in
acting as Trustee, Paying Agent, Administrator or Custodian, 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.
Bear Stearns 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. Bear Stearns
will in turn be reimbursed by the Seller for all Such
reimbursements paid by it.
DISTRIBUTIONS
The Trust intends to distribute to Holders on at quarterly
basis an amount equal to $[ ] per Security (which amount
equals the pro rata portion of the fixed quarterly cash
distributions from the proceeds of the maturing U.S. Treasury
securities held by the Trust). The first distribution, in respect
of the period from the Closing until [ ], will be
payable on [ ] to Holders of Record as of
[ ] and will equal $[ ] per
Security. Thereafter, distributions will be made on [
] of each year to Holders of record as of each
[ ], respectively. A portion of
each such distribution will be treated as a tax-free return of the
Holder's investment. See "Investment Objective and Policies
General,, and "Certain Federal Income Tax Considerations
Recognition of Interest on the U.S. Treasury Securities".
Upon termination of the Trust, as described under the caption
"Investment Objective and Policies Trust Termination", each
Holder will receive any remaining net assets of the Trust.
The Trust does not permit the reinvestment of distributions.
ESTIMATED EXPENSES
At the closing of this offering Bear Stearns 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, Securities certificates and Holder reports,
expenses of the Trustees, fidelity bond coverage, stock exchange
listing fees and expenses of qualifying the Securities for sale in
the various states. Organization costs of the Trust in the amount
of $[ ] and estimated costs of the Trust in
connection with the initial registration and public offering of
the Securities in the amount of $[ ] will be paid
by the [Trust]. Other estimated costs of the Trust in connection
with the public offering of the Securities in the amount of
$[ ] will be paid by the Seller.
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 the [Administrator] or, in event
of their failure to pay such amounts, the Trust.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following summary of certain of the material United
States federal income tax consequences of ownership of Securities
is based upon the opinion of Skadden, Arps, Slate, Meagher & Flom,
special tax counsel to the Trust. It deals only with Securities
held as capital assets by a Holder who acquires its Securities at
the issue price from an Underwriter pursuant to the original
offering. This summary addresses the United States federal income
tax considerations to a beneficial owner of Securities that is a
citizen or resident of the United States, a corporation,
partnership or other entity created or organized in or under the
laws of the United States or any political subdivision thereof or
therein, an estate or trust the income of which is subject to
United States federal income taxation regardless of its Source or
a Holder otherwise subject to United States federal income
taxation on a net income basis in respect of the Securities (a
"U.S. Holder") and does not address the tax consequences to a
Holder who is not a U.S. Holder. This summary does not address
all of the tax consequences that may be relevant to a Holder in
light of its particular circumstances and does not deal with
special classes of Holders, such as dealers in securities or
currencies, banks, thrift institutions, real estate investment
trusts, regulated investment companies, tax-exempt investors,
insurance companies, persons that hold Securities that are part of
a hedging transaction, straddle or conversion transaction,
shareholders, partners, or beneficiaries of a Holder or persons
whose functional currency is not the U.S. dollar. This summary
does not include any description of any alternative minimum tax
consequences or the tax laws of any state or local government or
of any foreign government that may apply to the Securities. The
summary is based on the Internal Revenue Code of ____, as amended
(the "Code"), its legislative history, existing and proposed
regulations thereunder, published rulings and court decisions, all
as currently in effect and all subject to change at any time,
perhaps with retroactive effect.
Prospective purchasers of Securities should consult their own
tax advisors concerning the consequences, in their particular
circumstances, under the Code and the laws of any other taxing
jurisdiction, of ownership of the Securities.
Holders should also be aware that there are alternative
characterizations of the assets of the Trust which could result in
federal income tax consequences different from those described
herein. See "Alternative Characterizations" below. While
Skadden, Arps, Slate, Meagher & Flom does not believe these
alternative characterizations should apply for federal income tax
purposes, there can be no assurance in this regard, and Holders
should consult their tax advisors concerning the risks associated
with alternative characterizations. The following discussion
assumes that no such alternative characterizations will apply.
TAX STATUS OF THE TRUST
The Trust will be treated as a grantor trust for federal
income tax purchases, and each Holder will be considered the owner
of its pro rata portions of the stripped U.S. Treasury securities
and the Contract in the Trust under the grantor trust rules of the
Code. Income received by the Trust will be treated as income of
the Holders in the manner set forth below.
RECOGNITION OF INTEREST ON THE U.S. TREASURY SECURITIES
The U.S. Treasury securities in the Trust will consist of
stripped U.S. Treasury securities. A Holder will be required to
treat its pro rata portion of each U.S. Treasury security in the
Trust as a bond that was originally issued on the date the Holder
purchased its Securities at an original issue discount equal to
the excess of the Holder's pro rata portion o the amounts payable
on such U.S. Treasury security over the Holder's tax basis
therefor (determined as described below). The amount of such
excess, however, will constitute only a portion of the total
amounts payable in respect of U.S. Treasury securities held by the
Trust and, consequently a substantial portion of each quarterly
cash distribution to the Holders will be treated as a tax-free
return of the Holders' investment in the U.S. Treasury securities
and will not be considered current income for federal income tax
purposes. See "Investment Objective and Policies General."
A Holder (whether on the cash or accrual method of tax
accounting) will be required to include original issue discount
(other than original issue discount on short-term U.S. Treasury
securities as defined below) in income for federal income tax
purposes as it accrues on a constant yield basis. Holders on the
accrual method of tax accounting also will be required to include
in income original issue discount on any short-term U.S. Treasury
security (i.e., any U.S. Treasury security with a maturity of one
year or less from the date it is purchased) held by the Trust as
it is accrued. Unless such a Holder elects to accrue the original
issue discount on a short-term U.S. 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 U.S. Treasury security will be increased
by the amounts of any original issue discount included in income
by the Holder with respect to such U.S. Treasury security.
TAX BASIS OF THE U.S. TREASURY SECURITIES AND THE CONTRACT
A Holder's tax basis in the Contract and the U.S. Treasury
securities, respectively, will equal its pro rata portion of the
amounts paid for them by the Trust. It is currently anticipated
that [ ] and [ ] of the proceeds of the
offering will be used by the Trust to purchase the U.S. Treasury
securities and as payments for the Contract, respectively.
TREATMENT OF THE CONTRACT
Each Holder will be treated as having entered into a pro rata
portion of the Contract and, at the Exchange Date, as having
received a pro rata portion of the Common Stock or cash,
Marketable Securities or a combination thereof delivered to the
Trust.
DISTRIBUTION OF THE COMMON STOCK
The delivery of Common Stock pursuant to the Contract will
not be taxable to the Holders. Each Holder's basis in its Common
Stock will be equal to its basis in its pro rata portion of the
Contract less the portion of such basis allocable to any
fractional shares of Common Stock for which cash is received. A
Holder will recognize capital gain or loss upon receipt of cash in
lieu of fractional shares of Common Stock distributed upon
termination of the Trust equal to the difference between the
amount of cash received and the basis of such fractional share.
The holding period for the Common Stock will begin on the date it
is acquired.
DISTRIBUTION OF CASH OR MARKETABLE SECURITIES
If the Seller elects the Cash Settlement Alternative or, as a
result of a Reorganization Event, cash, Marketable Securities, or
a combination of cash and Marketable Securities is delivered
pursuant to the Contract, a Holder will recognize capital gain or
loss upon receipt equal to the difference between the amount of
cash received and its basis in its pro rata portion of the
Contract allocable to any shares for which such cash was received.
Any gain or loss will be capital gain or loss and, if the Holder
has held the Securities for more than one year, such gain or loss
will be long-term capital gain or loss. A Holder's basis in any
Marketable Securities received will be equal to its basis in its
pro rata portion of the Contract less the portion of such basis
allocable to any shares of Common Stock for which cash or
fractional shares of Marketable Securities were received. See
"Investment Objective and Policies The Contract".
SALE OF SECURITIES
Upon a sale of all or some of a Holder's Securities, a Holder
will be treated as having sold its pro rata portions of the U.S.
Treasury securities and the Contract underlying the Securities.
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 portions of the U.S. Treasury securities
and the Contract. Any gain or loss will be long-term capital gain
or loss if the Holder has held the Securities for more than one
year.
ALTERNATIVE CHARACTERIZATIONS
Skadden, Arps, Slate, Meagher & Flom believes that, although
the matter is not free from doubt, the Contract would be treated
for federal income tax purposes as a prepaid forward contract for
the purchase of a variable number of shares of Common Stock. The
Internal Revenue Service conceivably could take the view that the
Contract should be treated as a loan to the Seller in exchange for
a contingent debt obligation of the Seller. If the Internal
Revenue Service were to prevail in making such an assertion, a
Holder might be required to include original issue discount in
income over the life of the Securities based on the excess of the
anticipated value of the Common Stock to be received in respect of
the Contract over the amount paid for the Contract. In addition a
Holder would be required to include interest (rather than capital
gain) in income on the Exchange Date in an amount equal to the
excess, if any, of the value of the Common Stock received on the
Exchange Date (or the proceeds from prior disposition of the
Contract) over the aggregate of the basis of the Contract and any
interest on the Contract previously included in income (or might
be entitled to an ordinary deduction to the extent of interest
previously and not ultimately received). The Internal Revenue
Service also conceivably could take the view that a Holder should
simply include in income as interest the amount of cash actually
received each year in respect of the Securities.
BACKUP WITHHOLDING AND INFORMATION REPORTING
The payments of principal and interest (including original
issue discount) on, and the proceeds received from the sale of,
Securities may be subject to U.S. backup withholding tax at the
rate of __% if the Holder thereof fails to supply an accurate
taxpayer identification number or otherwise to comply with
applicable U.S. information reporting or certification
requirements. Any amounts so withheld will be allowed as a credit
against such Holders U.S. federal income tax liability and may
entitle such Holder to a refund, provided that the required
information is furnished to the Internal Revenue Service.
After the end of each calendar year, the Trust will furnish
to each record Holder of the Securities an annual statement
containing information relating to the payments on the U.S.
Treasury securities received by the Trust. The Trust will also
furnish annual information returns to each record Holder of the
Securities and to the Internal Revenue Service.
UNDERWRITING
Subject to the terms And conditions of the Underwriting
Agreement, the Trust has agreed to sell to Bear Stearns, as
Underwriters, and the Underwriters, have agreed to purchase from
the Trust [ ] Securities.
Under the terms and conditions of the Underwriting Agreement,
the Underwriters are committed to take and pay for all of the
Securities offered hereby, if any are taken.
The Underwriters propose to offer the Securities in part
directly to the public at the price to the public set forth on the
cover page of this Prospectus and in part to certain securities
dealers at such price less a concession of $[ ] per Security.
The Underwriters may allow, and such dealers may re-allow, a
concession not in excess of $[ ] per Security to certain
brokers and dealers. After the Securities are released for sale
to the public, the offering price and other selling terms may from
time to time be varied by the Underwriters.
In light of the fact that proceeds from the sale of the
Securities will be used by the Trust to purchase the Contract from
the Seller, the Underwriting Agreement provides that the Seller
will pay to the Underwriters the Underwriters' Compensation of
$[ ] per Security.
The Trust has granted the Underwriters an option exercisable
for __ calendar days after the date of this Prospectus to purchase
up to an aggregate of [ ] Securities solely to
cover over-allotments, if any. if the Underwriters exercise their
over-allotment option, they will receive the Underwriters'
Compensation referred to above for each Security so purchased. In
addition, in connection with an:( such exercise, the Underwriters
have severally agreed, subject to certain conditions, to purchase
approximately the same percentage thereof that the number of the
Securities to be purchased by each of them, as shown in the
foregoing table, bears to the [ ] Securities
initially offered.
The Seller and the Company have agreed that, during the
period beginning from the date of this Prospectus and continuing
to and including the date ___ days, in the case of the Seller, and
__ days, in the case of the Company, after the date of this
Prospectus, they will not offer, sell, contract to sell or
otherwise dispose of any Common Stock or other securities of the
Company (other than pursuant to employee stock option plans
existing, or on the conversion or exchange of convertible or
exchangeable securities outstanding, on the date of this
Prospectus) which are substantially similar to the Common Stock or
which are convertible or exchangeable into Common Stock or other
securities which are substantially similar to the Common Stock,
without the prior written consent of Bear Stearns; provided,
however, to the extent that the Seller borrows under a margin loan
(which loan shall not be in excess of $[ ]) the
forcing restrictions shall not apply to those shares of Common
Stock that are pledged by the Seller as collateral for such margin
loan, provided, further, that the foregoing restrictions shall not
apply to pledges of Common Stock as collateral pursuant to any
margin loans existing on the date of this Prospectus.
The Securities will be a new issue of securities with no
established trading market. The Securities have been approved for
listing on the American Stock Exchange. Bear Stearns have advised
the Company that they intend to make a market in the Securities,
but they are not obligated to do so and may discontinue market
making at any time without notice. No assurance can be given as
to the liquidity of the trading market for the Securities.
The Company and the Seller have agreed to indemnify the
Underwriters against certain liabilities, including certain
liabilities under the Securities Act of ____. The Underwriters
have agreed to pay certain expenses of the Trust.
[One Security has been purchased by Bear Stearns at an
aggregate purchase price of $[ ]. The initial
Security has been split into the smallest whole number of
Securities that would result in the per Security amount recorded
as shareholders, equity after effecting the split not exceeding
the Public Offering price per Security.]
VALIDITY OF SECURITIES
The validity of the Securities will be passed upon for the
Trust and the Underwriters by their counsel, Skadden, Arps, Slate,
Meagher & Flom, 919 Third Avenue, New York, New York 10022.
EXPERTS
The financial statement included in this Prospectus has been
audited by [ ], independent accountants,
as stated in their opinion appearing herein, and has been so
included in reliance upon such opinion given upon the authority of
that firm as experts in accounting and auditing.
FURTHER INFORMATION
The Trust has filed with the Securities and Exchange
Commission, Washington, D.C. 20549, a Registration Statement under
the Securities Act of 1933, as amended, with respect to the
Securities offered hereby. Further information concerning the
Securities and the Trust may be found in the Registration
Statement of which this Prospectus constitutes a part. The
Registration Statement may be inspected without charge at the
Commission's office in Washington, D.C., ana copies of all or any
part thereof may be obtained from such office after payment of the
fees prescribed by the Commission.
REPORT OF INDEPENDENT ACCOUNTANTS
MANDATORY COMMON EXCHANGE TRUST I
STATEMENT OF ASSETS AND LIABILITIES
[ ]
ASSETS
Cash . . . . . . . . . . . . . . . . . . . . [$
Total assets . . . . . . . . . . . . . $
LIABILITIES
. . . . . . . . . . . . . . . . . . . . $
NET ASSETS
Balance applicable to 1 Security outstanding. $
Net asset value per Security . . . . . . . . $
_____________________________
The Amended and Restated Trust Agreement provides that prior to
the offering, the Trust will split the outstanding Security to be
effected on the date that the price and underwriting discount of
the Securities being offered to the public is determined, but
prior to the sale of the Securities to Bear, Stearns & Co. Inc.
The initial Security will be split into the smallest whole number
of Securities that would result in the per Security amount
recorded as shareholders, equity after effecting the split not
exceeding the Public Offering price per Security.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE
ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY
OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT
RELATES OR ANY OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO
BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL.
- - - -
TABLE OF CONTENTS
PAGE
Prospectus Summary . . . . . . . . . . . .
The Trust . . . . . . . . . . . . . . . . .
Use of Proceeds . . . . . . . . . . . . . .
Investment Objective and Policies . . . . .
Risk Factors . . . . . . . . . . . . . . .
Description of the Securities . . . . . . .
Management and Administration of the Trust.
Certain Federal Income Tax Considerations .
Underwriting . . . . . . . . . . . . . . .
Validity of Securities . . . . . . . . . .
Experts . . . . . . . . . . . . . . . . . .
Further Information . . . . . . . . . . . .
Report of Independent Accountants . . . . .
Statement of Assets and Liabilities . . . .
UNTIL [ ] (__ DAYS AFTER THE DATE OF
THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY
BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
MANDATORY COMMON EXCHANGE TRUST I
TRUST ISSUED MANDATORY EXCHANGEABLE SECURITIES (TIMES)
- - - -
PROSPECTUS
- - - -
Bear, Stearns & Co. Inc
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
Part A - Report of Independent Accountants.
Statement of Assets and Liabilities.
Part B - None.
(b) Exhibits
2.a.(i) Declaration of Trust
2.a.(ii) Certificate of Trust
*2.d Form of Specimen Certificate of Mandatory
Exchange Security
*2.h Form of Underwriting Agreement
*2.j Form of Custodian Agreement
*2.k.(i) Form of Administration Agreement
*2.k.(ii) Form of Paying Agent Agreement
*2.k.(iii) Form of Purchase Contract
*2.l Opinion and Consent of Counsel to the Trust
*2.n.(i) Tax Opinion of Counsel to the Trust (Consent
contained in Exhibit 2.n.i)
*2.n.(iii) Consent of Independent Public Accountants
*2.n.(iv) Consents to Being Named as Trustee
*2.p Form of Subscription Agreement
________________
* To be furnished by amendment.
Item 25. Marketing Arrangements
See the Form of Underwriting Agreement to be filed as Exhibit 2.h
to this Registration Statement.
Item 26. Other Expenses of Issuance and Distribution
The following table sets forth the estimated expenses
to be incurred in connection with the offering described in this
Registration Statement:
Registration fees . . . . . . . . . . . . . . . . . . . $3448.28
New York Stock Exchange listing fee . . . . . . . . . . *
Printing (other than certificates) . . . . . . . . . . *
Engraving and printing certificates . . . . . . . . . . *
Fees and expenses of qualification under
state securities laws (excluding fees of counsel) . . *
Accounting fees and expenses . . . . . . . . . . . . . *
Legal fees and expenses . . . . . . . . . . . . . . . . *
NASD fees . . . . . . . . . . . . . . . . . . . . . . . 1,500
Miscellaneous . . . . . . . . . . . . . . . . . . . . . *
Total . . . . . . . . . . . . . . . . . . . $
_______________
* To be furnished by amendment.
Item 27. Person Controlled by or under Common Control with Registrant
Prior to October ___, 1996 the Trust had no existence. As of the
effective date, the Trust will have entered into a Subscription Agreement
for ________ TIMES with Bear, Stearns & Co. Inc.and an Underwriting
Agreement with respect to ________ TIMES with Bear, Stearns & Co. Inc.
Item 28. Number of Holders of TIMES
Title of Class Number of Record Holders
Automatically Convertible Equity Securities . . . 0
Item 29. Indemnification
The Underwriting Agreement, filed as Exhibit 2(h) to this
Registration Statement, provides for indemnification to the Underwriters
against certain liabilities, including liabilities under the Securities
Act of 1933, as amended.
Insofar as indemnification for liabilities arising under the
Securities Act of ____, as amended (the "Act"), may be permitted to
trustees, officers and controlling persons of the Registrant, pursuant to
the foregoing provisions or otherwise, the Registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of
expenses incurred or paid by a trustee, officer or controlling person of
the Registrant in the successful defense of any action, suit or proceeding)
is asserted by such trustee, officer or controlling person in connection
with the securities being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as expressed
in the Act and will be governed by the final adjudication of such issue.
Item 30. Business and Other Connections of Investment Adviser
Not Applicable
Item 31. Location of Accounts and Records
The Trust's accounts, books and other documents are currently
located at the offices of the Registrant, c/o Bear, Stearns & Co. Inc.,
245 Park Avenue, New York, New York 10022 and at the offices of ,
the Registrant's Administrator, Custodian, paying agent, transfer agent
and registrar.
Item 32. Management Services
Not applicable.
Item 33. Undertakings
(a) The Registrant hereby undertakes to suspend offering of its
units until it amends its prospectus if (1) subsequent to the effective
date of its Registration Statement, the net asset value declines more than
10 percent from its net asset value as of the effective date ofthe
Registration Statement or (2) the net asset value increases to an amount
greater than its net proceeds as stated in the prospectus.
(b) The Registrant hereby undertakes that (i) for the purpose of
determining any liability under the ____ Act, the information omitted from
the form of prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of prospectus filed by the
Registrant under Rule 497(h) under the ____ Act shall be deemed to be part
of this registration statement as of the time it was declared effective;
(ii) for the purpose of determining any liability under the ____ Act, each
post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of the securities at that time shall be
deemed to be the initial bona fide offering thereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of ____
and the Investment Company Act of ____, the Registrant has duly caused
this Registration Statement to be signed on its behalf by the undersigned,
thereto duly authorized, in the City of New York, State of New
York, on the __th day of October, ____.
MANDATORY COMMON EXCHANGE TRUST I
By: /s/
Trustee
Pursuant to the requirements of the Securities Act of ____,
this Registration Statement has been signed below by the following person,
in the capacities and on the date indicated.
Name Title Date
/s/ Principal Executive Officer, October ___, ____
Principal Financial Officer,
Principal Accounting Officer
and Trustee
1
EXHIBIT INDEX
Sequential
Exhibit Page
Number Description Number
2.a.(i) Declaration of Trust
2.a.(ii) Certificate of Trust
*2.d Form of Specimen Certificate of
Trust Issued Mandatory Exchange
Securities
*2.h Form of Underwriting Agreement
*2.j Form of Custodian Agreement
*2.k.(i) Form of Administration Agreement
*2.k.(ii) Form of Paying Agent Agreement
*2.k.(iii) Form of Purchase Contract
*2.l Opinion and Consent of Counsel to the
Trust
*2.n.(i) Tax Opinion of Counsel to the Trust
(Consent contained in Exhibit 2.n.i)
*2.n.(iii) Consent of Independent Public
Accountants
*2.n.(iv) Consents to Being Named as Trustee
*2.p Form of Subscription Agreement
* To be furnished by amendment.
