As Filed with the Securities and Exchange Commission
on January 23, 1998
Securities Act File No. 333-
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.____ | |
Registration Statement Under The Investment Company Act of 1940 |X|
Amendment No. ______ | |
--------------------------
DECS TRUST III
(Exact Name of Registrant as Specified in Charter)
c/o Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (212) 816-6000
Mark J. Amrhein
Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
(Name and Address of Agent for Service)
With copies to:
Raymond B. Check, Esq.
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
(212) 225-2000
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, as amended, other than
securities offered in connection with a dividend reinvestment
plan, check the following box. | |
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
==============================================================================
Proposed
Title of Proposed Maximum
Securities Amount Maximum Aggregate
Being being Offering Price Offering Amount of
Registered Registered(1) Per Share(2) Price(2) Registration Fee
- ------------------------------------------------------------------------------
DECS
representing
shares of
beneficial
interest 1,150,000 Shares $10.00 $11,500,000 $3,393
===============================================================================
(1) Includes an aggregate of 150,000 DECS that (i) may be
issued in connection with the exercise of an over-allotment
option and (ii) were subscribed for and purchased by Smith
Barney Inc. in connection with the formation of the DECS
Trust III.
(2) 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.
===============================================================================
<PAGE>
DECS TRUST III
Cross-Reference Sheet
Parts A and B of Prospectus*
Item
No. Caption Prospectus Caption
- ---- ------- ------------------
1. Outside Front Cover.............. Front Cover Page
2. Inside Front and Outside Back
Cover Page..................... Front Cover Page; Inside Front
Cover Page
3. Fee Table and Synopsis........... Prospectus Summary; Fees and
Expenses
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
Objectives and Policies
8. General Description of the
Registrant..................... Front Cover Page; Prospectus
Summary; The Trust; Investment
Restrictions; Investment
Objectives and Policies; Risk
Factors Relating to DECS
9. Management....................... Management and Administration of
the Trust
10. Capital Stock, Long-Term Debt
and Other Securities; Federal
Income Tax Considerations...... Description of DECS
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 Objectives and
Policies; Investment Restrictions
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 Objectives and Policies
22. Tax Status....................... Certain United States 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 the N-2 Registration Statement.
<PAGE>
******************************************************************************
* Information contained herein is subject to completion or amendment. A *
* registration statement relating to these securities has been filled with *
* the Securities and Exchange Commission. These securities may not be sold *
* nor may offers to buy be accepted prior to the time the registration *
* statement becomes effective. This prospectus shall not constitute an *
* offer to sell or the solicitation of any offer to buy nor shall there be *
* any sale of these securities in any State in which such offer, *
* solicitation or sale would be unlawful prior to registration or *
* qualification under the securities laws of any such State. *
* *
******************************************************************************
SUBJECT TO COMPLETION, DATED JANUARY 23, 1998
PROSPECTUS
1,000,000 DECS SM
DECS TRUST III
(Subject to Exchange into Shares of Common Stock,
Par Value $ Per Share, of Company)
------------------
The issue price (the "Initial Price") of each of the DECS
(each, a "DECS") of the DECS Trust III (the "Trust") being
offered hereby will be $ (the last sale price of the common
stock, par value $ per share (the "Common Stock"), of Company
(the "Company") on , 1998, as reported on the ___________________.
Each of the DECS represents the right to receive (a) an annual
distribution of $ , payable quarterly on each ,
and , during the term of the Trust, beginning , 1998
and (b) upon the conclusion of the term of the Trust on , 2001 (the
"Exchange Date"), between and 1.0 shares of Common Stock or cash
with an equivalent value. The DECS are not subject to redemption
prior to the Exchange Date or the earlier termination of the
Trust.
The Trust is a newly organized Delaware business trust that
is registered as a closed end investment company and was
established to purchase and hold (a) a series of zero-coupon U.S.
Treasury securities maturing on a quarterly basis during the term
of the Trust (the "Treasury Securities") and (b) one or more
forward purchase contracts (the "Contracts") with one or more
stockholders (the "Sellers") of the Company relating to the
Common Stock.
The investment objectives of the Trust are to provide
holders of DECS with a quarterly distribution of $ per DECS over
the term of the Trust and to provide holders of DECS, at the
Exchange Date, a number of shares of Common Stock (or, if some or
all of the Sellers exercise their cash settlement option in the
Contracts under the circumstances described herein, the cash
equivalent of all or part thereof or a combination of Common
Stock and cash) at the Exchange Rate (as defined herein). The
Exchange Rate is equal to, subject to certain adjustments, (a) if
the Exchange Price (as defined herein) is greater than $ per
share of Common Stock (the "Threshold Appreciation Price"),
shares of Common Stock per DECS, (b) if the Exchange Price is
less than or equal to the Threshold Appreciation Price but is
greater than the Initial Price, a fraction equal to the Initial
Price divided by the Exchange Price of one share of Common Stock
per DECS such that the value (determined at the Exchange Price)
of the Common Stock delivered at the Exchange Date equals the
Initial Price and (c) if the Exchange Price is less than or equal
to the Initial Price, one share of Common Stock per DECS. The
"Exchange Price" means the average Closing Price (as defined
herein) per share of Common Stock on the 20 Trading Days (as
defined herein) immediately prior to the Exchange Date, except as
otherwise described herein. Accordingly, the value of the Common
Stock to be received by holders of the DECS at the Exchange Date
will not necessarily equal the Initial Price. If the Exchange
Price is less than the Initial Price, the value of the Common
Stock to be received at the Exchange Date will generally be less
than the price paid for the DECS. See "Investment Objectives and
Policies."
------------------
See "Risk Factors Relating to DECS" beginning on page 18
for a discussion of certain factors that should be carefully
considered by prospective purchasers.
------------------
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
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
===========================================================================
Price to Sales Proceeds to
Public Load the Trust(2)
- ---------------------------------------------------------------------------
Per DECS.................. $ $ (3) $
- ---------------------------------------------------------------------------
Total (1)................. $ $ (3) $
===========================================================================
(1) The Trust has granted to the Underwriter an option,
exercisable within 30 days from the date hereof, to purchase up
to an additional DECS to cover over-allotments, if any. If the
Underwriter exercises such option in full, the total Price to
Public, Sales Load and Proceeds to the Trust will be $ , $ and
$ , respectively. See "Underwriting."
(2) Before deducting estimated expenses of $ , payable by Smith
Barney Inc., which will be reimbursed by the Sellers.
(3) In light of the fact that the proceeds of the sale of the DECS will
be used in part by the Trust to purchase the Contracts from the
Sellers, the Underwriting Agreement provides that the Sellers will
pay to the Underwriter as compensation $ per DECS.
See "Underwriting."
------------------
The DECS are offered subject to receipt and acceptance by
the Underwriter, to prior sales and to the Underwriter's right to
reject any order in whole or in part and to withdraw, cancel or
modify the offer without notice. It is expected that delivery of
the DECS will be made at the office of Salomon Smith Barney, 333
West 34th Street, , New York, New York, or through the facilities
of The Depository Trust Company, on or about , 1998.
------------------
Salomon Smith Barney
___________________, 1998.
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE
PRICE OF THE DECS OR THE COMMON STOCK, INCLUDING PURCHASES OF THE
DECS OR THE COMMON STOCK TO STABILIZE THEIR MARKET PRICE AND
PURCHASES OF THE DECS OR THE COMMON STOCK TO COVER SOME OR ALL OF
A SHORT POSITION IN THE DECS OR THE COMMON STOCK MAINTAINED BY
THE UNDERWRITERS AND THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES SEE "UNDERWRITING."
----------------------------
(Continued from previous page)
In the event of certain Adjustment Events (as defined herein),
holders may receive property other than (or in addition to)
Common Stock or a combination of such property and cash. See
"Investment Objectives and Policies--The Contracts--Dilution
Adjustments; Adjustment Events." In addition, holders otherwise
entitled to receive fractional shares in respect of their
aggregate holdings of DECS will receive cash in lieu thereof.
The Trust has adopted a policy that the Contracts may not be disposed
of during the term of the Trust. The Trust will continue to hold
the Contracts despite any significant decline in the market price
of the Common Stock or adverse changes in the financial condition
of the Company.
This Prospectus sets forth information about the Trust that a
prospective investor ought to know before investing. Potential
investors are advised to read this Prospectus and to retain it
for future reference.
DECS may be a suitable investment for those investors who are
capable of evaluating the risks involved in making an investment
in the Common Stock of the Company and the advantages and
disadvantages of doing so in a manner which will give investors
in the DECS a potentially higher yield but a lesser opportunity
for equity appreciation than would be afforded by a direct
investment in the Common Stock. There is no assurance that the
yield on the DECS will be higher than the dividend yield on the
Common Stock over the term of the Trust. See "Investment
Objectives and Policies."
Attached hereto for convenience of reference is a prospectus of
the Company relating to the shares of Common Stock that may be
received by holders of DECS at the Exchange Date. The Company is
not affiliated with the Trust, will not receive any of the
proceeds from the sale of the DECS and will have no obligations
with respect to the DECS or the Contracts. The Common Stock is
listed on the _________(the "____") under the symbol " ."
The Trust will be a grantor trust owned solely by the present and
future holders of DECS for U.S. federal income tax purposes and
each holder will be treated as the owner of its pro rata portion
of the Treasury Securities and the Contracts. The Treasury
Securities will be treated as having "original issue discount"
which holders must recognize currently as income as it accrues.
Holders will not recognize income, gain or loss upon the Trust's
entry into the Contracts nor will the delivery of Common Stock
pursuant to the Contracts be taxable to holders. Holders should
not recognize income, gain or loss with respect to the Contracts
over their term. See "Certain United States Federal Income Tax
Considerations."
The Trust is a newly organized closed-end investment company with
no previous history of public trading. Application has been made
to list the DECS on the NYSE under the symbol " ." Typical
closed-end fund shares frequently trade at a discount from net
asset value. This characteristic of investments in a closed-end
investment company is a risk separate and distinct from the risk
that the Trust's net asset value will decrease. The Trust cannot
predict whether the DECS will trade at, below or above net asset
value. The risk of purchasing investments in a closed-end company
that might trade at a discount is more pronounced for investors
who wish to sell their investments soon after completion of an
initial public offering.
The address of the Trust is c/o Smith Barney Inc., 388
Greenwich Street, New York, New York 10013, and the Trust's
telephone number is (212) 816-6000. Investors are advised to read
this Prospectus and to retain it for future reference.
"DECS" is a service mark of Salomon Brothers Inc.
2
<PAGE>
PROSPECTUS SUMMARY
The following is qualified in its entirety by reference to
the more detailed information included elsewhere in this
Prospectus.
The Trust
DECS Trust III (the "Trust") is a newly organized Delaware
business trust that is registered as a non-diversified closed-end
management investment company under the Investment Company Act of
1940, as amended (the "Investment Company Act"). The term of the
Trust will expire on or shortly after , 2001 (the "Exchange
Date"), except that the Trust may be dissolved prior to such date
under certain limited circumstances. The Trust will be treated as
a grantor trust owned solely by the present and future holders of
DECS for U.S. federal income tax purposes.
The Offering
DECS representing shares of beneficial interest in the
Trust are being offered for sale by Smith Barney Inc. (the
"Underwriter") to the public at a purchase price of $ per DECS
(the "Initial Price") (which is equal to the last sale price of
the common stock, par value $ per share (the "Common Stock"), of
Company (the "Company") on , 1998, as reported on the
_____________________). In addition, the Underwriter has been
granted an option to purchase up to an additional DECS (subject
to decrease as a result of the issuance and sale of DECS in
connection with the formation of the Trust) to cover
over-allotments, if any. See "Underwriting."
Purpose of the Trust
The DECS are designed to provide investors (the "Holders")
with a higher yield than the current dividend yield paid on the
Common Stock, while also providing the opportunity for Holders to
share in the appreciation, if any, of the Common Stock above the
Threshold Appreciation Price (as defined below). The annual
calendar year distribution on the DECS is $ per DECS. The
dividend paid per share of Common Stock in the Company's fiscal
year ended was $ .
The yield on the DECS is higher than the current dividend
yield on the Common Stock. However, there is no assurance that
the yield on the DECS will be higher than the dividend yield on
the Common Stock over the term of the Trust. In addition, the
opportunity for equity appreciation afforded by an investment in
the DECS is less than the opportunity for equity appreciation
afforded by a direct investment in the Common Stock because the
value of the Common Stock to be received by Holders of the DECS
at the Exchange Date (the "Amount Receivable at the Exchange
Date") will generally exceed the Initial Price only if the
Exchange Price (as defined herein) exceeds $ per share of Common
Stock (the "Threshold Appreciation Price", which represents an
appreciation of % over the Initial Price) and because Holders
will be entitled to receive at the Exchange Date only % of any
appreciation of the value of the Common Stock in excess of the
Threshold Appreciation Price. Moreover, if the Exchange Price is
less than the Initial Price, the value of the Common Stock to be
received at the Exchange Date will generally be less than the
price paid for the DECS.
Distributions Prior to Exchange Date
The Holders are entitled to receive distributions at the
rate per DECS of $ per annum or $ per quarter, payable
quarterly on each , , and or, if any such date
is not a Business Day (as defined herein), on the next succeeding
Business Day (each a "Distribution Date"), to Holders of record as
of each , , and , respectively.
The first distribution will be payable on , 1998 to Holders
of record as of , 1998. See "Investment Objectives and
Policies--Trust Assets."
Distributions on Exchange Date
At the Exchange Date, in respect of each outstanding DECS,
Holders will have the right to receive between and 1.0 shares of
Common Stock, subject to adjustment in the event of certain
dividends or distributions,
3
<PAGE>
subdivisions, splits, combinations, issuances of certain rights
or warrants or distributions of certain assets with respect to
the Common Stock. In the event of a merger of the Company into
another entity, or the liquidation of the Company, or in certain
related events, Holders would receive consideration in the form
of cash, Reported Securities (as defined under "Investment
Objectives and Policies--The Contracts--Dilution Adjustments;
Adjustment Events") or a combination thereof, rather than
(or in addition to) shares of Common Stock. If some or all
of the Sellers exercise their cash settlement option, Holders
would receive cash in lieu of all or part of the Common Stock or
Reported Securities that would otherwise be deliverable. See
"Investment Objectives and Policies--The Contracts--General."
Additionally, the occurrence of certain defaults by a Seller
under its Contract or the related collateral arrangements would
cause the acceleration of such Contract and the distribution to
the Trust for distribution pro rata to Holders of all or a
portion of the Common Stock, Reported Securities, cash or a
combination thereof subject to such Contract and of a portion of
the Treasury Securities (as defined below) then held by the
Trust. See "Investment Objectives and Policies--The
Contracts--Collateral Requirements of the Contracts;
Acceleration" and "--The Treasury Securities."
Voting Rights
Holders will not have voting rights with respect to the
Common Stock unless and until the Sellers have delivered shares
of Common Stock to the Trust pursuant to the Contracts and the
Trust has distributed such shares to the Holders. See "Investment
Objectives and Policies--The Company." The Holders have the right
to vote on matters affecting the Trust, as described under
"Description of DECS."
Assets of the Trust; Investment Objectives and Policies
The Trust will purchase and hold (i) a series of
zero-coupon U.S. Treasury securities (the "Treasury Securities")
maturing on a quarterly basis during the term of the Trust and
representing in the aggregate approximately % of the initial
assets of the Trust and (ii) one or more forward purchase
contracts (the "Contracts") with certain existing stockholders
(the "Sellers") of the Company relating to the Common Stock and
representing approximately % of the initial assets of the Trust.
The Trust's investment objective is to provide each Holder with a
quarterly distribution of $ per DECS over the term of the Trust,
equal to the pro rata portion of the quarterly cash distributions
from the Treasury Securities. It is also the Trust's investment
objective to provide each Holder, at the Exchange Date, a number
of shares of Common Stock (or, if any Seller exercises its cash
settlement option in the Contracts under the circumstances
described herein, the cash equivalent of all or part thereof) at
the Exchange Rate. The Exchange Rate is equal to, subject to
certain adjustments, (a) if the Exchange Price (as defined
herein) is greater than the Threshold Appreciation Price, shares
of Common Stock per DECS, (b) if the Exchange Price is less than
or equal to the Threshold Appreciation Price but is greater than
the Initial Price, a fraction equal to the Initial Price divided
by the Exchange Price of one share of Common Stock per DECS such
that the value (determined at the Exchange Price) of the Common
Stock delivered at the Exchange Date equals the Initial Price and
(c) if the Exchange Price is less than or equal to the Initial
Price, one share of Common Stock per DECS. Holders otherwise
entitled to receive fractional shares of Common Stock or Reported
Securities in respect of their aggregate holdings of DECS will
receive cash in lieu thereof. See "Investment Objectives and
Policies--The Contracts" and "--Delivery of Common Stock and
Reported Securities; No Fractional Shares of Common Stock or
Reported Securities."
The Trust will enter into Contracts with the Sellers
obligating the Sellers, severally and not jointly, at the
Exchange Date, to deliver to the Trust shares of Common Stock in
the aggregate (excluding shares required to be delivered in
respect of DECS issued to cover the Underwriter's over-allotment
option and DECS issued in connection with the formation of the
Trust), except that (i) if the Exchange Price per share of Common
Stock is greater than the Threshold Appreciation Price, each
Seller will be obligated to deliver under its Contract a number
of shares of Common Stock equal to the product of times the
initial number of shares of Common Stock subject to such
Contract, (ii) if the Exchange Price per share of Common Stock is
less than or equal to the Threshold Appreciation Price but
greater than the Initial Price, each Seller will be obligated to
deliver under its Contract a number of shares of Common Stock
equal to the product of (A) the Initial Price divided by the
Exchange Price multiplied by (B) the initial number of shares of
Common Stock subject to such Contract and (iii) if the Exchange
Price per share of Common Stock is less than or equal to the
Initial Price, each Seller will be obligated to deliver under its
contract a number of shares of Common Stock equal to the initial
number of shares of Common Stock
4
<PAGE>
subject to such Contract. This provides the Trust with the
opportunity to share in the appreciation, if any, of the Common
Stock above the Threshold Appreciation Price. Each Seller has the
right to deliver cash in lieu of all (but not part) of its Common
Stock delivery obligation. The purchase price under the Contracts
is equal to $ per share of Common Stock and $ in the aggregate
and is payable to the Sellers by the Trust on the closing of this
offering.
The obligations of each Seller under its Contract will be
secured by a pledge of one share of Common Stock for each share
subject to the Contract or, at the election of such Seller, by
substitute collateral consisting of U.S. Government securities.
See "Investment Objectives and Policies--The Contracts--Collateral
Requirements of the Contracts; Acceleration."
Certain United States Federal Income Tax Considerations
There are no regulations, published rulings or judicial
decisions addressing the characterization for federal income tax
purposes of securities with terms substantially the same as the
DECS. The Trust intends to treat a DECS for U.S. federal income
tax purposes as a beneficial interest in a grantor trust owned
solely by the present and future holders of DECS that holds the
Treasury Securities and Contracts, and to report Holders' income
to the Internal Revenue Service in accordance with this
treatment. Under this approach, the tax consequences of holding a
DECS will be as described below and as described in "Certain
United States Federal Income Tax Considerations." Prospective
investors in the DECS should be aware that the Internal Revenue
Service might take a different view as to the proper characterization
of the DECS and of the tax consequences to a Holder.
The Treasury Securities held by the Trust will be treated
for U.S. federal income tax purposes as having "original issue
discount" that will accrue over the term of the Treasury
Securities. It is currently anticipated that a substantial
portion of each quarterly cash distribution to the Holders will
be treated as a tax-free return of the Holders' costs of the
Treasury Securities and therefore will not be considered current
income for U.S. federal income tax purposes. However, a Holder
(whether on the cash or accrual method of tax accounting) must
recognize currently as income original issue discount on the
Treasury Securities as it accrues.
A Holder will not recognize income, gain or loss upon the
Trust's entry into the Contracts and should not recognize income,
gain or loss with respect to the Contracts over their term.
Prospective investors in the DECS should be aware that it is
possible that the Internal Revenue Service will assert that a
Holder should include in income over the term of the Contracts
additional amounts which together with the original issue
discount on such Holder's pro rata portion of the Treasury
Securities may exceed the aggregate amount of the quarterly cash
distributions to such Holder. See "Certain United States Federal
Income Tax Considerations."
The delivery of Common Stock to the Trust pursuant to the
Contracts will not be taxable to the Holders. The distribution of
Common Stock upon the termination of the Trust will not be
taxable to the Holders. A Holder will have taxable gain or loss
upon receipt of cash in lieu of fractional shares of Common Stock
distributed upon termination of the Trust. Each Holder's
aggregate basis in its shares of Common Stock will be equal to
its basis in its pro rata portion of the Contracts less the
portion of such basis allocable to pay any fractional shares of
Common Stock for which cash is received. A Holder will have
taxable gain or loss upon receipt of cash, if any, upon
dissolution of the Trust or if a Seller elects to exercise the
Cash Delivery Option and satisfy its obligations under the
contrast with cash.
The Company
The Company is [description].
Attached hereto is a prospectus of the Company which
describes the Company and the Common Stock that may be delivered
to the Trust by the Sellers, and by the Trust to the Holders, at
the Exchange Date or upon earlier acceleration of a Contract. The
Company is not affiliated with the Trust, will not receive any of
the proceeds from the sale of the DECS and will have no
obligations with respect to the DECS or the Contracts. The prospectus
of the Company is being attached hereto and delivered to prospective
purchasers of DECS together with this
5
<PAGE>
Prospectus for convenience of reference only. The prospectus of
the Company does not constitute a part of this Prospectus, nor is it
incorporated by reference herein.
Management and Administration of the Trust
The Trust will be internally managed and will not have an
investment adviser. The administration of the Trust will be
overseen by three Trustees. The day-to-day administration of the
Trust will be carried out by The Bank of New York (or its
successor) as trust administrator (the "Administrator"). The Bank
of New York (or its successor) will also act as custodian for the
Trust's assets (the "Custodian") and as paying agent, registrar
and transfer agent (the "Paying Agent") with respect to the DECS.
Except as aforesaid, and except for its role as Collateral Agent
under the Collateral Agreements between each Seller, the Trust
and the Collateral Agent (see "Investment Objectives and
Policies--The Contracts--Collateral Requirements of the
Contracts; Acceleration"), The Bank of New York has no other
affiliation with, and is not engaged in any other transaction
with, the Trust.
Term of the Trust
The Trust will terminate automatically on or shortly after
the Exchange Date, except that the Trust may expire prior to such
date under certain limited circumstances. Promptly after the
Exchange Date the shares of Common Stock delivered under the
Contracts (or the equivalent amount of cash, to the extent any
Seller exercises its cash settlement option) and other remaining
Trust assets, if any, will be distributed pro rata to Holders.
See "Investment Objectives and Policies--Trust Termination."
Risk Factors
The Trust has adopted a policy that the Contracts may not
be disposed of during the term of the Trust and that the Treasury
Securities held by the Trust may not be disposed of prior to the
earlier of their respective maturities and the termination of the
Trust except upon the acceleration of one or more Contracts as
described herein. The Trust will continue to hold the Contracts
despite any significant decline in the market price of the Common
Stock or adverse changes in the financial condition of the
Company.
The yield on the DECS is higher than the current dividend
yield on the Common Stock. However, there is no assurance that
the yield on the DECS will be higher than the dividend yield on
the Common Stock over the term of the Trust.
The Amount Receivable at the Exchange Date is not fixed,
but is based on the market price of the Common Stock as reflected
in the Exchange Rate. There can be no assurance that the Amount
Receivable at the Exchange Date will be equal to or greater than
the Initial Price of the DECS. If the Exchange Price is less than
the Initial Price, the Amount Receivable at the Exchange Date
will generally be less than the amount paid for the DECS, in
which case an investment in DECS will result in a loss and, if
the Company became insolvent or bankrupt, could result in a total
loss. Holders of the DECS, therefore, bear the full risk of a
decline in the value of the Common Stock prior to the Exchange
Date.
In addition, the opportunity for equity appreciation
afforded by an investment in the DECS is less than the
opportunity for equity appreciation afforded by a direct
investment in the Common Stock because the Amount Receivable at
the Exchange Date will generally exceed the Initial Price only if
the Exchange Price exceeds the Threshold Appreciation Price,
which represents an appreciation of % over the Initial Price.
Moreover, Holders will be entitled to receive at the Exchange
Date only % of any appreciation of the value of the Common Stock
in excess of the Threshold Appreciation Price. Because the market
price of the Common Stock is subject to market fluctuations, the
Amount Receivable at the Exchange Date may be more or less than
the Initial Price of the DECS. Additionally, because the Exchange
Price is generally determined based on a 20-Trading Day average,
the value of a share of Common Stock distributed on the Exchange
Date may be more or less than the Exchange Price used to
determine the Amount Receivable at the Exchange Date.
The Trust is classified as a "non-diversified" investment
company under the Investment Company Act. Consequently, the Trust
is not limited by the Investment Company Act in the proportion of
its assets that may be
6
<PAGE>
invested in the securities of a single issuer. Since the only
securities held by the Trust will be the Treasury Securities and
the Contracts, the Trust may be subject to greater risk than
would be the case for an investment company with more diversified
investments.
The trading prices of the DECS in the secondary market will
be directly affected by the trading prices of the Common Stock in
the secondary market. Trading prices of the Common Stock will be
influenced by the Company's operating results and prospects and
by economic, financial and other factors and market conditions.
Holders of the DECS will not be entitled to any rights with
respect to the Common Stock (including, without limitation,
voting rights and rights to receive any dividends or other
distributions in respect thereof) unless and until such time, if
any, as the Sellers deliver shares of Common Stock to the Trust
pursuant to the Contracts and the Trust has distributed such
shares to the Holders.
A bankruptcy of a Seller could adversely affect the timing
of settlement and, as a result, the amount received by the
Holders in respect of the DECS.
Listing
Application will be made to list the DECS on the New York
Stock Exchange (the "NYSE") under the symbol " ."
7
<PAGE>
FEES AND EXPENSES
In light of the fact that proceeds from the sale of the
DECS will be used by the Trust to purchase the Contracts from the
Sellers, the Underwriting Agreement provides that the Sellers
will pay to the Underwriter as compensation $ per DECS. 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 DECS in the
amount of $ will be paid by the Sellers at the closing of this
offering. In addition, each of the Administrator, the Custodian
and the Paying Agent, and each Trustee will be paid by the
Sellers at the closing of this offering a one-time, up-front
amount in respect of its ongoing fees and, in the case of the
Administrator, anticipated expenses of the Trust (estimated to be
$ in the aggregate) over the term of the Trust. Smith Barney Inc.
("Smith Barney") 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. Smith Barney will be reimbursed by the
Sellers for all expenses of the Trust and reimbursements of
indemnifications paid by it. See "Management and Administration
of the Trust--Estimated Expenses."
Regulations of the Securities and Exchange Commission (the
"Commission") applicable to closed-end investment companies
designed to assist investors in understanding the costs and
expenses that an investor will bear directly or indirectly
require the presentation of Trust expenses in the following
format. Because the Trust will not bear any ongoing fees or
expenses, investors will not bear any direct expenses. The only
expenses that an investor might be considered to be bearing
indirectly are (a) the Underwriter's compensation payable by the
Sellers with respect to such investor's DECS and (b) the ongoing
expenses of the Trust (including fees of the Administrator,
Custodian, Paying Agent and Trustees), estimated at $ per year
in the aggregate, payable by Smith Barney at the closing of the
offering.
Investor transaction expenses
Sales load (as a percentage of offering price).......... %
======
Annual Expenses
Management Fees......................................... 0%
Other Expenses (after reimbursement by the Sellers)*.... 0%
------
Total Annual Expenses*................................ 0%
======
- ----------------------
* Absent the reimbursement, the Trust's "total annual expenses"
would be equal to approximately % of the Trust's average net
assets.
Commission regulations also require that closed-end investment
companies present an illustration of cumulative expenses (both
direct and indirect) that an investor would bear. The example is
required to factor in the applicable Sales Load and to assume, in
addition to a 5% annual return, the reinvestment of all
distributions at net asset value. Investors should note that the
assumption of a 5% annual return does not accurately reflect the
financial terms of the Trust. See "Investment Objectives and
Policies--Trust Assets." Additionally, the Trust does not permit
the reinvestment of distributions.
1 Year 3 Years
------ -------
You would pay the following expenses (i.e., the
applicable sales load and allocable portion of
ongoing expenses paid by Smith Barney and the
Sellers) on a $1,000 investment, assuming a 5%
annual return................................. $ $
8
<PAGE>
THE TRUST
DECS Trust III is a newly organized Delaware business trust
that is registered as a closed-end management investment company
under the Investment Company Act. The Trust was formed on January
, 1998 pursuant to a Declaration of Trust dated as of January ,
1998 (the "Declaration of Trust"). The term of the Trust will
expire on or shortly after , 2001, except that the Trust may be
dissolved prior to such date under certain limited circumstances.
The address of the Trust is c/o Smith Barney Inc., 388 Greenwich
Street, New York, New York 10013 (telephone number: (212)
816-6000).
USE OF PROCEEDS
The net proceeds of this offering will be used on or
shortly after the date on which this offering is completed to
purchase a fixed portfolio comprised of a series of zero-coupon
U.S. Treasury securities maturing quarterly during the term of
the Trust and to pay the purchase price under the Contracts to
the Sellers.
INVESTMENT OBJECTIVES AND POLICIES
Trust Assets
The Trust's investment objectives are to provide Holders
with a quarterly distribution of $ per DECS on each Distribution
Date during the term of the Trust (representing the pro rata
portion of the quarterly distributions in respect of the maturing
Treasury Securities held by the Trust) and to provide Holders, at
the Exchange Date, a number of shares of Common Stock at the
Exchange Rate (as defined below) or, to the extent that some or
all of the Sellers elect the Cash Delivery Option (as defined
below), an amount in cash equal to the Exchange Price (as defined
below) of all or part thereof. On or prior to the 25th Business
Day prior to the Exchange Date, each of the Sellers will be
obligated to notify the Trust concerning its exercise of the Cash
Delivery Option, and the Trust in turn will notify The Depository
Trust Company and publish a notice in a daily newspaper of
national circulation stating whether Holders of DECS will receive
shares of Common Stock, cash or a combination thereof and, if a
combination of Common Stock and cash, the relative proportion of
each. See "--The Contracts--General" below. "Business Day" means
any day that is not a Saturday, a Sunday or a day on which the
NYSE or banking institutions or trust companies in The City of
New York are authorized or obligated by law or executive order to
close.
The "Exchange Rate" is equal to, subject to certain
adjustments, (a) if the Exchange Price (as defined below) is
greater than the Threshold Appreciation Price, shares of Common
Stock per DECS, (b) if the Exchange Price is less than the
Threshold Appreciation Price but is greater than or equal to the
Initial Price, a fraction, equal to the Initial Price divided by
the Exchange Price, of one share of Common Stock per DECS and (c)
if the Exchange Price is less than or equal to the Initial Price,
one share of Common Stock per DECS. ACCORDINGLY, THE VALUE OF THE
COMMON STOCK TO BE RECEIVED BY HOLDERS OF THE DECS (OR, AS DISCUSSED
BELOW, THE CASH EQUIVALENT TO BE RECEIVED IN LIEU OF SUCH COMMON STOCK)
AT THE EXCHANGE DATE WILL NOT NECESSARILY EQUAL THE INITIAL PRICE OF
THE DECS. The numbers of shares of Common Stock per DECS specified in
clauses (a), (b) and (c) of the Exchange Rate are hereinafter referred
to as the "Share Components." Any shares of Common Stock delivered by
the Trust to the Holders of the DECS that are not affiliated with
the Company will be free of any transfer restrictions and the
Holders of the DECS will be responsible for the payment of any
and all brokerage costs upon the subsequent sale of such shares.
Holders otherwise entitled to receive fractional shares in
respect of their aggregate holdings of DECS will receive cash in
lieu thereof. See "--Delivery of Common Stock and Reported
Securities; No Fractional Shares of Common Stock or Reported
Securities" below. Notwithstanding the foregoing, (i) in the case
of certain dilution events, the Exchange Rate will be subject to
adjustment and (ii) in the case of certain adjustment events, the
consideration received by Holders at the Exchange Date will be
cash or Reported Securities (as defined herein) or a combination
thereof, rather than (or in addition to) shares of Common Stock.
See "--The Contracts--Dilution Adjustments; Adjustment Events"
below.
9
<PAGE>
The Trust has adopted a fundamental policy to invest at
least 65% of its portfolio in the Contracts. The Contracts will
comprise approximately % of the Trust's initial assets. The Trust
has also adopted a fundamental policy that the Contracts may not
be disposed of during the term of the Trust and that the Treasury
Securities held by the Trust may not be disposed of prior to the
earlier of their respective maturities and the termination of the
Trust except for the partial liquidation of Treasury Securities
following acceleration of any Contract as described below under
"--The Treasury Securities." The foregoing fundamental policies
of the Trust may not be changed without the vote of a majority in
interest of the Holders. A "majority in interest of the Holders"
means the lesser of (i) 67% of the DECS represented at a meeting
at which more than 50% of the outstanding DECS are represented
and (ii) more than 50% of the outstanding DECS.
The "Exchange Price" means the average Closing Price per
share of Common Stock on the 20 Trading Days immediately prior to
(but not including) the Exchange Date; provided, however, that if
there are not 20 Trading Days for the Common Stock occurring
later than the 60th calendar day immediately prior to, but not
including, the Exchange Date, the Exchange Price shall be defined
as the market value per share of the Common Stock as of the
Exchange Date as determined by a nationally recognized
independent investment banking firm retained for this purpose by
the Administrator. The "Closing Price" of any security on any
date of determination means (i) the closing sale price (or, if no
closing price is reported, the last reported sale price) of such
security (regular way) on the ___________ on such date, (ii) if
such security is not listed for trading on the ___________ on any
such date, as reported in the composite transactions for the
principal United States securities exchange on which such
security is so listed, (iii) if such security is not so listed on
a United States national or regional securities exchange, as
reported by The Nasdaq Stock Market, (iv) if such security is not
so reported, the last quoted bid price for such security in the
over-the-counter market as reported by the National Quotation
Bureau or similar organization or (v) if such security is not so
quoted, the average of the mid-point of the last bid and ask
prices for such security from at least three nationally
recognized investment banking firms selected by the Administrator
for such purpose. A "Trading Day" is defined as a day on which
the security the Closing Price of which is being determined (A)
is not suspended from trading on any national or regional
securities exchange or association or over-the-counter market at
the close of business and (B) has traded at least once on the
national or regional securities exchange or association or
over-the-counter market that is the primary market for the
trading of such security.
For illustrative purposes only, the following chart shows
the number of shares of Common Stock or the amount of cash that a
Holder would receive for each DECS at various Exchange Prices.
The chart assumes that there would be no adjustments to the
Exchange Rate by reason of the occurrence of any of the events
described under "--The Contracts--Dilution Adjustments;
Adjustment Events" below, that no Contracts will be accelerated
and that either no Sellers exercise the Cash Delivery Option or
all Sellers do. There can be no assurance that the Exchange Price
will be within the range set forth below. Given the Initial Price
of $ per DECS and the Threshold Appreciation Price of $ , a
Holder would receive at the Exchange Date the following number of
shares of Common Stock or amount of cash (if all Sellers exercise
the Cash Delivery Option) per DECS:
Exchange Price of Number of Shares of
Common Stock Common Stock Amount of Cash
As the foregoing chart illustrates, if at the Exchange
Date, the Exchange Price is greater than $ , the Trust will be
obligated to deliver shares of Common Stock per DECS, resulting
in the DECS Holder receiving only percent of the appreciation in
market value above $ . If at the Exchange Date, the Exchange
Price is greater than $ and less than or equal to $ , the Trust
will be obligated to deliver only a fraction of a share of Common
Stock having a value at the Exchange Price equal to $ , resulting
in the DECS Holder receiving none of the appreciation in market
value. If at the Exchange Date, the Exchange Price is less than
or equal to $ , the Trust will be obligated to deliver one share
of Common Stock per DECS, regardless of the market price of such
share, resulting in the DECS Holder realizing the entire loss on
the decline in market value of the Common Stock.
The following table sets forth information regarding the
distributions to be received on the Treasury Securities held by
the Trust, the portion of each year's distributions that will
constitute a return of capital for U.S. federal income tax
purposes and the amount of original issue discount accruing on
the Treasury Securities with
10
<PAGE>
respect to a Holder who acquires its DECS at the issue price from
the Underwriter in the original offering. See "Certain United
States Federal Income Tax Considerations."
Annual Gross
Annual Gross Distributions from
Distributions from Treasury Securities
Treasury Securities per DECS
------------------- -------------------
Year
- ----
1998 $ $
1999
2000
2001
Annual
Inclusion of
Annual Return of Original Issue Discount in
Capital per DECS Income per DECS
---------------- --------------------------
Year
- ----
1998 $ $
1999
2000
2001
The annual distribution of $ per DECS is payable
quarterly on each , , and (or, if any such
date is not a Business Day, on the next succeeding Business Day),
commencing , 1998. Quarterly distributions on the DECS will
consist solely of the cash received from the Treasury Securities.
The Trust will not be entitled to any dividends that may be declared
on the Common Stock.
Enhanced Yield; Less Potential for Equity Appreciation than Common
Stock; No Depreciation Protection
The yield on the DECS is higher than the current dividend
yield on the Common Stock. However, there is no assurance that
the yield on the DECS will be higher than the dividend yield on
the Common Stock over the term of the Trust. In addition, the
opportunity for equity appreciation afforded by an investment in
the DECS is less than the opportunity for equity appreciation
afforded by a direct investment in the Common Stock because the
Amount Receivable at the Exchange Date will generally exceed the
Initial Price only if the Exchange Price exceeds the Threshold
Appreciation Price (which represents an appreciation of % over
the Initial Price) and because Holders will be entitled to
receive at the Exchange Date only % (the percentage equal to the
Initial Price divided by the Threshold Appreciation Price) of any
appreciation of the value of the Common Stock in excess of the
Threshold Appreciation Price. Moreover, Holders of DECS will
realize the entire decline in value if the Exchange Price on the
Exchange Date is less than the Initial Price. Additionally,
because the Exchange Price is generally determined based on a
20-Trading Day average, the value of a share of Common Stock
distributed on the Exchange Date may be more or less than the
Exchange Price used to determine the Amount Receivable at the
Exchange Date.
The Company
[description of the Company]
Holders will not be entitled to rights with respect to the
Common Stock (including, without limitation, voting rights and
rights to receive dividends or other distributions in respect
thereof) unless and until such time, if any, as the Sellers
deliver shares of Common Stock to the Trust pursuant to the
Contracts and the Trust has distributed such shares to the
Holders.
Attached hereto is a prospectus of the Company which
describes the Company and the Common Stock that may be delivered
to the Trust by the Sellers, and by the Trust to the Holders, at
the Exchange Date or upon earlier acceleration of a Contract.
The shares of Common Stock are traded on the
________________. The following table sets forth, for the
indicated periods, the reported high and low sales prices of the
shares of Common Stock on the ________________
11
<PAGE>
and the cash dividends per share of Common Stock. As of ,
1998, there were record holders of the Common Stock, including
The Depository Trust Company, which holds shares of Common Stock on
behalf of an indeterminate number of beneficial owners.
Dividend
High Low Per Share
----------- ----------- -----------
1996 $ $ $
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
1997
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
1998
1st Quarter
The Company is not affiliated with the Trust, will not
receive any of the proceeds from the sale of the DECS and will
have no obligations with respect to the DECS or the Contracts.
This Prospectus relates only to the DECS offered hereby and does
not relate to the Company or the Common Stock. The Company has
filed a registration statement on Form S-3 with the Commission
with respect to the shares of Common Stock that may be delivered
to the Trust by the Sellers, and by the Trust to the Holders of
DECS, at the Exchange Date or upon earlier acceleration of a
Contract. The prospectus of the Company constituting a part of
such registration statement includes information relating to the
Company and Common Stock, including certain risk factors relevant
to an investment in Common Stock. The prospectus of the Company
is being attached hereto and delivered to prospective purchasers
of DECS together with this Prospectus for convenience of
reference only. The prospectus of the Company does not constitute
a part of this Prospectus, nor is it incorporated by reference
herein.
The Contracts
General. The Trust will enter into one or more Contracts
with the Sellers obligating each Seller, severally and not
jointly, at the Exchange Date to deliver to the Trust a number of
shares of Common Stock equal to the initial number of shares of
Common Stock subject to such Seller's Contract multiplied by the
Exchange Rate. The Exchange Rate is equal to, subject to
adjustment as described in "--Dilution Adjustments; Adjustment
Events" below, (i) if the Exchange Price per share of Common
Stock is greater than the Threshold Appreciation Price,
, (ii) if the Exchange Price per share of Common Stock
is less than or equal to the Threshold Appreciation Price but
greater than the Initial Price, the Initial Price divided by the
Exchange Price and (iii) if the Exchange Price per share of
Common Stock is less than or equal to the Initial Price, one. The
purchase price under the Contracts is equal to $ per share of
Common Stock and $ in the aggregate and is payable to the Sellers
by the Trust on the closing of this offering. The purchase price
of the Contracts was arrived at by arm's length negotiations
between the Trust and the Sellers taking into consideration
factors including the price, expected dividend level and
volatility of the Common Stock, current interest rates, the term
of the Contracts, current market volatility generally, the
collateral security pledged by the Sellers, the value of other
similar instruments and the costs and anticipated proceeds of the
offering of the DECS. All matters relating to the administration
of the Contracts will be the responsibility of either the Trust's
Administrator or Custodian.
Although it is the Sellers' current intention to deliver
shares of Common Stock at the Exchange Date, each Seller may, at
its option, deliver cash in lieu of delivering all, but not less
than all, of the shares of Common Stock otherwise deliverable by
it on the Exchange Date (the "Cash Delivery Option"), except
where such delivery would
12
<PAGE>
violate applicable state law. The amount of cash deliverable by a
Seller upon the exercise of the Cash Delivery Option will be
equal to the product of the number of shares of Common Stock
otherwise deliverable by such Seller on the Exchange Date
multiplied by the Exchange Price. On or prior to the 25th
Business Day prior to the Exchange Date, each of the Sellers will
be obligated to notify the Trust concerning its exercise of the
Cash Delivery Option, and the Trust in turn will notify The
Depository Trust Company and publish a notice in a daily
newspaper of national circulation stating whether the Holders of
DECS will receive shares of Common Stock, cash or a combination
thereof and, if a combination of Common Stock and cash, the
relative proportion of each.
Dilution Adjustments; Adjustment Events. The Exchange Rate
is subject to adjustment if the Company shall (i) pay a stock
dividend or make a distribution, in either case, with respect to
Common Stock in shares of such stock, (ii) subdivide or split its
outstanding shares of Common Stock, (iii) combine its outstanding
shares of Common Stock into a smaller number of shares, (iv)
issue by reclassification (other than a reclassification pursuant
to clause (ii), (iii), (iv) or (v) of the definition of
Adjustment Event below) of its shares of Common Stock any shares
of common stock of the Company or (v) issue rights or warrants
(other than rights to purchase Common Stock pursuant to a plan
for the reinvestment of dividends or interest) to all holders of
Common Stock entitling them to subscribe for or purchase shares
of Common Stock at a price per share less than the Market Price
(as defined below) of the Common Stock on the Business Day next
following the record date for the determination of holders of
Common Stock entitled to receive such rights or warrants.
In the case of the events referred to in clauses (i), (ii),
(iii) and (iv) above, the Exchange Rate shall be adjusted by
adjusting each of the Share Components of the Exchange Rate in
effect immediately prior to such event so that the Trust will be
entitled to receive at the Exchange Date, with respect to each
Contract, the number of shares of Common Stock (or, in the case
of a reclassification referred to in clause (iv) above, the
number of shares of other common stock of the Company issued
pursuant thereto) which it would have owned or been entitled to
receive immediately following such event had the Exchange Date
occurred immediately prior to such event or any record date with
respect thereto. In the case of the event referred to in clause
(v) above, the Exchange Rate shall be adjusted by multiplying
each of the Share Components of the Exchange Rate in effect on
the record date for the issuance of the rights or warrants
referred to in clause (v) above, by a fraction, of which the
numerator shall be (A) the number of shares of Common Stock
outstanding on the record date for the issuance of such rights or
warrants plus (B) the number of additional shares of Common Stock
offered for subscription or purchase pursuant to such rights or
warrants, and of which the denominator shall be (x) the number of
shares of Common Stock outstanding on the record date for the
issuance of such rights or warrants plus (y) the number specified
in clause (B) above multiplied by the quotient of the exercise
price of such rights or warrants divided by the Market Price of
the Common Stock on the Business Day next following the record
date for the determination of holders of Common Stock entitled to
receive such rights or warrants. To the extent that such rights
or warrants expire prior to the Exchange Date of the DECS and
shares of Common Stock are not delivered pursuant to such rights
or warrants prior to such expiration, the Exchange Rate shall be
readjusted to the Exchange Rate which would then be in effect had
such adjustments for the issuance of such rights or warrants been
made upon the basis of delivery of only the number of shares of
Common Stock actually delivered pursuant to such rights or
warrants. For purposes of this paragraph, dividends will be
deemed to be paid as of the record date for such dividend.
"Market Price" means, as of any date of determination, the
average Closing Price per share of Common Stock on the 20 Trading
Days immediately prior to (but not including) the date of
determination; provided, however, that if there are not 20
Trading Days for the Common Stock occurring later than the 60th
calendar day immediately prior to, but not including, such date,
the Market Price shall be determined as the market value per
share of Common Stock as of such date as determined by a
nationally recognized investment banking firm retained for such
purpose by the Administrator. All adjustments to the Exchange
Rate will be calculated to the nearest 1/10,000th of a share of
Common Stock (or, if there is not a nearest 1/10,000th of a
share, to the next higher 1/10,000th of a share). No adjustment
in the Exchange Rate shall be required unless such adjustment
would require an increase or decrease of at least one percent
therein; provided, however, that any adjustments which by reason
of the foregoing are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. If
an adjustment is made to the Exchange Rate pursuant to clauses
(i), (ii), (iii), (iv) or (v) above, an adjustment will also
be made to the Exchange Price as such term is used throughout the
definition of Exchange Rate. The required adjustment to the
Exchange Price shall be made at the Exchange Date by multiplying
the Exchange Price by the cumulative number or fraction
determined pursuant to the Exchange Rate adjustment procedure
described above. In the case of the
13
<PAGE>
reclassification of any shares of Common Stock into any shares of
common stock of the Company other than the Common Stock, such
shares of common stock shall be deemed shares of Common Stock for
all purposes. Each such adjustment to the Exchange Rate and the
Exchange Price shall be made successively.
In the event of (i) any dividend or distribution by the
Company to all holders of Common Stock of evidences of its
indebtedness or other assets (excluding any dividends or
distributions referred to in clause (i) of the first paragraph
under the caption "--Dilution Adjustments; Adjustment Events,"
any shares of common stock issued pursuant to a reclassification
referred to in clause (iv) of such paragraph and any Ordinary
Cash Dividends (as defined below)) or any issuance by the Company
to all holders of Common Stock of rights or warrants to subscribe
for or purchase any of its securities (other than rights or
warrants referred to in clause (v) of the first paragraph under
the caption "--Dilution Adjustments; Adjustment Events"), (ii)
any consolidation or merger of the Company with or into another
entity (other than a merger or consolidation in which the Company
is the continuing corporation and in which the Common Stock
outstanding immediately prior to the merger or consolidation is
not exchanged for cash, securities or other property of the
Company or another corporation), (iii) any sale, transfer, lease
or conveyance to another corporation of the property of the
Company as an entirety or substantially as an entirety, (iv) any
statutory exchange of securities of the Company with another
corporation (other than in connection with a merger or
acquisition) or (v) any liquidation, dissolution or winding up of
the Company (any such event, an "Adjustment Event"), each Seller
will be obligated to deliver at the Exchange Date, in lieu of or
(in the case of an Adjustment Event described in clause (i)
above) in addition to, shares of Common Stock as described above,
cash in an amount equal to (A) if the Exchange Price is greater
than the Threshold Appreciation Price, multiplied by the Transaction
Value (as defined below), (B) if the Exchange Price is less than
or equal to the Threshold Appreciation Price but is greater than
the Initial Price, the product of (x) the Initial Price divided by
the Exchange Price multiplied by (y) the Transaction Value and (C) if
the Exchange Price is less than or equal to the Initial Price, the
Transaction Value. Following an Adjustment Event, the Exchange Price,
as such term is used in this paragraph and throughout the definition
of Exchange Rate, shall be deemed to equal (A) if shares of Common
Stock are outstanding at the Exchange Date, the Exchange Price of
the Common Stock, as adjusted pursuant to the method set forth in
the preceding paragraph, otherwise zero, plus (B) the Transaction
Value.
Notwithstanding the foregoing, with respect to any
securities received in an Adjustment Event that (A) are (i)
listed on a United States national securities exchange, (ii)
reported on a United States national securities system subject to
last sale reporting, (iii) traded in the over-the-counter market
and reported on the National Quotation Bureau or similar
organization or (iv) for which bid and ask prices are available
from at least three nationally recognized investment banking
firms and (B) are either (x) perpetual equity securities or (y)
non-perpetual equity or debt securities with a stated maturity
after the Exchange Date of the DECS ("Reported Securities"), each
Seller is obligated, in lieu of delivering cash in respect of
such Reported Securities received in an Adjustment Event, as
determined in accordance with the previous paragraph, to deliver
a number of such Reported Securities with a value equal to all
cash amounts that would otherwise be deliverable in respect of
Reported Securities received in such Adjustment Event, as
determined in accordance with clause (ii) of the definition of
Transaction Value, unless such Seller has made an election to
exercise the Cash Delivery Option or such Reported Securities
have not yet been delivered to the holders entitled thereto
following such Adjustment Event or any record date with respect
thereto. If a Seller delivers any Reported Securities, upon
distribution thereof by the Trust to Holders of DECS, each Holder
of a DECS will be responsible for the payment of any and all
brokerage and other transaction costs upon the sale of such
Reported Securities. If, following any Adjustment Event, any
Reported Security ceases to qualify as a Reported Security, then
(x) the Sellers shall not deliver such Reported Security but
instead shall deliver an equivalent amount of cash and (y)
notwithstanding clause (ii) of the definition of Transaction
Value, the Transaction Value of such Reported Security shall mean
the fair market value of such Reported Security on the date such
security ceases to qualify as a Reported Security, as determined
by a nationally recognized investment banking firm retained for
this purpose by the Administrator.
Because each DECS represents the Holder's right to receive
a pro rata portion of the Common Stock or other assets delivered
by the Sellers pursuant to the Contracts, the amount of cash
and/or the kind and number of securities which the Holders of
DECS are entitled to receive after an Adjustment Event shall be
subject to adjustment following the date of such Adjustment Event
in the same manner and upon the occurrence of the same
14
<PAGE>
type of events as described under this caption "--Dilution
Adjustments; Adjustment Events" with respect to Common Stock and
the Company.
For purposes of the foregoing, the term "Ordinary Cash
Dividend" means, with respect to any consecutive 365-day period,
any dividend with respect to Common Stock paid in cash to the
extent that the amount of such dividend, together with the
aggregate amount of all other dividends on the Common Stock paid
in cash during such 365-day period, does not exceed on a per
share basis __% of the average of the Closing Prices of the
Common Stock over such 365-day period.
The term "Transaction Value" means (i) for any cash
received in any Adjustment Event, the amount of cash received per
share of Common Stock, (ii) for any Reported Securities received
in any Adjustment Event, an amount equal to (x) the average
Closing Price per security of such Reported Securities on the 20
Trading Days immediately prior to (but not including) the
Exchange Date multiplied by (y) the number of such Reported
Securities (as adjusted pursuant to the second preceding
paragraph) received per share of Common Stock and (iii) for any
property received in any Adjustment Event other than cash or such
Reported Securities, an amount equal to the fair market value of
the property received per share of Common Stock on the date such
property is received, as determined by a nationally recognized
investment banking firm retained for this purpose by the
Administrator; provided, however, that in the case of clause
(ii), (x) with respect to securities that are Reported Securities
by virtue of only clause (iv) of the definition of Reported
Securities above, Transaction Value with respect to any such
Reported Security means the average of the mid-point of the last
bid and ask prices for such Reported Security as of the Exchange
Date from each of at least three nationally recognized investment
banking firms retained for such purpose by the Administrator
multiplied by the number of such Reported Securities (as adjusted
pursuant to the method set forth in the third preceding
paragraph) received per share of Common Stock and (y) with
respect to all other Reported Securities, if there are not 20
Trading Days for any particular Reported Security occurring after
the 60th calendar day immediately prior to, but not including,
the Exchange Date, Transaction Value with respect to such
Reported Security means the market value per security of such
Reported Security as of the Exchange Date as determined by a
nationally recognized investment banking firm retained for such
purpose by the Administrator multiplied by the number of such
Reported Securities (as adjusted pursuant to the method set forth
in the third preceding paragraph) received per share of Common
Stock. For purposes of calculating the Transaction Value, any
cash, Reported Securities or other property receivable in an
Adjustment Event shall be deemed to have been received
immediately prior to the close of business on the record date for
such Adjustment Event or, if there is no record date for such
Adjustment Event, immediately prior to the close of business on
the effective date of such Adjustment Event.
No adjustments will be made for certain other events, such
as offerings of Common Stock by the Company for cash or in
connection with acquisitions. Likewise, no adjustments will be
made for any sales of Common Stock by the Sellers.
Each Seller is required under its Contract to notify the
Trust promptly upon becoming aware that an event that requires an
adjustment to the Exchange Rate or an Adjustment Event is pending
or has occurred. The Trust is required, within ten Business Days
following the occurrence of an event that requires an adjustment
to the Exchange Rate or the occurrence of an Adjustment Event
(or, in either case, if the Trust is not aware of such
occurrence, as soon as practicable after becoming so aware), to
provide written notice to each Holder of DECS of the occurrence
of such event including a statement in reasonable detail setting
forth the method by which the adjustment to the Exchange Rate or
change in the consideration to be received by Holders of DECS
following the Adjustment Event was determined and setting forth
the revised Exchange Rate or consideration, as the case may be;
provided, however, that, in respect of any adjustment to the
Exchange Price, such notice will only disclose the factor by
which the Exchange Price is to be multiplied in order to
determine which clause of the Exchange Rate definition will apply
at the Exchange Date.
Collateral Requirements of the Contracts; Acceleration.
Each Seller's obligations under its Contract will be secured by a
security interest in one share of Common Stock for each share of
Common Stock subject to such Contract (subject to adjustment in
accordance with the dilution provisions of such Contract),
pursuant to a Collateral Agreement among such Seller, the Trust
and The Bank of New York, as collateral agent (the "Collateral
Agent").
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Unless a Seller is in default in its obligations under
the Collateral Agreement, the Seller will be permitted to
substitute for the pledged shares of Common Stock collateral
consisting of short-term, direct obligations of the U.S.
Government. Any U.S. Government obligations pledged as substitute
collateral for shares of Common Stock will be required to have an
aggregate market value at the time of substitution and at daily
mark-to-market valuations thereafter of not less than 150% (or,
from and after any Insufficiency Determination that shall not be
cured by the close of business on the next business day
thereafter, as described below, 200%) of the product of the
market price of the Common Stock at the time of each valuation
times the number of shares of Common Stock for which such
obligations are being substituted. Each Collateral Agreement will
provide that, in the event of an Adjustment Event, the relevant
Seller will pledge as alternative collateral any Reported
Securities, plus cash in an amount at least equal to the
Transaction Value of any consideration other than Reported
Securities, received by it in respect of the maximum number of
shares of Common Stock subject to such Seller's Contract at the
time of the Adjustment Event. The number of Reported Securities
required to be pledged shall be subject to adjustment if any
event requiring a dilution adjustment under the Contracts shall
occur. Each Seller will be permitted to substitute U.S.
Government obligations for Reported Securities or cash pledged
after any Adjustment Event. Any U.S. Government obligations so
substituted will be required to have an aggregate market value at
the time of substitution and at daily mark-to-market valuations
thereafter of: (A) in the case of obligations substituted for
pledged Reported Securities, not less than 150% (or, from and
after any Insufficiency Determination that shall not be cured by
the close of business on the next business day thereafter, as
described below, 200%) of the product of the market price per
security of Reported Securities at the time of each valuation
times the number of Reported Securities for which such
obligations are being substituted; and (B) in the case of
obligations substituted for pledged cash, not less than 105% of
the amount of cash for which such obligations are being
substituted. The Collateral Agent will promptly pay over to each
Seller any dividends, interest, principal or other payments
received by the Collateral Agent in respect of any collateral,
including any substitute collateral, unless the relevant Seller
is in default of its obligations under its Collateral Agreement,
or unless the payment of such amount to the relevant Seller would
cause the collateral to become insufficient under the Collateral
Agreement.
If the Collateral Agent shall determine (an "Insufficiency
Determination") that U.S. Government obligations pledged by any
Seller as substitute collateral fail to meet the foregoing
requirements at any valuation, or that such Seller has failed to
pledge additional collateral required as a result of a dilution
adjustment increasing the maximum number of shares of Common
Stock or Reported Securities subject to such Contract, and such
failure shall not be cured by the close of business on the next
business day after such determination, then, unless a Collateral
Event of Default (as defined below) under such Collateral
Agreement shall have occurred and be continuing, the Collateral
Agent shall commence (i) sales of the collateral consisting of
U.S. Government obligations and (ii) purchases, using the
proceeds of such sales, of shares of Common Stock or Reported
Securities, in an amount sufficient to cause the collateral to
meet the requirements under such Collateral Agreement. The
Collateral Agent shall discontinue such sales and purchases if at
any time the Collateral Event of Default under such Collateral
Agreement shall have occurred and be continuing.
The occurrence of a Collateral Event of Default (as defined
below) under any Collateral Agreement, or the bankruptcy or
insolvency of any Seller, will cause an automatic acceleration of
such Seller's obligations under its Contract. A "Collateral Event
of Default" under any Collateral Agreement shall mean, at any
time, (A) if no U.S. Government obligations shall be pledged as
substitute collateral at such time, failure of the collateral to
consist of at least the maximum number of shares of Common Stock
subject to the relevant Seller's Contract at such time (or, if an
Adjustment Event shall have occurred at or prior to such time,
failure of the collateral to include the amount of cash and the
maximum number of any Reported Securities required to be pledged
as described above); (B) if any U.S. Government obligations shall
be pledged as substitute collateral for shares of Common Stock
(or Reported Securities) at such time, failure of such U.S.
Government obligations to have a market value at such time of at
least 105% of the market price of the Common Stock (or the
then-current market price per security of Reported Securities, as
the case may be) times the difference between (x) the maximum
number of shares of Common Stock (or Reported Securities) subject
to the relevant Seller's Contract at such time and (y) the number
of shares of Common Stock (or Reported Securities) pledged as
collateral at such time; and (C) if any U.S. Government obligations
shall be pledged as substitute collateral for any cash at such time,
failure of such U.S. Government obligations to have a market
value at such time of at least 105% of such cash, if such failure
shall not be cured within one Business Day after notice thereof
is delivered to the relevant Seller.
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Except as described below, upon acceleration of any
Seller's Contract, the Collateral Agent will to the extent
permitted by law distribute to the Trust for distribution pro
rata to the Holders, with respect to such Seller's Contract, the
maximum number of shares of Common Stock subject to such
Contract, in the form of the shares of Common Stock then pledged
by that Seller, or cash generated from the liquidation of U.S.
Government obligations then pledged by that Seller, or a
combination thereof (or, after an Adjustment Event, in the form
of Reported Securities then pledged, cash then pledged, cash
generated from the liquidation of U.S. Government obligations
then pledged, or a combination thereof). In addition, in the
event that by the Exchange Date any substitute collateral has not
been replaced by shares of Common Stock (or, after an Adjustment
Event, cash or Reported Securities) sufficient to meet the
obligations under any Contract, the Collateral Agent will
distribute to the Trust for distribution pro rata to the Holders,
with respect to such Contract, the market value of the shares of
Common Stock required to be delivered thereunder, in the form of
any shares of Common Stock then pledged by the relevant Seller
plus cash generated from the liquidation of U.S. Government
obligations then pledged by such Seller (or, after an Adjustment
Event, the market value of the alternative consideration required
to be delivered thereunder, in the form of any Reported
Securities then pledged, plus any cash then pledged, plus cash
generated from the liquidation of U.S. Government obligations
then pledged).
If upon acceleration of a Seller's Contract, such Seller is
subject to a Bankruptcy Code or similar proceeding, the
Collateral Agent will to the extent permitted by law distribute
to the Trust for distribution pro rata to the Holders, with
respect to such Seller's Contract, a number of shares of Common
Stock, in the form of the shares of Common Stock then pledged by
that Seller, or cash generated from the liquidation of U.S.
Government obligations then pledged by that Seller, or a
combination thereof (or, after an Adjustment Event, in the form
of Reported Securities then pledged, cash then pledged, cash
generated from the liquidation of U.S. Government obligations
then pledged, or a combination thereof), with an aggregate value
equal to such Seller's "Acceleration Value." The Acceleration
Value will be determined by the Administrator on the basis of
quotations from independent dealers. Each quotation will be for
an amount that would be paid to the relevant dealer in
consideration of an agreement that would have the effect of
preserving the Trust's rights to receive the number of shares of
Common Stock (or, after an Adjustment Event, Reported Securities,
cash or a combination thereof) subject to such Seller's Contract
on the Exchange Date. The Administrator will request quotations
from four nationally recognized independent dealers on or as soon
as reasonably practicable following the date of acceleration. If
four quotations are provided, the Acceleration Value will be the
arithmetic mean of the two quotations remaining after
disregarding the highest and lowest quotations. If two or three
quotations are provided, the Acceleration Value will be the
arithmetic mean of such quotations. If one quotation is provided,
the Acceleration Value will be such quotation. If no quotations
are provided, the Acceleration Value will be the aggregate value
of the number of shares of Common Stock (or, after an Adjustment
Event, Reported Securities, cash or a combination thereof) that
would be required to be delivered under such Seller's Contract on
the date of acceleration if the Exchange Date were redefined to
be the date of acceleration.
Description of Sellers. The Sellers may be institutional
investors or individuals or trusts, foundations or other entities
through which such individuals hold their shares of Common Stock.
A brief description of the Sellers will be added by amendment.
Specific information on the holdings of the Sellers, as required
by the Securities Act of 1933, as amended (the "Securities Act"),
will be included in the prospectus of the Company attached
hereto.
The Treasury Securities
The Trust will purchase and hold a series of zero-coupon
("stripped") U.S. Treasury securities with such face amounts and
maturities as will provide Holders with a quarterly distribution
of $ per DECS on each Distribution Date during the term of the
Trust. Up to % of the Trust's total assets may be invested in
these Treasury Securities. If any Contract is accelerated, a
proportionate amount of the Treasury Securities of each maturity
then held in the Trust will be liquidated by the Administrator
and the proceeds thereof distributed pro rata to the Holders, together
with proceeds from the acceleration of such Contract. See "--The
Contracts-- Collateral Requirements of the Contracts; Acceleration"
above and "--Trust Termination" below.
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Temporary Investments
For cash management purposes, the Trust may invest the
proceeds of the Treasury Securities held by the Trust and any
other cash held by the Trust in short-term obligations of the
U.S. Government maturing no later than the Business Day preceding
the next following Distribution Date.
Trust Termination
The Trust will terminate automatically on or shortly after
the Exchange Date or following the distribution of all Trust
assets to the Holders, if earlier.
In the event that all of the Contracts remaining in effect
at any time are accelerated, then any Treasury Securities then
held by the Trust will be liquidated by the Administrator and the
proceeds thereof distributed pro rata to the Holders, together
with all shares of Common Stock subject to each Seller's Contract
that are pledged by each Seller, or cash generated from the
liquidation of U.S. Government obligations then pledged by each
Seller, or a combination thereof (or, after an Adjustment Event,
in the form of Reported Securities then pledged, cash then
pledged, cash generated from the liquidation of U.S. Government
obligations then pledged, or a combination thereof) or in certain
cases, the Acceleration Value of a Seller's Contract, and the
term of the Trust will expire. See "--The Contracts--Collateral
Requirements of the Contracts; Acceleration" above.
Delivery of Common Stock and Reported Securities; No Fractional
Shares of Common Stock or Reported Securities
Common Stock and Reported Securities delivered under the
Contracts at the Exchange Date are expected to be distributed by
the Trust to the Holders pro rata shortly after the Exchange
Date, except that no fractional shares of Common Stock or
Reported Securities will be distributed. If more than one DECS
shall be surrendered at one time by the same Holder, the number
of full shares of Common Stock or Reported Securities which shall
be delivered upon termination of the Trust, in whole or in part,
as the case may be, shall be computed on the basis of the
aggregate number of DECS so surrendered at the Exchange Date. In
lieu of delivering any fractional share or security, the Trust
will sell a number of shares or securities equal to the total of
all fractional shares or securities that would otherwise be
delivered to Holders of all DECS, and each such Holder will be
entitled to receive an amount in cash equal to the pro rata
portion of the proceeds of such sale (which may be at a price
lower than the Exchange Price).
INVESTMENT RESTRICTIONS
The Trust has adopted a fundamental policy that the Trust
may not purchase any securities or instruments other than the
Treasury Securities, the Contracts and the Common Stock or other
assets received pursuant to the Contracts and, for cash
management purposes, short-term obligations of the U.S.
Government; issue any securities or instruments except for the
DECS; make short sales or purchase securities on margin; write
put or call options; borrow money; underwrite securities;
purchase or sell real estate, commodities or commodities
contracts; or make loans. The Trust has also adopted a
fundamental policy that the Contracts may not be disposed of
during the term of the Trust and that (except for a partial
liquidation of Treasury Securities following acceleration of any
Contract as described above under "Investment Objectives and
Policies--The Treasury Securities") the Treasury Securities may
not be disposed of prior to the earlier of their respective
maturities and the termination of the Trust.
RISK FACTORS RELATING TO DECS
Internal Management; No Portfolio Management
The Trust will be internally managed by its Trustees and
will not have any separate investment adviser. It is a
fundamental policy of the Trust that the Contracts may not be
disposed of during the term of the Trust and that the Treasury
Securities held by the Trust may not be disposed of prior to the
earlier of their respective maturities and the termination of the
Trust, except for a partial liquidation of Treasury Securities
following acceleration of any Contract. As a result, the Trust will
continue to hold the Contracts despite any significant decline in the
market price of the Common Stock or adverse changes in the financial
condition of the Company (or, after an Adjustment
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Event, comparable developments affecting any Reported Securities
or the issuer thereof). The Trust will not be managed like a
typical closed-end investment company.
Relationship to Common Stock; Limitations on Opportunity for Equity
Appreciation; Potential Losses
The yield on the DECS is higher than the current dividend
yield on the Common Stock. However, there is no assurance that
the yield on the DECS will be higher than the dividend yield on
the Common Stock over the term of the Trust.
The Amount Receivable at the Exchange Date is not fixed,
but is based on the market price of the Common Stock as reflected
in the Exchange Rate. There can be no assurance that the Amount
Receivable at the Exchange Date will be equal to or greater than
the Initial Price of the DECS. If the Exchange Price is less than
the Initial Price, the Amount Receivable at the Exchange Date
will generally be less than the amount paid for the DECS, in
which case an investment in DECS will result in a loss and, if
the Company became insolvent or bankrupt, could result in a total
loss. Holders of the DECS, therefore, bear the full risk of a
decline in the value of the Common Stock prior to the Exchange
Date.
In addition, the opportunity for equity appreciation
afforded by an investment in the DECS is less than the
opportunity for equity appreciation afforded by a direct
investment in the Common Stock because the Amount Receivable at
the Exchange Date will generally exceed the Initial Price only if
the Exchange Price exceeds the Threshold Appreciation Price
(which represents an appreciation of % over the Initial Price)
and because Holders will be entitled to receive at the Exchange
Date only % of any appreciation of the value of the Common Stock
in excess of the Threshold Appreciation Price. See "Investment
Objectives and Policies--Trust Assets" for an illustration of the
Amount Receivable at the Exchange Date that a DECS Holder would
receive at various Exchange Prices. Because the market price of
the Common Stock is subject to market fluctuations, the Amount
Receivable at the Exchange Date may be more or less than the
Initial Price of the DECS. Additionally, because the Exchange
Price is generally determined based on a 20-Trading Day average,
the value of a share of Common Stock distributed on the Exchange
Date may be less than the Exchange Price used to determine the
Amount Receivable at the Exchange Date.
The market price of the DECS at any time will be affected
primarily by changes in the price of Common Stock. It is
impossible to predict whether the price of the Common Stock will
rise or fall. Trading prices of Common Stock will be influenced
by the Company's operational results and by complex and
interrelated political, economic, financial and other factors
that can affect the capital markets generally, the stock exchange
on which Common Stock is traded and the market segment of which
the Company is a part. See the prospectus relating to the Company
and to the Common Stock attached hereto. Trading prices of the
Common Stock also may be influenced if any of the Sellers or
another principal shareholder of the Company hereafter issues
securities with terms similar to those of the DECS or otherwise
transfers shares of the Common Stock. As of the date hereof, the
Sellers held an aggregate of shares of Common Stock, shares of
which ( shares if the Underwriter's over allotment option is
exercised in full) the Sellers may deliver to the Trust at the
Exchange Date.
Impact of the DECS on the Market for the Common Stock
It is not possible to predict accurately how or whether the
DECS will trade in the secondary market or whether such market
will be liquid. Any market that develops for the DECS is likely
to influence and be influenced by the market for the Common
Stock. For example, the price of the Common Stock could become
more volatile and could be depressed by investors' anticipation
of the potential distribution into the market of substantial
additional amounts of Common Stock at the termination of the
Trust, by possible sales of the Common Stock by investors who
view the DECS as a more attractive means of equity participation
in the Company and by hedging or arbitrage trading activity that
may develop involving the DECS and the Common Stock.
Dilution Adjustments; Stockholder Rights
The number of shares of Common Stock that Holders are
entitled to receive at the termination of the Trust is subject to
adjustment for certain events arising from stock splits and
combinations, stock dividends and certain
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<PAGE>
other actions of the Company that modify its capital structure.
See "Investment Objectives and Policies--The Contracts--Dilution
Adjustments; Adjustment Events." Such number of shares to be
received by Holders may not be adjusted for other events, such as
offerings of Common Stock for cash or in connection with
acquisitions, that may adversely affect the price of the Common
Stock and, because of the relationship of the number of shares of
Common Stock to be received pursuant to the Contracts to the
price of the Common Stock, such other events may adversely affect
the trading price of the DECS. There can be no assurance that the
Company will not take any of the foregoing actions, or that it
will not make offerings of, or that major shareholders will not
sell any, Common Stock in the future, or as to the amount of any
such offerings or sales. In addition, until the receipt of the
Common Stock by Holders upon a distribution thereof by the Trust,
Holders will not be entitled to any rights with respect to the
Common Stock (including without limitation voting rights and the
rights to receive any dividends or other distributions in respect
thereof).
No Obligation on the Part of the Company With Respect to the DECS
or the Contracts
The Company has no obligations with respect to the DECS,
the Contracts or the Amount Receivable at the Exchange Date,
including any obligation to take the needs of the Trust or of
Holders of the DECS into consideration for any reason. The
Company will not receive any of the proceeds of the offering of
the DECS made hereby and is not responsible for, and has not
participated in, the determination of the time of sale of,
quantities of or prices for the DECS to be issued or the
determination or calculation of the Amount Receivable at the
Exchange Date. The Company is not involved with the
administration or trading of the DECS.
Trading Value; Listing
The DECS are innovative securities and have no trading
history, and it is not possible to predict how they will trade in
the secondary market. The trading price of the DECS may vary
considerably prior to the Exchange Date due to, among other
things, fluctuations in the price of the Common Stock (which may
occur due to changes in the Company's financial condition,
results of operations or prospects, or because of complex and
interrelated political, economic, financial and other factors
that can affect the capital markets generally, the stock
exchanges or quotation systems on which the Common Stock is
traded and the market segment of which the Company is a part) and
fluctuations in interest rates and other factors that are
difficult to predict and beyond the Trust's control.
The Underwriter currently intends, but is not obligated, to
make a market in the DECS and any such market-making may be
discontinued at any time in the sole discretion of the
Underwriter without notice. There can be no assurance that a
secondary market will develop or, if a secondary market does
develop, that it will provide the Holders of the DECS with
liquidity of investment or that it will continue for the life of
the DECS.
Application will be made to list the DECS on the NYSE.
Assuming the acceptance of such application, there can be no
assurance that the DECS will not later be delisted or that
trading in the DECS on the NYSE will not be suspended. In the
event of a delisting or suspension of trading on such exchange,
the Trust will apply for listing of the DECS on another national
securities exchange or for quotation on another trading market.
If the DECS are not listed or traded on any securities exchange
or trading market, or if trading of the DECS is suspended,
pricing information for the DECS may be more difficult to obtain,
and the price and liquidity of the DECS may be adversely
affected.
Net Asset Value
The Trust is a newly organized closed-end investment
company with no previous operating history. Shares of closed-end
investment companies frequently trade at a discount from their
net asset value, which is a risk separate and distinct from the
risk that the Trust's net asset value will decrease. The Trust
cannot predict whether the DECS will trade at, below or above
their net asset value. The risk of purchasing investments that
might trade at a discount is more pronounced for investors who
wish to sell their investments in a relatively short period of
time after completion of the Trust's initial public offering
because for those investors realization of a gain or loss on
their investments is likely to be more dependent upon the
existence of a premium or discount than upon portfolio
performance. The DECS are not subject to redemption prior to the
Exchange Date or the earlier termination of the Trust.
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Non-Diversified Status
The Trust is considered non-diversified under the
Investment Company Act, which means that the Trust is not limited
in the proportion of its assets that may be invested in the
obligations of a single issuer. Because the only securities held
or received by the Trust will be the Treasury Securities and the
Contracts or other assets subject to the Contracts, the Trust may
be subject to greater risk than would be the case for an
investment company with more diversified investments.
Uncertainty of Federal Income Tax Consequences
No statutory, judicial or administrative authority directly
addresses the characterization of the DECS or instruments similar
to the DECS for U.S. federal income tax purposes. As a result,
significant aspects of the U.S. federal income tax consequences
of an investment in the DECS are not certain. No ruling is being
requested from the Internal Revenue Service with respect to the
DECS and no assurance can be given that the Internal Revenue
Service will agree with the conclusions expressed under "Certain
United States Federal Income Tax Considerations."
Risk Factors Relating to the Company
Investors in the DECS should carefully consider the
information in the prospectus of the Company attached hereto,
including the information contained therein under "Risk Factors."
Risk Relating to Bankruptcy of the Sellers
The Trust believes that the Contracts constitute
"securities contracts" for purposes of the Bankruptcy Code,
liquidation of which would not be subject to the automatic stay
provisions of the Bankruptcy Code in the event of the bankruptcy
of the Sellers. It is, however, possible that the Contracts will
be determined not to qualify as "securities contracts" for this
purpose, in which case a Seller's bankruptcy may cause a delay in
settlement of such Seller's Contract, or otherwise subject such
Contract to bankruptcy proceedings, which could adversely affect
the timing of settlement and could impair the Trust's ability to
distribute the Common Stock or other assets subject to such
Contract and the related Collateral Agreement to the Holders on a
timely basis and, as a result, could adversely affect the amount
received by the Holders in respect of the DECS and/or the timing
of such receipt.
NET ASSET VALUE
The net asset value of the portfolio will be calculated by
the Administrator no less frequently than quarterly by dividing
the value of the net assets of the Trust (the value of its assets
less its liabilities) by the total number of DECS outstanding.
The Trust's net asset value will be published semi-annually as
part of the Trust's semi-annual report to Holders and at such
other times as the Trustees may determine. The Treasury
Securities held by the Trust will be valued at the mean between
the last current bid and asked prices or, if quotations are not
available, as determined in good faith by the Trustees.
Short-term investments having a maturity of 60 days or less will
be valued at cost with accrued interest or discount earned
included in interest to be received. The Contracts will be valued
at the mean of the bid prices received by the Trust from at least
three independent broker-dealer firms unaffiliated with the Trust
who are in the business of making bids on financial instruments
similar to the Contracts and with terms comparable thereto. In
the event that the Trust (acting through the Administrator) is
unable to obtain valuations from three independent broker-dealer
firms, as required by the preceding sentence, on a timely basis
or without unreasonable effort or expense, the Contracts shall be
valued at the median of bid prices received from two such
broker-dealer firms. In the event that the Trust (acting through
the Administrator) is unable to obtain a valuation for the
Contracts that it believes to be reasonable through the above
method, valuation shall be established at a level deemed to be fair
and reflective of the market value for the Contracts based on all
appropriate factors relevant to the value of the Contracts as set
forth in pricing guidelines adopted by the Trustees.
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DESCRIPTION OF THE DECS
Each DECS represents an equal proportional interest in the
Trust. Upon liquidation of the Trust, Holders are entitled to
share pro rata in the net assets of the Trust available for
distribution. DECS have no preemptive, redemption or conversion
rights. The DECS, when issued and outstanding, will be fully paid
and nonassessable. The only securities that the Trust is
authorized to issue are the DECS offered hereby and those sold to
the initial Holder referred to below. See "Underwriting."
Holders are entitled to one vote for each DECS held on all
matters to be voted on by Holders and are not able to cumulate
their votes in the election of Trustees. The Trustees of the
Trust have been selected initially by Smith Barney as the initial
Holder of the Trust. The Trust intends to hold annual meetings as
required by the rules of the NYSE. The Trustees may call special
meetings of Holders for action by Holder vote as may be required
by either the Investment Company Act or the Declaration of Trust.
The Holders have the right, upon the declaration in writing or
vote of more than two-thirds of the outstanding DECS, to remove a
Trustee. The Trustees will call a meeting of Holders to vote on
the removal of a Trustee upon the written request of the record
Holders of 10% of the DECS or to vote on other matters upon the
written request of the record Holders of 51% of the DECS (unless
substantially the same matter was voted on during the preceding
12 months). The Trustees shall establish, and notify the Holders
in writing of, the record date for each such meeting, which shall
be not less than 10 nor more than 50 days before the meeting
date. Holders at the close of business on the record date will be
entitled to vote at the meeting. The Trust will also assist in
communications with other Holders as required by the Investment
Company Act.
Book-Entry System
The DECS will be issued in the form of one or more global
securities (the "Global Securities") deposited with The
Depository Trust Company (the "Depositary") and registered in the
name of a nominee of the Depositary.
The Depositary has advised the Trust and the Underwriter as
follows: The Depositary is a limited-purpose trust company
organized under the laws of the State of New York, a member of
the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code and a "clearing
agency" registered pursuant to Section 17A of the Exchange Act.
The Depositary was created to hold securities of persons who have
accounts with the Depositary ("participants") and to facilitate
the clearance and settlement of securities transactions among its
participants in such securities through electronic book-entry
changes in accounts of the participants, thereby eliminating the
need for physical movement of certificates. Such participants
include securities brokers and dealers, banks, trust companies
and clearing corporations. Indirect access to the Depositary's
book-entry system is also available to others, such as banks,
brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a participant, either
directly or indirectly.
Upon the issuance of a Global Security, the Depositary or
its nominee will credit the respective DECS represented by such
Global Security to the accounts of participants. The accounts to
be credited shall be designated by the Underwriter. Ownership of
beneficial interests in such Global Securities will be limited to
participants or persons that may hold interests through
participants. Ownership of beneficial interests by participants
in such Global Securities will be shown on, and the transfer of
those ownership interests will be effected only through, records
maintained by the Depositary or its nominee for such Global
Securities. Ownership of beneficial interests in such Global
Securities by persons that hold through participants will be
shown on, and the transfer of that ownership interest within such
participant will be effected only through, records maintained by
such participant. The laws of some jurisdictions require that
certain purchasers of securities take physical delivery of such
securities in definitive form. Such limits and such laws may
impair the ability to transfer beneficial interests in a Global
Security.
So long as the Depositary for a Global Security, or its
nominee, is the registered owner of such Global Security, such
Depositary or such nominee, as the case may be, will be
considered the sole owner or holder of the DECS. Except as set
forth below, owners of beneficial interests in such Global
Securities will not be entitled to
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have the DECS registered in their names and will not
receive or be entitled to receive physical delivery of the DECS
in definitive form and will not be considered the owners or
holders thereof.
Shares of Common Stock or other assets deliverable in
respect of, and any quarterly distributions on, DECS registered
in the name of or held by the Depositary or its nominee will be
made to the Depositary or its nominee, as the case may be, as the
registered owner or the holder of the Global Security. None of
the Trust, any Trustee, the Paying Agent, the Administrator or
the Custodian for the DECS will have any responsibility or
liability for any aspect of the records relating to, or payments
made on account of, beneficial ownership interests in a Global
Security or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests.
The Trust expects that the Depositary, upon receipt of any
payment in respect of a permanent Global Security, will credit
immediately participants' accounts with payments in amounts
proportionate to their respective beneficial interests in the
principal amount of such Global Security as shown on the records
of the Depositary. The Trust also expects that payments by
participants to owners of beneficial interests in such Global
Security held through such participants will be governed by
standing instructions and customary practices, as is now the case
with securities held for the accounts of customers in bearer form
or registered in "street name," and will be the responsibility of
such participants.
A Global Security may not be transferred except as a whole
by the Depositary to a nominee or a successor of the Depositary.
If the Depositary is at any time unwilling or unable to continue
as depositary and a successor depositary is not appointed by the
Trust within ninety days, the Trust will issue DECS in definitive
registered form in exchange for the Global Security representing
such DECS. In that event, an owner of a beneficial interest in a
Global Security will be entitled to physical delivery in
definitive form of DECS represented by such Global Security equal
in number to that represented by such beneficial interest and to
have such DECS registered in its name.
MANAGEMENT AND ADMINISTRATION OF THE TRUST
Trustees
The Trust will be internally managed by three Trustees,
none of whom is an "interested person" of the Trust as defined in
the Investment Company Act, and will not have an investment
adviser. Under the provisions of the Internal Revenue Code of
1986, as amended (the "Code"), applicable to grantor trusts, the
Trustees will not have the power to vary the investments held by
the Trust. It is a fundamental policy of the Trust that the
Contracts may not be disposed of during the term of the Trust and
that the Treasury Securities held by the Trust may not be
disposed of prior to the earlier of their respective maturities
and the termination of the Trust, except for a partial
liquidation of Treasury Securities following acceleration of any
Contract.
The names of the persons who will be elected by Smith
Barney, the initial Holder of the Trust, to serve as the Trustees
are set forth below. The positions and the principal occupations
of the individual Trustees during the past five years are also
set forth below.
Principal Occupation
Name, Age and Address Title During Past Five Years
--------------------- ----- ----------------------
Donald J. Puglisi, 50......... Managing Trustee Professor of Finance
Department of Finance University of Delaware
University of Delaware
Newark, DE 19716
William R. Latham III, 51..... Trustee Professor of Economics
Department of Economics University of Delaware
University of Delaware
Newark, DE 19716
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James B. O'Neill, 57.......... Trustee Professor of Economics
Center for Economic University of Delaware
Education &
Entrepreneurship
University of Delaware
Newark, DE 19716
Each Trustee who is not a director, officer or employee of
the Underwriter or the Administrator, or of any affiliate
thereof, will be paid by Smith Barney (which will be reimbursed
by the Sellers), in respect of its annual fee and anticipated
out-of-pocket expenses, a one-time, up-front fee of $ . 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 The
Bank of New York, as Trust Administrator pursuant to an
Administration Agreement. Under the Administration Agreement, the
Trustees have delegated most of their operational duties to the
Administrator, including without limitation, the duties to: (i)
receive invoices for and pay, or cause to be paid, all expenses
incurred by the Trust; (ii) with the approval of the Trustees,
engage legal and other professional advisors (other than the
independent public accountants for the Trust); (iii) instruct the
Paying Agent to pay distributions on DECS as described herein;
(iv) prepare and mail, file or publish all notices, proxies,
reports, tax returns and other communications and documents, and
keep all books and records, for the Trust; (v) at the direction
of the Trustees, institute and prosecute legal and other
appropriate proceedings to enforce the rights and remedies of the
Trust; and (vi) make all necessary arrangements with respect to
meetings of Trustees and any meetings of holders of DECS. The
Administrator will not, however, select the independent public
accountants for the Trust or sell or otherwise dispose of the
Trust assets (except in connection with an acceleration of the
Contracts, or the settlement of the Contracts at the Exchange
Date, and upon termination of the Trust).
The Administration Agreement may be terminated by either
the Trust or the Administrator upon 60 days' prior written
notice, except that no termination shall become effective until a
successor Administrator has been chosen and has accepted the
duties of the Administrator.
Except for its roles as Administrator, custodian, paying
agent, registrar and transfer agent of the Trust, and except for
its role as Collateral Agent under the Collateral Agreements, The
Bank of New York has no other affiliation with, and is not
engaged in any other transactions with, the Trust.
The address of the Administrator is 101 Barclay Street, New
York, New York 10286.
Custodian
The Trust's custodian (the "Custodian") is The Bank of New
York pursuant to a custodian agreement (the "Custodian
Agreement"). In the event of any termination of the Custodian
Agreement by the Trust or the resignation of the Custodian, the
Trust must engage a new Custodian to carry out the duties of the
Custodian as set forth in the Custodian Agreement. Pursuant to
the Custodian Agreement, all net cash received by the Trust will
be invested by the Custodian in short-term U.S. Government
securities maturing on or shortly before the next quarterly
distribution date. The Custodian will also act as Collateral
Agent under the Collateral Agreement and will hold a perfected
security interest in the Common Stock and U.S. Government
obligations or other assets consistent with the terms of the
Contracts.
Paying Agent
The transfer agent, registrar and paying agent (the "Paying
Agent") for the DECS is The Bank of New York pursuant to a paying
agent agreement (the "Paying Agent Agreement"). In the event of
any termination of the Paying Agent Agreement by the Trust or the
resignation of the Paying Agent, the Trust will use its best
efforts to engage a new Paying Agent to carry out the duties of
the Paying Agent.
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Indemnification
The Trust will indemnify each Trustee, the Administrator,
the Custodian and the Paying Agent with respect to any claim,
liability, loss or expense (including the costs and expenses of
the defense against any claim or liability) which it may incur in
acting as Trustee, Administrator, Custodian or Paying Agent, as
the case may be, except in the case of willful misfeasance, bad
faith, gross negligence or reckless disregard of their respective
duties or where applicable law prohibits such indemnification.
Salomon has agreed to reimburse the Trust for any amounts it may
be required to pay as indemnification to any Trustee, the
Administrator, the Custodian or the Paying Agent. Salomon will in
turn be reimbursed by the Sellers for all such reimbursements
paid by it.
Distributions
The Trust intends to distribute to Holders on a quarterly
basis the proceeds of the Treasury Securities held by the Trust.
The first distribution, reflecting the Trust's operations from
the date of the offering, will be made on , 1998 to Holders
of record as of , 1998. Thereafter, distributions will be
made on , , and or, if any such date is not a
Business Day, on the next succeeding Business Day, of each year to
Holders of record as of each , , and , respectively.
A portion of each such distribution should be treated as a tax-free
return of the Holder's investment. See "Investment Objective and
Policies--Trust Assets" and "Certain United States Federal Income
Tax Considerations." If any Contract is accelerated as described
in "Investment Objectives and Policies--The Contracts--Collateral
Requirements of the Contracts; Acceleration," each Holder will
receive its pro rata share of the proceeds from the acceleration
of such Contract and from the liquidation of a proportionate
amount of the Treasury Securities then held in the Trust. Upon
termination of the Trust as described in "Investment Objectives
and Policies--Trust Termination," each Holder will receive its
pro rata share of any remaining net assets of the Trust.
The Trust does not permit the reinvestment of distributions.
Estimated Expenses
At the closing of this offering the Sellers will pay to
each of the Administrator, the Custodian and the Paying Agent,
and to each Trustee, a one-time, up-front amount in respect of
its fee and, in the case of the Administrator, anticipated
expenses of the Trust over the term of the Trust. The anticipated
Trust expenses to be borne by the Administrator include, among
other things, expenses for legal and independent accountants'
services, costs of printing proxies, DECS certificates and Holder
reports, expenses of the Trustees, fidelity bond coverage, stock
exchange listing fees and expenses of qualifying the DECS for
sale in the various states. The aggregate of the one-time,
up-front payments described above will be in the amount of $ .
Smith Barney will also pay 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 DECS in the amount of $ at the closing of the offering.
Smith Barney will be reimbursed by the Sellers for such payments.
The amount payable to the Administrator in respect of
ongoing expenses of the Trust was determined based on estimates
made in good faith on the basis of information currently
available to the Trust, including estimates furnished by the
Trust's agents. There cannot, however, be any assurance that
actual operating expenses of the Trust will not be substantially
more than this amount. Any excess expenses will be paid by Smith
Barney or, in the event of its failure to pay such amounts, the
Sellers, or, in the event of the failure of either Smith Barney
or the Sellers to pay such amounts, the Trust. Smith Barney will
be reimbursed by the Sellers for all expenses of the Trust paid
by it.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the principal U.S. federal
income tax consequences that may be relevant to a holder of a
DECS that is a citizen or resident of the United States, a
corporation, partnership or other entity created or organized
under the laws of the United States, an estate the income of
which is subject to U.S. federal income taxation regardless of
its source, or a trust if (i) a U.S. court is able to exercise
primary supervision over the trust's administration and (ii) one
or more United States persons have the authority to control all
of the trust's substantial
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decisions (a "U.S. person") or a holder that is otherwise subject
to U.S. federal income taxation on a net income basis in respect of
a DECS (such a holder and any U.S. person, a "U.S. Holder"). The
discussion below is based on the advice of Cleary, Gottlieb, Steen
& Hamilton.
This summary is based on the U.S. federal income tax laws,
regulations, rulings and decisions now in effect, all of which
are subject to change. Except to the extent discussed below under
"Non-United States Persons," this summary deals only with U.S.
Holders that will hold DECS as capital assets. This summary deals
only with initial Holders and does not address tax considerations
applicable to investors that may be subject to special tax rules,
such as banks, insurance companies, dealers in securities,
persons that will hold DECS as a position in a "straddle" for tax
purposes or as a part of a "synthetic security" or a "conversion
transaction" or other integrated investment comprised of a DECS
and one or more other investments, or persons that have a
functional currency other than the U.S. dollar. It does not
include any description of the tax laws of any state or local
governments or of any foreign government that may be applicable
to the DECS or to the Holders thereof. It also does not discuss
the tax consequences of the ownership of the Common Stock or
Reported Securities. Prospective purchasers of DECS are urged to
review the discussion under "Taxation" in the accompanying
prospectus of the Company concerning the federal income tax
consequences of an investment in the Common Stock. INVESTORS
SHOULD CONSULT THEIR OWN TAX ADVISORS IN DETERMINING THE TAX
CONSEQUENCES TO THEM OF HOLDING DECS, INCLUDING THE APPLICATION
TO THEIR PARTICULAR SITUATION OF THE U.S. FEDERAL INCOME TAX
CONSIDERATIONS DISCUSSED BELOW, AS WELL AS THE APPLICATION OF
STATE, LOCAL OR OTHER TAX LAWS.
There are no regulations, published rulings or judicial
decisions addressing the characterization for federal income tax
purposes of securities with terms substantially the same as the
DECS. The Trust intends to treat a DECS for U.S. federal income
tax purposes as a beneficial interest in a trust that holds
zero-coupon U.S. Treasury securities and Contracts, and to report
Holders' income to the Internal Revenue Service in accordance
with this treatment. Under this approach, the tax consequences of
holding a DECS will be as described below. However, prospective
investors in the DECS should be aware that the Internal Revenue
Service might take a different view as to the proper
characterization of the DECS and of the tax consequences to a
Holder.
Tax Status of the Trust
The Trust will be taxable as a grantor trust owned solely
by the present and future holders of DECS for federal income tax
purposes, and income received by the Trust will be treated as
income of the Holders in the manner set forth below.
Tax Consequences to United States Holders
Tax Basis of the Treasury Securities and the Contracts.
Each Holder will be considered the owner of its pro rata portion
of the Treasury Securities and the Contracts in the Trust. The
cost to the Holder of its DECS will be allocated among the
Holder's pro rata portion of the Treasury Securities and the
Contracts (in proportion to the fair market values thereof on the
date on which the Holder acquires its DECS) in order to determine
the Holder's tax bases. It is currently anticipated that __% and
__% of the net proceeds of the offering will be used by the Trust
to purchase the Treasury Securities and as payments under the
Contracts, respectively.
Recognition of Original Issue Discount on the Treasury
Securities. The Treasury Securities in the Trust will consist of
zero-coupon U.S. Treasury securities. A Holder will be required
to treat its pro rata portion of each Treasury Security in the
Trust as a bond that was originally issued on the date the Holder
purchased its DECS and at an original issue discount equal to the
excess of the Holder's pro rata portion of the amounts payable on
such Treasury Security over the Holder's tax basis therefor as
discussed above. The Holder (whether on the cash or accrual
method of tax accounting) is required to include original issue
discount (other than original issue discount on short-term
Treasury Securities as described below) in income for federal
income tax purposes as it accrues, in accordance with a constant
yield method, prior to the receipt of cash attributable to such
income. Because it is expected that more than 20% of the Holders
will be accrual basis taxpayers, original issue discount on any
short-term Treasury Security (i.e., any Treasury Security with a
maturity of one year or less from the date it is purchased)
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<PAGE>
held by the Trust will also be required to be included in income
by the Holders as it is accrued. Unless a Holder elects to
accrue the original issue discount on a short-term Treasury
Security according to a constant yield method based on daily
compounding, such original issue discount will be accrued on a
straight-line basis. The Holder's tax basis in a Treasury
Security will be increased by the amount of any original issue
discount included in income by the Holder with respect to such
Treasury Security.
Treatment of the Contracts. Each Holder will be treated as
having entered into a pro rata portion of the Contracts and, at
the Exchange Date, as having received a pro rata portion of the
Common Stock (or cash, Reported Securities or combination
thereof) delivered to the Trust. Under existing law, a Holder
will not recognize income, gain or loss upon entry into the
Contracts. A Holder should not be required under existing law to
include in income additional amounts over the term of the
Contracts.
The Internal Revenue Service may contend that a DECS should
be characterized for federal income tax purposes in a manner
different from the approach described above. For example, the
Internal Revenue Service might assert that the Contracts should
be treated as contingent debt obligations of the Sellers that are
subject to Treasury regulations promulgated in June 1996
governing contingent payment debt instruments. If the Internal
Revenue Service were to prevail in making such an assertion,
original issue discount would accrue with respect to each
Contract at a "comparable yield" for the Seller under that
Contract, determined at the time the Contract is entered into. A
Holder's pro rata portion of original issue discount in respect
of the Contracts and original issue discount in respect of the
Treasury Securities might exceed the aggregate amount of the
quarterly cash distributions to a Holder. In addition, under this
treatment, a Holder would be required to treat any gain realized
on the sale, exchange or redemption of the DECS as ordinary
income to the extent that such gain is allocable to the
Contracts. Any loss realized on such sale, exchange or redemption
that is allocable to the Contracts would be treated as an
ordinary loss to the extent of the Holder's original issue
discount inclusions with respect to the Contracts, and as capital
loss to the extent of loss in excess of such inclusions. It is
also possible that the Internal Revenue Service could take the
view that a Holder should include in income the amount of cash
actually received each year in respect of the DECS, or that the
DECS as a whole constitute a contingent payment debt instrument
subject to the rules described above.
Sale of the DECS. Upon a sale of all or some of a Holder's
DECS, a Holder will be treated as having sold its pro rata
portion of the Treasury Securities and Contracts underlying the
DECS. The selling Holder will recognize gain or loss equal to the
difference between the amount realized and the Holder's aggregate
tax bases in its pro rata portion of the Treasury Securities and
the Contracts. Any gain or loss will be long-term capital gain or
loss if the Holder has held the DECS for more than one year. The
distinction between capital gain or loss and ordinary income or
loss is important for purposes of the limitations on a Holder's
ability to offset capital losses against ordinary income. In
addition, certain individuals are subject to taxation at a
reduced rate on long-term capital gains. The Taxpayer Relief Act
of 1997 further reduces tax rates on capital gains recognized by
individuals in respect of assets held for more than 18 months.
Holders are advised to consult their own tax advisers as to the
consequences of the Taxpayer Relief Act of 1997 in their
particular circumstances.
Distribution of the Common Stock. The delivery of Common
Stock to the Trust pursuant to the Contracts will not be taxable
to the Holders. The distribution of Common Stock upon the
termination of the Trust will not be taxable to the Holders. A
Holder will have taxable gain or loss (which will be short-term
capital gain or loss) upon receipt of cash in lieu of fractional
shares of Common Stock distributed upon termination of the Trust,
in an amount equal to the difference between the cash received
and the portion of the basis of the Contracts allocable to
fractional shares (based on the relative number of fractional
shares and full shares delivered to the Holder). Each Holder's
aggregate basis in its shares of Common Stock will be equal to
its basis in its pro rata portion of the Contracts less the portion
of such basis allocable to any fractional shares of Common Stock for
which cash is received.
Distribution of Cash. If a Holder receives cash upon
dissolution of the Trust or as a result of a Seller's election to
deliver cash under the Cash Delivery Option, a Holder will
recognize capital gain or loss equal to any difference between
the amount of cash received from the Sellers and the Holder's tax
basis in the DECS at that time. Such gain or loss generally will
be long-term capital gain or loss if the Holder has held the DECS
for more than one year at the Exchange Date.
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Distribution of Cash or Reported Securities as a Result of
an Adjustment Event. If as a result of an Adjustment Event, cash,
Reported Securities, or a combination of cash and Reported
Securities is delivered pursuant to the Contracts, a Holder will
have taxable gain or loss upon receipt equal to the difference
between the amount of cash received, including cash received in
lieu of fractional Reported Securities, and its basis in its pro
rata portion of the Contracts allocable to any shares of Common
Stock for which such cash or fractional Reported Securities were
received. Any gain or loss will be capital gain or loss, and if
the Holder has held the DECS for more than one year, such gain or
loss will be long-term capital gain or loss. A Holder's basis in
any Reported Securities received will be equal to its basis in
its pro rata portion of the Contracts less the portion of such
basis allocable to any shares of Common Stock for which cash or
fractional Reported Securities were received. See "Investment
Objectives and Policies--The Contracts."
Fees and Expenses of the Trust. A Holder's pro rata portion
of the expenses in connection with the organization of the Trust,
underwriting discounts and commissions and other offering
expenses should be includable in the cost to the Holder of the
DECS. However, there can be no assurance that the Internal
Revenue Service will not take a contrary view. If the Internal
Revenue Service were to prevail in treating such expenses as
excludable from the Holder's cost of the DECS, such expenses
would not be includable in the basis of the assets of the Trust
and should instead be amortizable and deductible over the term of
the Trust. If such expenses were treated as amortizable and
deductible, an individual Holder who itemizes deductions would be
entitled to amortize and deduct (subject to any other applicable
limitations on itemized deductions) such expenses over the term
of the Trust only to the extent that such amortized annual
expenses together with such Holder's other miscellaneous
deductions exceed 2% of such Holder's adjusted gross income.
Non-United States Persons
In the case of a Holder of the DECS that is not a U.S.
person, payments made with respect to the DECS will not be
subject to U.S. withholding tax, provided that such Holder
complies with applicable certification requirements (including in
general the furnishing of an Internal Revenue Service Form W-8 or
a substitute form). Any capital gain realized upon the sale or
other disposition of the DECS by a Holder that is not a U.S.
person will generally not be subject to U.S. federal income tax
if (i) such gain is not effectively connected with a U.S. trade
or business of such Holder and (ii) in the case of an individual,
such individual is not present in the United States for 183 days
or more in the taxable year of the sale or other disposition or
the gain is not attributable to a fixed place of business
maintained by such individual in the United States.
Backup Withholding and Information Reporting
A Holder of a DECS may be subject to information reporting
and to backup withholding at a rate of 31 percent of certain
amounts paid to the Holder unless such Holder (a) is a
corporation or comes within certain other exempt categories and,
when required, provides proof of such exemption or (b) provides a
correct taxpayer identification number, certifies as to no loss
of exemption from backup withholding and otherwise complies with
applicable requirements of the backup withholding rules.
Information reporting and backup withholding do not apply to
payments made to a Holder of a DECS that is not a U.S. person if
the beneficial owner of the DECS certifies as to its non-U.S.
status or otherwise establishes an exemption, provided that the
Trust or its agent does not have actual knowledge that the Holder
is a U.S. person.
Payment of the proceeds from the sale of a DECS to or
through a foreign office of a broker will not be subject to
information reporting or backup withholding, except that if the
broker is a U.S. person, a controlled foreign corporation for
U.S. tax purposes or a foreign person 50 percent or more of whose
gross income from all sources for the three-year period ending
with the close of its taxable year preceding the payment was
effectively connected with a U.S. trade or business, information
reporting may apply to such payments. Payment of the proceeds
from a sale of a DECS to or through the U.S. office of a broker
is subject to information reporting and backup withholding unless
the Holder or beneficial owner certifies as to its non-U.S.
status or otherwise establishes an exemption from information
reporting and backup withholding.
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Any amounts withheld under the backup withholding rules are
not an additional tax and may be credited against the U.S.
Holder's U.S. federal income tax liability, provided that the
required information is furnished to the Internal Revenue
Service.
UNDERWRITING
Subject to the terms and conditions set forth in the
Underwriting Agreement (the "Underwriting Agreement") among the
Trust, the Company, each of the Sellers and Smith Barney, the
Trust has agreed to sell to the Underwriter, and the Underwriter
has agreed to purchase, the number of DECS set forth below:
Underwriter Number of DECS
----------- --------------
Smith Barney Inc....................
In the Underwriting Agreement, the Underwriter has agreed,
subject to the terms and conditions set forth therein, that the
obligations of the Underwriter are subject to certain conditions
precedent and that the Underwriter will be obligated to purchase
all the DECS offered hereby if any of the DECS are purchased.
The Underwriter proposes to offer the DECS directly to the
public initially at the public offering price set forth on the
cover of this Prospectus, and to certain dealers at such price
less a concession not in excess of $ per DECS. The Underwriter
may allow, and such dealers may reallow, a concession not in
excess of $ per DECS to other dealers. After the initial public
offering, such public offering price and such concession and
reallowance may be changed. The sales load of $ per DECS is equal
to % of the initial public offering price.
The Company, its directors and executive officers, and the
Selling Shareholders listed under the caption "Selling
Shareholders" in the prospectus of the Company attached hereto,
including the Sellers, have agreed not to offer for sale, sell or
contract to sell, or otherwise dispose of, or announce the
offering of, or file or cause the filing of any registration
statement under the Securities Act with respect to, without the
prior written consent of the Underwriter, any shares of Common
Stock or any securities convertible into or exchangeable for, or
warrants to acquire, Common Stock for a period of days after the
date of this Prospectus; provided, however, that such restriction
shall not effect the ability of (i) the Company or the Sellers to
take any such actions in connection with the offering of the DECS
made hereby or pursuant to the terms of the Contracts and the
Collateral Agreements or (ii) the Company to take any such
actions in connection with any employee stock option plan, stock
ownership plan or dividend reinvestment plan of the Company in
effect at the date of this Prospectus.
In light of the fact that proceeds from the sale of the
DECS will be used by the Trust to purchase the Contracts from the
Sellers, the Underwriting Agreement provides that the Sellers
will pay to the Underwriter as compensation $ per DECS.
The Trust has granted to the Underwriter an option,
exercisable for a 30-day period after the date of this
Prospectus, to purchase up to an additional DECS at the same
price per DECS as the initial DECS to be purchased by the
Underwriter. The Underwriter may exercise such option only for
the purposes of (i) covering over-allotments, if any, incurred in
connection with the sale of the DECS offered hereby and (ii)
subscribing and purchasing DECS in connection with formation of
the Trust.
The DECS will be a new issue of securities with no
established trading market. The Underwriter intends to make a
market in the DECS, subject to applicable laws and regulations.
However, the Underwriter is not obligated to do so and any such
market-making may be discontinued at any time at the sole
discretion of the Underwriter without notice. Accordingly, no
assurances can be given as to the liquidity of such market.
29
<PAGE>
The Underwriting Agreement provides that the Company and
the Sellers have agreed to indemnify the Underwriter against
certain liabilities, including liabilities under the Securities
Act, or contribute to payments the Underwriter may be required to
make in respect thereof.
In connection with the formation of the Trust, Smith Barney
subscribed for and purchased 1 DECS for a purchase price of $100.
Under the Contracts, the Sellers will be obligated to deliver to
the Trust Common Stock in respect of such DECS on the same terms
as the DECS offered hereby.
In connection with this offering, the Underwriter and
certain selling group members and their respective affiliates may
engage in transactions that stabilize, maintain or otherwise
affect the market price of the DECS or the Common Stock. Such
transactions may include stabilization transactions effected in
accordance with Rule 104 of Regulation M under the Securities
Exchange Act pursuant to which such persons may bid for or
purchase DECS or Common Stock for the purpose of stabilizing
their market price. The Underwriter also may create a short
position for its account by selling more DECS in connection with
this offering than it is committed to purchase from the Trust,
and in such case may purchase DECS in the open market following
completion of this offering to cover all or a portion of such
short position. In addition, the Underwriter may impose "penalty
bids" under contractual arrangements whereby it may reclaim from
a dealer participating in this offering the selling concession
with respect to DECS that are distributed in this offering but
subsequently purchased of the account of the Underwriter in the
open market. Any of the transactions described in this paragraph
may result in the maintenance of the price of the DECS at a level
above that which might otherwise prevail in the open market. None
of the transactions described in this paragraph is required, and,
if they are undertaken, they may be discontinued at any time.
[The Underwriter has from time to time performed various
investment banking and financial advisory services for the
Company and its affiliates, for which customary compensation has
been received.]
LEGAL MATTERS
Certain legal matters will be passed upon for the Trust and
the Underwriter by Cleary, Gottlieb, Steen & Hamilton, New York,
New York. Certain legal matters will be passed upon for the
Sellers by . Certain legal matters with respect to the Contracts
will be passed upon for the Sellers by .
23 EXPERTS
The statement of assets, liabilities and capital included
in this Prospectus has been audited by , independent auditors, as
stated in their report appearing herein, and is included in
reliance upon the report of such firm given upon their authority
as experts in auditing and accounting.
ADDITIONAL INFORMATION
The Trust has filed with the Securities and Exchange
Commission, Washington, D.C. 20549, a Registration Statement
under the Securities Act with respect to the DECS offered hereby.
Further information concerning the DECS and the Trust may be
found in the Registration Statement, of which this Prospectus
constitutes a part. The Registration Statement may be inspected
without charge at the Commission's office in Washington, D.C.,
and copies of all or any part thereof may be obtained from such
office after payment of the fees prescribed by the Commission.
Such Registration Statement is also available on the Commission's
website (http://www.sec.gov).
30
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder and Board of Trustees of
DECS Trust III
In our opinion, the accompanying statement of assets and
liabilities presents fairly, in all material respects, the
financial position of DECS Trust III (the "Trust") as of , 1998
in conformity with generally accepted accounting principles. This
financial statement is the responsibility of the Trust's
management; our responsibility is to express an opinion on this
financial statement based on our audit. We conducted our audit of
this financial statement in accordance with generally accepted
auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statement is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statement, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the
opinion expressed above.
New York, New York
, 1998
31
<PAGE>
DECS TRUST III
STATEMENT OF ASSETS AND LIABILITIES
, 1998
ASSETS
Cash............................................. $
Deferred organization expenses (Note 1).......... $
Total Assets...................................... $
LIABILITIES
Organization expenses payable (Note 1)........... $
SHAREHOLDERS' EQUITY
DECS representing shares of beneficial
interest, $ par value, share
authorized, shares issued and outstanding..... $
Total liabilities and shareholders' equity........ $
NET ASSETS........................................ $
Net asset value per share......................... $
Note 1. Organization
DECS Trust III (the "Trust") was established as a Delaware
business trust on January , 1998, and has had no operations to
date other than matters relating to its organization and
registration as a non-diversified, closed-end management
investment company under the Investment Company Act of 1940, as
amended, and the sale and issuance of 1 DECS (excluding the
over-allotment option) for $100 to Smith Barney Inc. ("Smith
Barney"). The costs incurred in connection with the organization
of the Trust and this offering will be paid by certain
stockholders of the Company.
32
<PAGE>
==============================================================================
No dealer, salesperson or any other person has been
authorized to give any information or to make any
representation not contained in this Prospectus and, if given
or made, such information or representation must not be relied
upon as having been authorized by the Trust or the
Underwriter. Neither the delivery of this Prospectus nor any
sale made hereunder shall, under any circumstances, create any
implication that there has been no change in the affairs of
the Trust since the date hereof or that the information herein
is correct as of any time subsequent to its date. However, if
any material change occurs while this Prospectus is required
by law to be delivered, this Prospectus will be amended or
supplemented accordingly. This Prospectus does not constitute
an offer or solicitation by anyone in any jurisdiction in
which such offer or solicitation is not authorized or in which
the person making such offer or solicitation is not qualified
to do so or to any person to whom it is unlawful to make such
an offer or solicitation.
----------------------
TABLE OF CONTENTS
Page
----
Prospectus Summary.................................3
Fees and Expenses..................................8
The Trust..........................................9
Use of Proceeds....................................9
Investment Objectives and Policies.................9
Investment Restrictions...........................18
Risk Factors Relating to Decs.....................18
Net Asset Value...................................21
Description of the Decs...........................22
Management and Administration of the Trust........23
Certain United States Federal Income Tax
Considerations..................................25
Underwriting......................................29
Legal Matters.....................................30
Experts...........................................30
Additional Information............................30
Report of Independent Accountants.................31
Statement of Assets and Liabilities...............32
----------------------
Until , 1998, all dealers effecting transactions in the DECS,
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.
==============================================================================
1,000,000 DECS SM
DECS TRUST III
--------
PROSPECTUS
___________, 1998
Salomon Smith Barney
==============================================================================
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
1. Financial Statements
Part A -- (i) Report of Independent Accountants
(ii) Statement of Assets and Liabilities as of , 1998
Part B -- none
2. Exhibits
(a)(1)(A) -- Declaration of Trust dated as of January 22, 1998
(a)(1)(B) -- Amended and Restated Declaration of Trust
dated as of , 1998/*/
(a)(2) -- Certificate of Trust dated January 22, 1998
(b) -- Not applicable
(c) -- Not applicable
(d)(1) -- Form of specimen certificate of DECS (included
in Exhibit 2(a)(1)(B))/*/
(d)(2) -- Portions of the Amended and Restated Declaration of
Trust defining the rights of Holders of DECS
(included in Exhibit 2(a)(1)(B))/*/
(e) -- Not applicable
(f) -- Not applicable
(g) -- Not applicable
(h) -- Form of Underwriting Agreement/*/
(i) -- Not applicable
(j) -- Form of Custodian Agreement/*/
(k)(1) -- Form of Administration Agreement/*/
(k)(2) -- Form of Paying Agent Agreement/*/
(k)(3) -- Form of Purchase Contract/*/
(k)(4) -- Form of Collateral Agreement/*/
(k)(5) -- Form of Fund Expense Agreement/*/
(k)(6) -- Form of Fund Indemnity Agreement/*/
(l) -- Opinion and Consent of Counsel to the Trust/*/
(m) -- Not applicable
(n)(1) -- Tax Opinion of Counsel to the Trust (Consent
contained in Exhibit 2(n)(1))/*/
(n)(2) -- Consent of Independent Public Accountants/*/
(n)(3) -- Consents to being named as Trustee/*/
(o) -- Not applicable
(p) -- Form of Subscription Agreement/*/
(q) -- Not applicable
(r) -- Financial Data Schedule/*/
(s) -- Power of Attorney
- --------------------
/*/ To be filed by amendment.
C-1
<PAGE>
Item 25. Marketing Arrangements
See 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 $3,393.00
New York Stock Exchange listing fee *
Printing (other than certificates) *
Engraving and printing certificates *
Fees and expenses of qualification under state
securities laws (including fees of counsel) *
Accounting fees and expenses *
Legal fees and expenses *
NASD fees *
Miscellaneous *
Total $ *
- ---------------------------
/*/ To be furnished by amendment.
Item 27. Person Controlled by or under Common Control with Registrant
The Trust will be internally managed and will not have an
investment adviser. The information in the Prospectus under the
caption "Management and Administration of the Trust" is
incorporated herein by reference.
Item 28. Number of Holders of Securities
As of the effective date of this Registration Statement:
Title of Class Number of Record Holders
-------------- ------------------------
DECS representing Shares of
beneficial interest..................... 1
Item 29. Indemnification
The Underwriting Agreement (Exhibit 2(h) to this
Registration Statement) provides for indemnification.
The Amended and Restated Declaration of Trust filed as
Exhibit 2(a)(1)(B) to this Registration Statement provides for
indemnification to each Trustee against any claim or liability
incurred in acting as Trustee of the Trust, except in the case of
willful misfeasance, bad faith, gross negligence or reckless
disregard of the Trustee's duties. The Custodian Agreement,
Administration Agreement and Paying Agent Agreement filed as
Exhibits 2(j), 2(k)(1) and 2(k)(2) to this Registration Statement
provide for indemnification to the Custodian, Administrator and
Paying Agent against any loss or expense incurred in the
performance of their obligations under the respective agreements,
unless such loss or expense is due to willful misfeasance, bad
faith, gross negligence or reckless disregard of their
C-2
<PAGE>
obligations. The Fund Indemnity Agreement filed as Exhibit
2(k)(6) to this Registration Statement provides that Smith Barney
will indemnify the Trust for certain indemnification expenses
incurred under the Amended and Restated Declaration of Trust, the
Custodian Agreement, the Administration Agreement and the Paying
Agent Agreement.
Insofar as indemnification for liabilities arising under
the Securities Act may be permitted to directors, 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
Securities 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 director, officer or controlling person of the Registrant in
the successful defense of any action, suit or proceeding) is
asserted by such director, 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 Securities 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 accounts, books and other documents required to be
maintained by Section 31(a) of the Investment Company Act of 1940
and the Rules thereunder are maintained as follows: journals,
ledgers, securities records and other original records are
maintained principally at the offices of the Registrant, c/o
Smith Barney Inc., 388 Greenwich Street, New York, New York 10013
and at the offices of The Bank of New York, the Registrant's
Administrator, Custodian, paying agent, transfer agent and
registrar. All other records so required to be maintained are
maintained at the offices of the Registrant, c/o Smith Barney
Inc., 388 Greenwich Street, New York, New York 10013.
Item 32. Management Services
Not applicable.
Item 33. Undertakings
(a) The Registrant hereby undertakes to suspend the
offering of the shares covered hereby until it amends its
prospectus contained herein if (1) subsequent to the effective
date of this Registration Statement, its net asset value per
share declines more than ten percent from its net asset value per
share as of the effective date of this Registration Statement or
(2) the net asset value per share increases to an amount greater
than its net proceeds as stated in its prospectus contained
herein.
(b) The Registrant hereby undertakes that (i) for the
purpose of determining any liability under the Securities 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 Securities 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 Securities 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.
C-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933
and the Investment Company Act of 1940, the Registrant has duly
caused this Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of New
York, State of New York, on the 23rd day of January, 1998.
DECS TRUST III
By: Michael Sherman
-------------------------------
Michael E. Sherman
Trustee
Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement has been signed below by the
following person, in the capacities and on the date indicated.
Name Title Date
---- ----- ----
Michael Sherman Principal Executive Officer, January 23, 1998
- ------------------
Michael E. Sherman Principal Financial Officer,
Principal Accounting Officer
and Trustee
<PAGE>
Exhibit Index
Exhibit Name of Exhibit
(a)(1)(A) Declaration of Trust dated as of January 22, 1998
(a)(1)(B) Amended and Restated Declaration of Trust
dated as of , 1998/*/
(a)(2) Certificate of Trust dated January 22, 1998
(b) Not applicable
(c) Not applicable
(d)(1) Form of specimen certificate
of DECS (included in Exhibit 2(a)(1)(B))/*/
(d)(2) Portions of the Amended and Restated Declaration
of Trust defining the rights of Holders of DECS
(included in Exhibit 2(a)(1)(B))/*/
(e) Not applicable
(f) Not applicable
(g) Not applicable
(h) Form of Underwriting Agreement/*/
(i) Not applicable
(j) Form of Custodian Agreement/*/
(k)(1) Form of Administration Agreement/*/
(k)(2) Form of Paying Agent Agreement/*/
(k)(3) Form of Purchase Contract/*/
(k)(4) Form of Collateral Agreement/*/
(k)(5) Form of Fund Expense Agreement/*/
(k)(6) Form of Fund Indemnity Agreement/*/
(l) Opinion and Consent of Counsel to the Trust/*/
(m) Not applicable
(n)(1) Tax Opinion of Counsel to the Trust (Consent
contained in Exhibit 2(n)(1))/*/
(n)(2) Consent of Independent Public Accountants/*/
(n)(3) Consents to being named as Trustee/*/
(o) Not applicable
(p) Form of Subscription Agreement/*/
(q) Not applicable
(r) Financial Data Schedule/*/
(s) Power of Attorney
- -------------------------
/*/ To be filed by amendment.
Exhibit (a)(1)(A)
DECLARATION OF TRUST OF DECS TRUST III
Declaration of Trust, dated as of January 22, 1998,
between Alan Rifkin, as sponsor (the "Sponsor"), and Michael E.
Sherman, as trustee (the "Trustee"). The Sponsor and the Trustee
hereby agree as follows:
1. The trust created hereby shall be known as "DECS
Trust III," in which name the Trustee, or the Sponsor to the
extent provided herein, may conduct the business of the Trust,
make and execute contracts, and sue and be sued.
2. The Sponsor hereby assigns, transfers, conveys and
sets over to the Trustee the sum of $1. The Trustee hereby
acknowledges receipt of such amount in trust from the Sponsor,
which amount shall constitute the initial trust estate. The
Trustee hereby declares that it will hold the trust estate in
trust for the Sponsor. It is the intention of the parties hereto
that the Trust created hereby constitute a business trust under
Chapter 38 of Title 12 of the Delaware Code, 12 Del. C. ss. 3801
et seq. and that this document constitute the governing
instrument of the Trust. The Trustee is hereby authorized and
directed to execute and file a certificate of trust with the
Delaware Secretary of State in the form attached hereto or in
such other form as the Trustee may approve.
3. The Sponsor and the Trustee will enter into an
amended and restated Declaration of Trust, satisfactory to each
such party, to provide for the contemplated operation of the
Trust created hereby. Prior to the execution and delivery of such
amended and restated Declaration of Trust, the Trustee shall not
have any duty or obligation hereunder or with respect to the
trust estate, except as otherwise required by applicable law or
as may be necessary to obtain prior to such execution and
delivery any licenses, consents or approvals required by
applicable law or otherwise.
4. This Declaration of Trust may be executed in one
or more counterparts.
5. The Trustee may resign upon thirty days prior notice
to the Sponsor.
IN WITNESS WHEREOF, the parties hereto have caused
this Declaration of Trust to be duly executed as of the date
first above written.
SPONSOR
/s/ Alan Rifkin
----------------------------
Alan Rifkin, as Sponsor
TRUSTEE
/s/ Michael Sherman
----------------------------
Michael E. Sherman,
as Trustee
Exhibit (a)(2)
CERTIFICATE OF TRUST OF DECS TRUST III
This Certificate of Trust of DECS Trust III (the
"Trust"), dated January 22, 1998, is being duly executed and
filed by Michael E. Sherman, as trustee, to form a business trust
under the Delaware Business Trust Act (12 Del. C. ss. 3801, et
seq.).
1. Name. The name of the business trust formed hereby
is DECS Trust III.
2. Registered Office; Registered Agent. The business
address of the registered office of the Trust in the State of
Delaware is 1209 Orange Street, Wilmington, Delaware 19801. The
name of the Trust's registered agent at such address is The
Corporation Trust Company.
3. Effective Date. This Certificate of Trust shall be
effective upon the date and time of filing.
4. The Trust is to be registered under the Investment
Company Act of 1940, as amended, prior to the issuance of
beneficial interests in the Trust.
IN WITNESS WHEREOF, the undersigned, being the sole
trustee of the Trust, has executed this Certificate of Trust as
of the date first above written.
/s/ Michael Sherman
----------------------------
Michael E. Sherman,
as Sole Trustee
