As filed with the Securities and Exchange Commission on March 17, 1998
Securities Act Registration No. 333-
Investment Company Act File No. 811-
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM N-2
(X) REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
( ) Pre-Effective Amendment No.
( ) Post-Effective Amendment No.
and
(X) REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
( ) Amendment No.
MANDATORY COMMON EXCHANGE TRUST II
(Exact name of Registrant as specified in charter)
c/o Bear, Stearns & Co. Inc.
245 Park Avenue
New York, New York 10167
(Address of principal executive offices)
(212) 272-7332
(Registrant's Telephone Number, including Area Code)
Wesley M. Jones
c/o Bear, Stearns & Co. Inc.
245 Park Avenue
New York, New York 10167
(Name and address of Agent for Service)
with a copy to:
Richard T. Prins, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
______________________________________
Approximate Date of Proposed Public Offering: As soon as practicable after
the effective date of the Registration Statement.
If any securities on this form are to be offered on a delayed or continuous
basis in reliance on Rule 415 under the Securities Act of 1933, other than
securities offered in connection with a dividend reinvestment plan, check
the following box . . . . . . . . . . . .( )
( ) This form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act and the Securities Act
registration statement number of the earlier effective registration
statement for the same offering is 33-__________.
______________________________________
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
Proposed Proposed
Maximum Maximum Aggregate
Title of Securities Amount Being Offering Price Aggregate Registration
Being Registered Registered Per Share Offering Price Fee
Trust Issued
Mandatory
Exchange Securities,
no par value 340,000 $20 $6,800,000 $2,006
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
the 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 dates as the Commission, acting
pursuant to said Section 8(a), may determine.
MANDATORY COMMON EXCHANGE TRUST II
CROSS REFERENCE SHEET
(Pursuant to Rule 404(c) under the Securities Act of 1933)
Parts A & B of Prospectus*
Item 1. Outside Front Cover . . . . . . . Front Cover Page
Item 2. Inside Front and Outside
Back Cover Page . . . . . . . Front Cover Page; Inside
Front Cover Page; Outside
Back Cover Page
Item 3. Fee Table and Synopsis . . . . . . Prospectus Summary; Fee
Table
Item 4. Financial Highlights . . . . . . . Not Applicable
Item 5. Plan of Distribution . . . . . . . Front Cover Page;
Prospectus Summary;
Underwriting
Item 6. Selling Shareholders . . . . . . . Not Applicable
Item 7. Use of Proceeds . . . . . . . . . . Use of Proceeds;
Investment Objective and
Policies
Item 8. General Description of the
Registrant . . . . . . . . . . Front Cover Page;
Prospectus Summary; The
Trust; Investment
Objective and Policies;
Risk Factors
Item 9. Management . . . . . . . . . . . . Management and
Administration of the
Trust
Item 10. Capital Stock, Long-Term Debt,
and Other Securities . . . . Description of the
Securities
Item 11. Defaults and Arrears on Senior
Securities . . . . . . . . . Not Applicable
Item 12. Legal Proceedings . . . . . . . . . Not Applicable
Item 13. Table of Contents of the Statement
of Additional Information . . Not Applicable
Item 14. Cover Page . . . . . . . . . . . . . Not Applicable
Item 15. Table of Contents . . . . . . . . . Not Applicable
Item 16. General Information and History . . The Trust
Item 17. Investment Objective
and Policies . . . . . . . . Investment Objective and
Policies
Item 18. Management . . . . . . . . . . . . . Management and
Administration of the
Trust
Item 19. Control Persons and Principal
Holders of Securities . . . . Management and
Administration of the
Trust
Item 20. Investment Advisory
and Other Services . . . . . Management and
Administration of the
Trust
Item 21. Brokerage Allocation and
Other Practices . . . . . . . Investment Objective and
Policies
Item 22. Tax Status . . . . . . . . . . . . . Certain Federal Income Tax
Considerations
Item 23. Financial Statements . . . . . . . Statements of Assets and
Liabilities
TIMES
TRUST ISSUED MANDATORY EXCHANGE SECURITIES
(SUBJECT TO EXCHANGE INTO SHARES OF COMMON STOCK OF)
Each of the Trust Issued Mandatory Exchange Securities (the "TIMES")
of Mandatory Common Exchange Trust II (the "Trust") represents the right to
receive an annual distribution of $ , and will be exchanged for between
shares and 1 share of common stock, $ par value per share (the
"Common Stock"), of (the "Company") on
(the "Exchange Date"), subject to a cash settlement feature. The annual
distribution of $ per TIMES is payable quarterly on each ,
, , and , commencing . The TIMES
are not subject to early redemption.
The Trust is a newly organized, finite-term Trust established to
purchase and hold a portfolio of stripped U.S. Treasury securities maturing
on a quarterly basis through the Exchange Date, and a forward purchase
contract (the "Contract") with an existing shareholder (the "Seller") of
the Company relating to the Common Stock. The Trust's investment objective
is to provide each holder of TIMES (the "Holder") with a quarterly
distribution of $ per TIMES and, on the Exchange Date, a number of
shares of Common Stock per TIMES equal to the Exchange Rate or the cash
equivalent. The "Exchange Rate" is equal to (i) if the Reference Market
Price on the Exchange Date is less than $ but equal to or greater than
$ , a number (or fractional number) of shares of Common Stock per
TIMES having a value (determined at the Reference Market Price) equal to $
, (ii) if the Reference Market Price on the Exchange Date is equal to or
greater than $ , shares of Common Stock per TIMES and (iii) if
the Reference Market Price on the Exchange Date is less than $ , 1
share of Common Stock per TIMES, subject in each case to adjustment in
certain events. The "Reference Market Price" means the average Closing
Price (as hereinafter defined) per share of Common Stock for the 20 Trading
Days (as hereinafter defined) immediately prior to, but not including, the
Exchange Date. In lieu of delivery of the Common Stock, the Seller may
elect under the Contract to pay cash on the Exchange Date in an amount
equal to the Reference Market Price times the number of shares of the
Common Stock determined under the above formula (the "Cash Settlement
Alternative"). If the Seller elects the Cash Settlement Alternative,
holders of TIMES will receive cash instead of shares of Common Stock on the
Exchange Date. Holders otherwise entitled to receive fractional shares in
respect of their aggregate holdings of TIMES will receive cash in lieu
thereof.
Holders of TIMES will receive quarterly distributions whereas the
Company does not currently pay dividends on the Common Stock. However, the
Company could commence paying dividends on its Common Stock at any time and
there is no assurance that the yield on the TIMES 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
TIMES is less than that afforded by an investment in the Common Stock
because holders of TIMES will realize no equity appreciation unless the
Reference Market Price of the Common Stock on the Exchange Date exceeds $ ,
and less than all of the appreciation even if at that time the Reference
Market Price is above $ . Moreover, because a Holder will only receive
shares of Common Stock per TIMES (or the Reference Market Price
thereof) if the Reference Market Price on the Exchange Date exceeds $ ,
Holders will only be entitled to receive upon exchange % of any
appreciation of the value of the Common Stock over that amount. Holders of
TIMES will realize the entire decline in equity value if the Reference
Market Price on the Exchange Date is less than the price to public per
TIMES shown below. Accordingly, the value of the Common Stock or cash
equivalent received by a Holder may be less than the amount paid by such
Holder for its TIMES, in which event its investment will result in a loss.
The Company is not affiliated with the Trust or the Seller, will not
receive any of the proceeds from the sale of the TIMES and will have no
obligations with respect to the TIMES. This Prospectus relates only to the
TIMES offered hereby and does not relate to the Company or its Common
Stock.
Application has been made to list the TIMES on the
____________________ (the "_______") under the symbol " ." Prior to this
offering there has been no public market for the TIMES. The last reported
sale price of the Common Stock on the Nasdaq National Market traded under
the symbol " ," on was $ per share.
(continued on following page)
SEE "RISK FACTORS" ON PAGES 5 AND 17 OF THIS PROSPECTUS FOR A DISCUSSION OF
CERTAIN FACTORS RELEVANT TO AN INVESTMENT IN THE TIMES.
THESE TIMES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
PRICE TO PUBLIC SALES LOAD(1)
PROCEEDS TO THE TRUST(2)
Per TIMES . . . . . . . . . $ $ $
Total(3) . . . . . . . . . . $ $ $
(1) The Seller has agreed to indemnify Bear, Sterns & Co. Inc. against
certain liabilities, including liabilities under the Securities
Act of 1933 (the "Securities Act"). See "Underwriting." In light
of the fact that the proceeds of the sale of the TIMES will be
used in part by the Trust to purchase the Contract from the
Seller, the Underwriting Agreement provides that the Seller will
pay to the Underwriter as compensation ("Underwriters
Compensation") $ per TIMES. See "Underwriting."
(2) Expenses of the offering, which are payable by the Seller, are
estimated to be approximately $ .
(3) The Trust has granted to the Underwriter an option for 30 days to
purchase up to an additional TIMES at the price to the public per
TIMES, solely to cover over-allotments. If the option is exercised
in full, the total Price to Public, Sales Load and Proceeds to the
Trust will be $ , $ and $ , respectively. See
"Underwriting."
The TIMES are offered by Bear, Stearns & Co. Inc. (the
"Underwriter") as specified herein, subject to receipt and acceptance by
them and subject to its right to reject any order in whole or in part. It
is expected that certificates for the TIMES will be ready to deliver
through the Facilities of the Depository Trust Company on or about
.
BEAR, STEARNS & CO. INC.
The date of this Prospectus is
The Trust has adopted a policy that the Contract may not be disposed
of during the term of the Trust. The Trust will continue to hold the
Contract despite any significant decline in the market price of the Common
Stock or adverse changes in the financial condition of the Company.
The TIMES may be a suitable investment for those investors who are
able to understand the unique nature of the Trust and the economic
characteristics of the Contract and the U.S. Treasury securities held by
the Trust.
The Trust will be a grantor trust for federal income tax purposes and
each holder of TIMES will be treated as the owner of its pro rata portions
of the stripped U.S. Treasury securities and the Contract. For a discussion
of the principal United States federal income tax consequences ownership of
the TIMES, see "Certain Federal Income Tax Considerations."
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.
THE TRUST IS A NEWLY ORGANIZED CLOSED-END INVESTMENT COMPANY WITH NO
PREVIOUS HISTORY OF PUBLIC TRADING. TYPICAL CLOSED-END FUND SHARES
FREQUENTLY TRADE AT A PREMIUM TO OR DISCOUNT FROM NET ASSET VALUE. THIS
CHARACTERISTIC OF INVESTMENTS IN A CLOSED-END INVESTMENT COMPANY IS A RISK
SEPARATE AND DISTINCT FROM THE RISK THAT THE TRUST'S NET ASSET VALUE WILL
DECREASE. THE TRUST CANNOT PREDICT WHETHER ITS SHARES WILL TRADE AT, BELOW
OR ABOVE NET ASSET VALUE. THE RISK OF PURCHASING INVESTMENTS IN A CLOSED-
END COMPANY THAT MIGHT TRADE AT A DISCOUNT MAY BE GREATER FOR INVESTORS WHO
WISH TO SELL THEIR INVESTMENTS SOON AFTER COMPLETION OF AN INITIAL PUBLIC
OFFERING.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE TIMES OR
THE COMMON STOCK AT LEVELS ABOVE THOSE THAT MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK
EXCHANGE, THE STOCK EXCHANGE OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME SEE--
"UNDERWRITING."
PROSPECTUS SUMMARY
This summary of the provisions relating to the TIMES does not purport
to be complete and is qualified in its entirety by the detailed information
appearing elsewhere in this Prospectus. Certain terms used in this summary
are defined elsewhere in this Prospectus.
THE TRUST
General. The Trust is a newly organized, finite-term trust. The Trust
will be registered as a non-diversified, closed-end management investment
company under the Investment Company Act of 1940 (the "Investment Company
Act"). Consistent with provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), applicable to grantor trusts, the Trustees will not
have the power to vary the investments held by the Trust.
Investment Objective and Policies. The Trust will purchase and hold a
portfolio of stripped U.S. Treasury securities maturing on a quarterly
basis through the Exchange Date and a forward purchase contract with the
Seller obligating the Seller, on the Exchange Date, to deliver to the Trust
a number of shares of Common Stock equal to the product of the Exchange
Rate times the initial number of shares subject to the Contract (or the
Reference Market Price thereof). It is the Trust's investment objective to
provide the Holders of TIMES with a quarterly distribution of $ per
TIMES (which amount equals a pro rata portion of the fixed quarterly cash
distributions from the proceeds of the maturing U.S. Treasury securities)
and, on the Exchange Date, a number of shares of Common Stock per TIMES
equal to the Exchange Rate or, if the Seller elects the Cash Settlement
Alternative, which election must be made not later than 20 trading days
prior to but not including the Exchange Date, an amount in cash equal to
the Reference Market Price of that number of shares. The Exchange Rate is
equal to (i) if the Reference Market Price is less than $ but equal
to or greater than $ , a number (or fractional number) of shares
of Common Stock per TIMES having a value (determined at the Reference
Market Price) equal to $ , (ii) if the Reference Market Price is
equal to or greater than $ , shares of Common Stock per
TIMES and (iii) if the Reference Market Price is less than $ , 1 share
of Common Stock per TIMES, subject in each case to adjustment in certain
events. This provides the Trust with the potential for a portion of any
capital appreciation above $ on the Common Stock, but no protection
from depreciation of the Common Stock and no participation in appreciation
through $ . Holders otherwise entitled to receive fractional shares in
respect of their aggregate holdings of TIMES will receive cash in lieu
thereof. See "Investment Objective and Policies--Trust Termination."
The purchase price under the Contract is equal to $ per share of
Common Stock initially subject thereto and $ ( shares of
Common Stock) in the aggregate (exclusive of the over-allotment option) and
is payable to the Seller by the Trust at the closing of the offering of the
TIMES (the "Closing"). The obligations of the Seller under the Contract
will be secured by a pledge of Common Stock and/or shares of nonvoting
common stock, $ par value per share (the "Nonvoting Common"), of the
Company that is convertible at any time by any person other than the Seller
and its affiliates into shares of Common Stock on a one-for-one basis or,
at the election of the Seller, by substitute collateral consisting of
short-term, direct obligations of the U.S. Government. See "Investment
Objective and Policies--The Contract--Collateral Arrangements;
Acceleration."
THE OFFERING
The Trust is offering TIMES to the public at a purchase
price of $ per TIMES (which is equal to the last reported bid-side
price of the Common Stock on the date of the Offering) through the
Underwriter. In addition, the Underwriter has been granted options to
purchase up to additional TIMES solely for the purpose of covering
over-allotments. See "Underwriting."
THE COMPANY
The Company's principal office is located at
, and its telephone number is . See "Investment
Objective and Policies--The Company."
The Company is subject to the periodic reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and its
shares of Common Stock are traded on the under
the symbol " ." On , the Closing Price of the Common
Stock was $ . Reference is made to the publicly available filings of
the Company for information about the Company. Such filings can be
inspected and copied at the public reference facilities maintained by the
U.S. Securities and Exchange Commission (the "Commission") at Room 1024,
450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and at the
Commission's Regional Offices at 7 World Trade Center, 13th Floor, New
York, New York 10048, and Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such material also may be obtained
by mail from the Public Reference Section of the Commission, Room 1024, 450
Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549, at prescribed
rates. Additionally, the Commission maintains a Web site on the Internet at
http://www.sec.gov that contains reports, proxy and information statements
and other information regarding issuers, such as the Company, that file
electronically with the Commission.
The Company is not affiliated with the Trust or the Seller, will not
receive any of the proceeds from the sale of the TIMES and will have no
obligations with respect to the TIMES. This Prospectus relates only to the
TIMES offered hereby and does not relate to the Company or its Common
Stock.
THE TIMES
General. The TIMES are designed to provide investors with a quarterly
distribution at the annual rate of $ per share of TIMES. The Company
does not currently pay dividends on its Common Stock. Any decision to
commence paying dividends on the Common Stock by the Company and the amount
of any such dividends would be discretionary with its Board of Directors
and subject to legal and other factors, including the Company's future
earnings, cash flow, financial condition and capital requirements.
Quarterly distributions on the TIMES will consist solely of the cash
received from the U.S. Treasury securities held by the Trust. The Trust
will not be entitled to any dividends that may be declared on the Common
Stock.
There is no assurance that the yield on the TIMES 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 TIMES is less than that afforded by an investment in the Common
Stock because Holders will realize no equity appreciation if, on the
Exchange Date, the Reference Market Price of the Common Stock is below $
(which represents an appreciation of %). Moreover, because a
Holder will only receive shares of Common Stock per TIMES (or the
Reference Market Price thereof) if the Reference Market Price exceeds $
Holders will only be entitled to receive upon exchange % of any
appreciation of the value of the Common Stock in excess of $ . Holders
of TIMES will realize the entire decline in equity value if the Reference
Market Price is less than the price to public per TIMES shown on the cover
page hereof. Accordingly, the value of the Common Stock or cash equivalent
received by a Holder may be less than the amount paid by such Holder for
its TIMES, in which event its investment will result in a loss.
Distributions. Holders are entitled to receive distributions at the
rate per TIMES of $ per annum or $ per quarter, payable
quarterly on each , and or, if
any such date is not a business day, on the next succeeding business day,
to Holders of record as of each , , ,
and , respectively. The first distribution, in respect of the
period from Closing until , will be payable on
to Holders of record as of and will equal $
per TIMES. See "Investment Objective and Policies--General."
Mandatory Exchange. On the Exchange Date, each outstanding TIMES will
be exchanged automatically for between of a share and 1 share of
Common Stock, subject to adjustment in the event of certain dividends or
distributions, subdivisions, splits, combinations, issuances of certain
rights or warrants or distributions of certain assets with respect to the
Common Stock. Further, in lieu of delivering the Common Stock, the Seller
may elect under the Contract to pay cash on the Exchange Date in an amount
equal to the then applicable Reference Market Price of such number of
shares of the Common Stock (the "Cash Settlement Alternative"). If the
Seller elects the Cash Settlement Alternative, which election shall be made
not later than 20 Trading Days prior to but not including the Exchange
Date, Holders will receive cash instead of Common Stock on the Exchange
Date. In addition, in the event of a merger of the Company into another
entity, or the liquidation of the Company, or in certain related events,
Holders would receive consideration in the form of cash or Marketable
Securities (as defined below under the caption "Investment Objective and
Policies --The Contract-- Dilution Adjustments") rather than shares of
Common Stock. Further, the occurrence of certain defaults by the Seller
under the Contract or the collateral arrangements would cause the
acceleration of the Contract and the early exchange of each TIMES for an
amount of shares of Common Stock (or Marketable Securities), cash, or a
combination thereof, in respect of the shares of Common Stock and the U.S.
Treasury securities. See "Investment Objective and Policies--The Contract--
Collateral Arrangements; Acceleration"; "--The U.S. Treasury Securities"
and "--Trust Termination."
Voting Rights. Holders will have the right to vote on matters
affecting the Trust, as described under the caption "Description of the
TIMES", but will have no voting rights with respect to the Common Stock
prior to receipt of shares of Common Stock by the Holders as a result of
the exchange of the TIMES for the Common Stock on the Exchange Date. See
"Description of the TIMES."
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The Trust will be treated as a grantor trust for federal income tax
purposes. Accordingly, each Holder will be treated for federal income tax
purposes as the owner of its pro rata portion of the U.S. Treasury
securities and the Contract, and income received (including original issue
discount treated as received) by the Trust will generally be treated as
income of the Holders. The U.S. Treasury securities held by the Trust will
be treated for federal income tax purposes as having "original issue
discount" that will accrue over the term of the U.S. Treasury securities.
It is currently anticipated that a substantial portion of each quarterly
cash distribution to the Holders will be treated as a tax-free return of
the Holders' investment in the U.S. Treasury securities and therefore will
not be considered current income for federal income tax purposes. However,
a Holder (whether on the cash or accrual method of tax accounting) must
recognize currently as income original issue discount on the U.S. Treasury
securities as it accrues. A Holder will have taxable gain or loss upon
receipt of cash distributed on the Exchange Date. Each Holder's basis in
its Common Stock or Marketable Securities distributed on the Exchange Date
will be equal to its basis in its pro rata portion of the Contract less the
portion of such basis allocable to any shares of Common Stock, for which
cash is received. See "Certain Federal Income Tax Considerations."
ALTERNATIVE FEDERAL INCOME TAX CHARACTERIZATIONS
Holders should also be aware that there are alternative
characterizations of the assets of the Trust which could require Holders to
include more interest in income than they would include in income under the
analysis set out above. See "Certain Federal Income Tax Considerations."
MANAGEMENT AND ADMINISTRATION OF THE TRUST
The Trust will be internally managed and will not have an investment
adviser. The administration of the Trust will be overseen by 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 (the "Custodian") for the Trust's assets and as paying agent (the
"Paying Agent"), registrar and transfer agent with respect to the TIMES.
Except as aforesaid, The Bank of New York has no other affiliation with,
and is not engaged in any other transaction with, the Trust. See
"Management and Administration of the Trust."
LIFE OF THE TRUST
The Trust will terminate automatically on or shortly after the
Exchange Date. Promptly after the Exchange Date the shares of Common Stock
or cash, as the case may be, to be exchanged for the TIMES and other
remaining Trust assets, if any, will be distributed pro rata to Holders.
See "Investment Objective and Policies-- Trust Termination."
RISK FACTORS
The Trust will not be managed in the traditional sense. The Trust has
adopted a policy that the Contract may not be disposed of during the term
of the Trust and that the U.S. Treasury securities held by the Trust may
not be disposed of prior to the earlier of their respective maturities and
the termination of the Trust. The Trust will continue to hold the Contract
despite any significant decline in the market price of the Common Stock or
adverse changes in the financial condition of the Company. See "Risk
Factors--Internal Management; No Portfolio Management" and "Management and
Administration of the Trust--Trustee."
Holders of TIMES will receive quarterly distributions, whereas the
Company does not currently pay dividends on the Common Stock. However, the
Company could commence paying dividends on its Common Stock at any time and
there is no assurance that the yield on the TIMES 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
TIMES is less than that afforded by an investment in the Common Stock
because Holders of TIMES will realize no equity appreciation unless the
Reference Market Price of the Common Stock on the Exchange Date exceeds $
, (which represents an appreciation of ). Moreover, because a
Holder will only receive shares of Common Stock per TIMES (or the
Reference Market Price thereof) if the Reference Market Price on the
Exchange Date exceeds $ , Holders will only be entitled to receive
upon exchange % of any appreciation of the value of the Common Stock
over that amount. Holders of TIMES will realize the entire decline in
equity value if the Reference Market Price is less than the price to public
per TIMES shown on the cover page hereof. Accordingly, the value of the
Common Stock or cash equivalent received by a Holder may be less than the
amount paid by such Holder for its TIMES, in which event its investment
will result in a loss.
The Trust is classified as a "non-diversified" investment company
under the Investment Company Act. Consequently, the Trust is not limited by
the Investment Company Act in the proportion of its assets that may be
invested in the securities of a single issuer. Since the only securities
held by the Trust will be the U.S. Treasury securities and the Contract,
the Trust may be subject to greater risk than would be the case for an
investment company with diversified investments. See "Investment Objective
and Policies" and "Risk Factors--Non- Diversified Status."
Because of the foregoing limitations, the Trust's investments will be
concentrated initially in the consumer finance industry, which is the
industry in which the Company currently operates. However, to the extent
that in the future the Company diversifies its operations into one or more
other industries, or a Marketable Security received in an Adjustment Event
includes a security of an issuer which operates in another industry, the
Trust's investments will be less concentrated in the consumer finance
industry.
The trading prices of the TIMES in the secondary market will be
directly affected by the trading prices of the Common Stock in the
secondary market. Trading prices of Common Stock will be influenced by the
Company's operating results and prospects and by economic, financial and
other factors and market conditions.
Holders of the TIMES will not be entitled to any rights with respect
to the Common Stock (including, without limitation, voting rights and
rights to receive any dividends or other distributions in respect thereof)
unless and until such time if any, as the Seller shall have delivered
shares of Common Stock pursuant to the Contract at the Exchange Date.
A bankruptcy of the Seller could adversely affect the timing of
exchange or, as a result, the amount received by the Holders in respect of
the TIMES. See "Risk Factors--Risk Relating to Bankruptcy of Seller."
Holders will experience a taxable event upon receipt of any cash upon
dissolution of the Trust. Because of an absence of authority as to the
proper character of any gain or loss resulting from such event, the
ultimate tax consequences to Holders as a result of the Seller electing to
exercise the Cash Settlement Alternative are uncertain.
LISTING
Application has been made to list the TIMES on the an Stock
Exchange under the symbol " ."
FEES AND EXPENSES
In light of the fact that the proceeds of the sale of the TIMES will
be used in part by the Trust to purchase the Contract from the Seller, the
Underwriting Agreement provides that the Seller will pay Underwriter
Compensation to the Underwriter of $ per TIMES. See "Underwriting."
Estimated organization costs of the Trust in the amount of $ have
been paid by Bear, Stearns & Co. Inc. and estimated costs of the Trust in
connection with the initial registration and public offering of the TIMES
in the amount of $ will be paid by the Seller. Each of the
Administrator, the Custodian and the Paying Agent, and each Trustee will be
paid by the Underwriter out of the Underwriter Compensation at the closing
of the offering of the TIMES a one-time, up-front amount in respect of its
ongoing fees and, in the case of the Administrator, anticipated expenses of
the Trust over the term of the Trust (estimated to be $ in the
aggregate). Any on-going expenses of the Trust in excess of these estimated
amounts will be paid by Bear, Stearns & Co. Inc., which will be reimbursed
by the Seller. See "Management and Administration of the Trust--Estimated
Expenses."
Regulations of 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
is not expected to bear any fees or expenses, investors are not expected to
bear any direct expenses. The expenses that an investor might be considered
to be bearing indirectly are (i) the proportion of the Sales Load
applicable to their TIMES which is payable by the Seller to the
Underwriter; and (ii) the organizational and offering expenses of the
Trust, an estimated $ of which would be allocable to each year of
the Trust's existence, and the ongoing expenses of the Trust (including
fees of the Administrator, Custodian, Paying Agent and Trustees), estimated
at $ per year payable by Bear, Stearns & Co. Inc. at the closing of
the offering.
INVESTOR TRANSACTION EXPENSES
Sales Load (as a percentage of offering price) . . . . . . . . . . . . 3%
Dividend Reinvestment and Cash Purchase Plan Fees . . . . . Not Applicable
ANNUAL EXPENSES
Management Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0%
Other Expenses (after prepayment) . . . . . . . . . . . . . . . . . . 0%*
Total Annual Expenses . . . . . . . . . . . . . . . . . . . . . . . . 0%*
* Absent prepayment by the Underwriter out of their underwriting
compensation, the Trust's "total annual expenses" would be equal to
approximately 0% 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
OBJECTIVE AND POLICIES--GENERAL." ADDITIONALLY, THE TRUST DOES NOT PERMIT
THE REINVESTMENT OF DISTRIBUTIONS.
EXAMPLE 1 YEAR 3 YEAR
You would bear the following expenses
(i.e., the applicable sales load and
allocable portion of ongoing expenses paid
by the Underwriter) on a $1,000
investment, assuming a 5% annual return $30.
THE TRUST
The Trust is a newly organized Delaware trust and is registered as a
closed-end investment company under the Investment Company Act. The Trust
was formed on October 4, 1996 and operates pursuant to a trust agreement,
as amended and restated . The Trust is located at 850 Library
Avenue, Newark, Delaware 19715, and its telephone number is (302) 738-6680.
USE OF PROCEEDS
The net proceeds of this offering will be used on or shortly after the
date on which this offering is completed to purchase a fixed portfolio
comprised of stripped U.S. Treasury securities with face amounts and
maturities corresponding to the quarterly distributions payable with
respect to the TIMES and the payment dates thereof, and to pay the purchase
price under the Contract to the Seller.
INVESTMENT OBJECTIVE AND POLICIES
GENERAL
The Trust will purchase and hold a portfolio of stripped U.S. Treasury
securities maturing on a quarterly basis through the Exchange Date and the
Contract relating to the Common Stock of the Company. The Trust's
investment objective is to provide each Holder with a quarterly cash
distribution of $ per TIMES (which amount equals the portion of the
fixed quarterly distributions from the proceeds of the maturing U.S.
Treasury securities held by the Trust) and, on the Exchange Date, a number
of shares of Common Stock per TIMES equal to the Exchange Rate or, if the
Seller elects the Cash Settlement Alternative, an amount in cash equal to
the Reference Market Price thereof. The Exchange Rate is equal to (i) if
the Reference Market Price is less than $ (the "Threshold Appreciation
Price") but equal to or greater than $ (the "Floor Price"), a number
(or fractional number) of shares of Common Stock per TIMES equal to the
Floor Price divided by the Reference Market Price (i.e., the value of such
shares of Common Stock when multiplied by the Reference Market Price shall
equal $ ) (the "Initial Value"), (ii) if the Reference Market Price is
equal to or greater than $ , shares of Common Stock per
TIMES and (iii) if the Reference Market Price is less than $ , 1 share
of Common Stock per TIMES, subject in each case to adjustment in certain
events. See "--The Contract--Dilution Adjustments." For purposes of the
preceding clause (i) the Exchange Rate will be rounded upward or downward
to the nearest 1/10,000 (or if there is not a nearest 1/10,000, to the next
lower 1/10,000). Holders otherwise entitled to receive fractional shares in
respect of their aggregate holdings of TIMES will receive cash in lieu
thereof. The Reference Market Price per share of Common Stock means the
average Closing Price of a share of Common Stock on the 20 Trading Days (as
defined below) immediately prior to, but not including, the Exchange Date.
The Closing Price of the Common Stock on any date of determination means
the daily closing sale price (or, if no closing sale price is reported, the
last reported sale price) of the Common Stock as reported on NASDAQ on such
date of determination or, if the Common Stock is not listed for trading on
the Nasdaq National Market on any such date, as reported in the composite
transactions for the principal United States securities exchange on which
the Common Stock is so listed, or if the Common Stock is not so listed on a
United States national or regional securities exchange, as reported by the
Nasdaq National Market or, if the Common Stock is not so reported, the last
quoted bid-price for the Common Stock in the over-the-counter market as
reported by the National Quotation Bureau or similar organization, provided
that if any event that results in an adjustment to the number of shares of
Common Stock deliverable under the Contract as described under "--The
Contract-- Dilution Adjustments" occurs prior to the Exchange Date, the
Closing Price as determined pursuant to the foregoing will be appropriately
adjusted to reflect the occurrence of such event. A "Trading Day" means a
day on which the Common Stock (A) is not suspended from trading on any
national or regional securities exchange or association or over-the-counter
market at the close of business and (B) has traded at least once on the
national or regional securities exchange or association or over-the-counter
market that is the primary market for the trading of such security.
A fundamental policy of the Trust is to invest at least 70% of its
total assets in the Contract. The Contract will comprise approximately
% of the Trust's initial assets. As a consequence the Trust's investments
will be concentrated in whatever industry the Company does business in. The
Trust has also adopted a fundamental policy that the Contract may not be
disposed of during the term of the Trust and that the U.S. Treasury
securities held by the Trust may not be disposed of prior to the earlier of
their respective maturities and the termination of the Trust. The foregoing
policies are fundamental policies of the Trust that may not be changed
without the approval of 100% in interest of the Holders.
The value of the Common Stock (or cash or Marketable Securities
received in lieu thereof) that will be received by Holders in respect of
the TIMES on the Exchange Date may be more or less than the amount paid for
the TIMES offered hereby.
For illustrative purposes only, the following chart shows the number
of shares of Common Stock that a Holder would receive for each TIMES at
various Reference Market Prices. The chart assumes that there would be no
adjustments to the number of shares of Common Stock deliverable under the
Contract by reason of the occurrence of any of the events described under
"--The Contract--Dilution Adjustments." There can be no assurance that the
Reference Market Price will be within the range set forth below. Given the
initial price of $ per TIMES and the Reference Market Price is above $
or below $ , a Holder would receive in connection with the
exchange of TIMES on the Exchange Date the following number of shares of
Common Stock:
REFERENCE MARKET PRICE NUMBER OF SHARES
OF COMMON STOCK OF COMMON STOCK AMOUNT OF CASH
The following table sets forth information regarding the distributions
to be received on the U.S. Treasury securities, the portion of each year's
distributions that will constitute a return of capital for federal income
tax purposes and the amount of original issue discount accruing, assuming
yield-to-maturity accrual election, on the U.S. Treasuries with respect to
a Holder who acquires its TIMES at the issue price from an Underwriter
pursuant to the original offering. See "Certain Federal Income Tax
Considerations--Recognition of Interest on the U.S. Treasury Securities."
ANNUAL
ANNUAL GROSS INCLUSION
ANNUAL GROSS DISTRIBUTIONS OR ORIGINAL ISSUE
DISTRIBUTIONS FROM ANNUAL RETURN DISCOUNT IN
FROM U.S. TREASURIES OF CAPITAL INCOME
U.S. TREASURIES PER TIMES PER TIMES PER TIMES
The annual distribution of $ per TIMES is payable quarterly
on each and , commencing , 1998. Quarterly
distributions on the TIMES will consist solely of the cash received from
the U.S. Treasury securities. The first distribution, in respect of the
period from Closing until , will be payable on
to Holders of record as of and will equal $ per TIMES.
The Trust will not be entitled to any dividends that may be declared on the
Common Stock. See "Management and Administration of the Trust--
Distributions."
ENHANCED YIELD; LESS POTENTIAL APPRECIATION THAN COMMON STOCK;
NO DEPRECIATION PROTECTION
Holders will receive quarterly distributions, whereas the Company does
not currently pay dividends on the Common Stock. However, the Company could
commence paying dividends on its Common Stock at any time and there is no
assurance that the yield on the TIMES 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 TIMES
is less than that afforded by an investment in the Common Stock because
Holders will realize no equity appreciation if, on the Exchange Date, the
Reference Market Price of the Common Stock is below $ (which represents
an appreciation of ). Moreover, because Holders will receive only
shares of Common Stock if the Reference Market Price exceeds $ ,
Holders will be entitled to receive upon exchange only % (the
percentage equal to $ divided by $ ) of any appreciation of the
value of the Common Stock in excess of $ over that amount. Holders of
TIMES will realize the entire decline in value if the Reference Market
Price is less than the price to public per TIMES shown on the cover page
hereof. Accordingly, the value of the Common Stock or cash equivalent
received by a Holder may be less than the amount paid by such Holder for
its TIMES, in which event its investment will result in a loss.
THE COMPANY
The Company is not affiliated with the Trust or the Seller, will not
receive any of the proceeds from the sale of the TIMES and will have no
obligations with respect to the TIMES. This Prospectus relates only to the
TIMES offered hereby and does not relate to the Company or the Common
Stock. All disclosures contained in this Prospectus regarding the Company
and the Common Stock are derived from the publicly available documents
filed by the Company with the Commission. The Company has not participated
in the preparation of such documents and there can be no assurance that all
events occurring prior to the date hereof (including events that would
affect the accuracy or completeness of the publicly available documents
filed by the Company) have been publicly disclosed by the Company.
The Company is subject to the periodic reporting requirements of the
Exchange Act. Reference is made to the publicly available filings of the
Company for information about the Company. Such filings can be inspected
and copied at the public reference facilities maintained by the Commission
at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C.
20549, and at the Commission's Regional Offices at 7 World Trade Center,
13th Floor, New York, New York 10048, and Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such material also
may be obtained by mail from the Public Reference Section of the
Commission, Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington,
D.C. 20549, at prescribed rates. Additionally, the Commission maintains a
Web site on the Internet at http://www.sec.gov that contains reports, proxy
and information statements and other information regarding issuers, such as
the Company, that file electronically with the Commission.
This Prospectus relates only to the TIMES offered hereby and does not
relate to the Company or its Common Stock.
The Company's Common Stock is traded on the Nasdaq National Market
under the symbol " ." The table below sets forth the high and low bid
prices for shares of Common Stock from the inception of trading in the
Company's Common Stock on for each quarter. On ,
1998 the high and low bids for the Common Stock were $ and $
, respectively, and the closing price was $ .
HIGH BID LOW BID
First Quarter (commencing )........... $
Second Quarter ...............................
Third Quarter.................................
Fourth Quarter ...............................
First Quarter. . . . . . . . . . . . . . . . $
Second Quarter . . . . . . . . . . . . . . .
. . . . . . . . .
THE CONTRACT
General. The Trust will enter into the Contract with the Seller
obligating the Seller to deliver to the Trust on the Exchange Date a number
of shares of Common Stock equal to the product of the Exchange Rate times
the initial number of shares of Common Stock subject to the Contract,
adjusted as described below. The aggregate initial number of shares of
Common Stock under the Contract will equal the aggregate number of TIMES
offered hereby (subject to increase in the event the Underwriter exercises
its overallotment option). The Contract also provides that the Seller may
deliver to the Trust on the Exchange Date, at the Seller's option, an
amount of cash equal to the value of the Common Stock deliverable pursuant
to the Contract (the "Cash Settlement Alternative"). If the Seller elects
to deliver cash in lieu of shares of Common Stock, it would be required to
deliver cash in respect of all shares deliverable pursuant to the Contract.
The purchase price of the Contract was arrived at by arm's-length
negotiation between the Trust and the Seller taking into consideration
factors including the price, expected dividend level and volatility of the
Common Stock, current interest rates, the term of the Contract, current
market volatility generally, the collateral security pledged by the Seller,
the value of other similar instruments and the costs and anticipated
proceeds of the offering of the TIMES. All matters relating to the
administration of the Contract will be the responsibility of either the
Administrator or the Custodian.
Dilution Adjustments. The Exchange Rate is subject to adjustment if
the Company shall (i) pay a stock dividend or make a distribution with
respect to the Common Stock in shares of such stock, (ii) subdivide or
split its outstanding shares of Common Stock, (iii) combine its outstanding
shares of Common Stock into a smaller number of shares, or (iv) issue by
reclassification of its shares of Common Stock any shares of other common
stock of the Company. In any such event, the Exchange Rate shall be
multiplied by a dilution adjustment equal to the number of shares of Common
Stock (or, in the case of a reclassification referred to in clause (iv)
above, the number of shares of other common stock of the Company issued
pursuant thereto), or fraction thereof, that a shareholder who held one
share of Common Stock immediately prior to such event would be entitled
solely by reason of such event to hold immediately after such event.
In addition, if the Company shall issue rights or warrants to all
holders of Common Stock entitling them to subscribe for or purchase shares
of Common Stock at a price per share less than the Then-Reference Market
Price of the Common Stock (as defined-below) (other than rights to purchase
Common Stock pursuant to a plan for the reinvestment of dividends or
interest) then the Exchange Rate shall be multiplied by a dilution
adjustment equal to a fraction, of which the numerator shall be the number
of shares of Common Stock outstanding immediately prior to the time
(determined as described below) the adjustment is calculated by reason of
the issuance of such rights or warrants plus the number of additional
shares offered for subscription or purchase pursuant to such rights or
warrants, and of which the denominator shall be the number of shares of
Common Stock outstanding immediately prior to the time as of which such
adjustment is calculated plus the number of additional shares that the
aggregate offering price of the shares so offered for subscription or
purchase would purchase at the Then-Reference Market Price which shall be
determined by multiplying the total number of shares so offered for
subscription or purchase by the exercise price of such rights or warrants
and dividing the product so obtained by such Then-Reference Market Price.
To the extent that, after expiration of such rights or warrants, the shares
offered thereby shall not have been delivered, the Exchange Rate shall be
further adjusted to equal the Exchange Rate that would have been in effect
had the foregoing adjustment been made upon the basis of delivery of only
the number of shares of Common Stock actually delivered. The "Then-
Reference Market Price" of the Common Stock means the average Closing Price
per share of Common Stock for a Calculation Period of five Trading Days
immediately prior to the time such adjustment is calculated (or, in the
case of an adjustment calculated at the opening of business on the business
day following a record date, as described below, immediately prior to the
earlier of the time such adjustment is calculated and the related "ex-date"
on which the shares of Common Stock first trade regular way on their
principal market without the right to receive the relevant dividend,
distribution or issuance); provided that if no Closing Price for the Common
Stock is determined for one or more (but not all) of such Trading Days,
such Trading Day shall be disregarded in the calculation of the Then-
Reference Market Price (but no additional Trading Days shall be added to
the Calculation Period). If no Closing Price for the Common Stock is
determined for any of such Trading Days, the most recently available
Closing Price for the Common Stock prior to such five Trading Days shall be
the Then-Reference Market Price.
If, after the date hereof, the Company makes an Excess Purchase
Payment, then the Exchange Rate will be multiplied by a fraction of which
the numerator shall be the Then-Reference Market Price of the Common Stock,
and of which the denominator shall be such Then-Reference Market Price less
the amount of such distribution applicable to one share of Common Stock
which would not be a Permitted Dividend (or in the case of an Excess
Purchase Payment, less the aggregate amount of such Excess Purchase
Payments for which adjustment is being made at such time divided by the
number of outstanding shares of Common Stock on the date the adjustment is
effected).
For purposes of these adjustments, the term "Excess Purchase Payment"
means the excess, if any, of (x) the cash and the value (as determined by a
nationally recognized independent investment banking firm retained for this
purpose by the Trust) of all other consideration paid by the Company with
respect to one share of Common Stock acquired in any share repurchase
(excluding share repurchases by the Company effected in compliance with
Rule 10b-18 under the Securities Exchange Act of 1934, as amended) whether
made by the Company in the open market, by private purchase by tender
offer, by exchange offer or otherwise, over (y) the Then-Reference Market
Price of the Common Stock. Notwithstanding the foregoing, the Company may
pay up to $ in aggregate consideration in respect of share
repurchases without any adjustment being required, provided that no such
repurchase involves an Excess Purchase Payment of more than 5% of the Then-
Reference Market Price of the Common Stock on the date an adjustment
therefor would otherwise be required to be effected.
If any adjustment in the Exchange Rate is required to be calculated as
described above, corresponding adjustments to the Threshold Appreciation
Price, Floor Price and Initial Value, as previously adjusted, shall be
calculated.
Dilution adjustments shall be effected: (i) in the case of any
dividend, distribution or issuance described above, at the opening of
business on the business day following the record date for determination of
holders of Common Stock entitled to receive such dividend, distribution or
issuance or, if the announcement of any such dividend, distribution or
issuance is after such record date, at the time such dividend, distribution
or issuance shall be announced by the Company; (ii) in the case of any
subdivision, split, combination or reclassification described above, on the
effective date of such transaction; (iii) in the case of any Excess
Purchase Payment for which the Company shall announce, at or prior to the
time it commences the relevant share repurchase, the repurchase price per
share for shares proposed to be repurchased, on the date of such
announcement; and (iv) in the case of any other Excess Purchase Payment, on
the date that the holders of the repurchased shares become entitled to
payment in respect thereof. There will be no adjustment under the Contract
in respect of any dividends, distributions or issuances that may be
declared or announced after the Exchange Date. If any announcement or
declaration of a record date in respect of a dividend, distribution or
issuance shall subsequently be cancelled by the Company, or such dividend,
distribution or issuance shall fail to receive requisite approvals or shall
fail to occur for any other reason, then the Exchange Rate shall be further
adjusted to equal the Exchange Rate that would have been in effect had the
adjustment for such dividend, distribution or issuance not been made. All
adjustments described herein shall be rounded upward or downward to the
nearest 1/10,000 (or if there is not a nearest 1/10,000, to the next lower
1/10,000). No adjustment in the Exchange Rate shall be required unless such
adjustment would require an increase or decrease of at least one percent
therein; provided, however, that any adjustments which by reason of the
foregoing are not required to be made shall be carried forward and taken
into account in any subsequent adjustment.
In the event of (i) any dividend or distribution by the Company to all
holders of Common Stock of evidences of its indebtedness or other assets
(excluding (1) dividends or distributions referred to in clause (i) of the
first paragraph under this caption "--Dilution Adjustments," (2) any common
shares issued pursuant to a reclassification referred to in clause (iv) of
such paragraph and (3) Permitted Dividends made by the Company) or any
issuance by the Company to all holders of Common Stock of rights or
warrants (other than rights or warrants referred to in the second paragraph
under this caption "--Dilution Adjustments"), (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 entity), (iii) any sale, transfer, lease or
conveyance to another entity 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 entity (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 holder of a TIMES
will receive on the Exchange Date, in lieu of or (in the case of an
Adjustment Event described in clause (i) above) in addition to, Common
Stock as described above, cash in an amount equal to the product of the
initial number of shares of Common Stock subject to the Contract plus the
number of shares of Common Stock exercised pursuant to the Underwriter's
overallotment option (if any) and (A) if the Reference Market Price is
greater than or equal to the Threshold Appreciation Price, multiplied
by the Transaction Value (as defined below), (B) if the Reference Market
Price is less than the Threshold Appreciation Price but is equal to or
greater than the Floor Price, the product of (x) the Floor Price divided by
the Reference Market Price multiplied by (y) the Transaction Value and (C)
if the Reference Market Price is less than the Floor Price, the Transaction
Value. Following an Adjustment Event, the Reference Market Price, as such
term is used in this paragraph and throughout the definition of Exchange
Rate, shall be deemed to equal (A) the Reference Market Price of the Common
Stock, as adjusted pursuant to the method set forth in the preceding
paragraph, plus (B) the Transaction Value. For purposes of these
provisions, the term "Permitted Dividend" means any cash dividend in
respect of the Common Stock, other than a cash dividend that, together with
any other cash dividends during the preceding 12 months, exceeds 10% of the
average of the Closing Prices during such 12-month period.
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 stated maturity of the TIMES
("Marketable Securities"), the Seller may, at its option, in lieu of
delivering the amount of cash deliverable in respect of Marketable
Securities received in an Adjustment Event, as determined in accordance
with the previous paragraph, deliver a number of such Marketable Securities
with a value equal to such cash amount, as determined in accordance with
clause (iii) of the definition of Transaction Value, as applicable, but not
exceeding, as a percentage of the total consideration required to be
delivered, the percentage of the total transaction attributable to such
Marketable Securities; provided, however, that (i) if such option is
exercised, the Seller shall deliver Marketable Securities in respect of
all, but not less than all, cash amounts that would otherwise be
deliverable in respect of Marketable Securities received in an Adjustment
Event, (ii) the Seller may not exercise such option if the Seller has
elected to deliver cash in lieu of the Common Stock, if any, deliverable
upon the Exchange Date or if such Marketable Securities have not yet been
delivered to the holders entitled thereto following such Adjustment Event
or any record date with respect thereto, and (iii) subject to clause (ii)
of this proviso, the Seller must exercise such option if the Seller does
not elect to deliver cash in lieu of Common Stock, if any, deliverable upon
the Exchange Date. If the Seller elects to deliver Marketable Securities,
each holder of a TIMES will be responsible for the payment of any and all
brokerage and other transaction costs upon the sale of such Marketable
Securities. If, following any Adjustment Event, any Marketable Security
ceases to qualify as a Marketable Security, then (x) the Seller may no
longer elect to deliver such Marketable Security in lieu of an equivalent
amount of cash and (y) notwithstanding clause (iii) of the definition of
Transaction Value, the Transaction Value of such Marketable Security shall
mean the fair market value of such Marketable Security on the date such
security ceases to qualify as a Marketable Security, as determined by a
nationally recognized investment banking firm retained for this purpose by
the Seller.
"Transaction Value" means the sum of (i) for any cash received in any
such Adjustment Event, the amount of cash received per share of Common
Stock, (ii) for any property other than cash or Marketable Securities
received in any such Adjustment Event, an amount equal to the market value
on the date the Adjustment Event is consummated of such property received
per share of Common Stock as determined by a nationally recognized
independent investment banking firm retained for this purpose by the
Administrator and (iii) for any Marketable Securities received in any such
Adjustment Event, an amount equal to the average Closing Price per share
of such securities for the 20 Trading Days immediately prior to the
Exchange Date multiplied by the number of such securities received for
each share of Common Stock; provided that if no Closing Price for such
Marketable Securities is determined for one or more (but not all) of such
Trading Days, such Trading Days shall be disregarded in the calculation of
such average Closing Price (but no additional Trading Days shall be added
to the Calculation Period). If no Closing Price for the Marketable
Securities is determined for all such Trading Days, the calculation in the
preceding clause (iii) shall be based on the most recently available
Closing Price for the Marketable Securities prior to such 20 Trading Days.
The number of shares of Marketable Securities included in the calculation
of Transaction Value for purposes of the preceding clause (iii) shall be
subject to adjustment if a dilution event of the type described-above
shall occur with respect to the issuer of the Marketable Securities
between the time of the Adjustment Event and the Exchange Date.
No dilution adjustments will be made for events, other than those
described above, such as offerings of Common Stock (other than through the
issuance of rights or warrants described above) for cash or in connection
with acquisitions.
Collateral Arrangements; Acceleration. The Seller's obligations under
the Contract will be secured by a security interest in the maximum number
of shares of Common Stock subject to the Contract and/or an equivalent
number of shares of Nonvoting Common (subject to adjustment in accordance
with the dilution adjustment provisions of the Contract, described above)
or short-term, direct obligations of the U.S. Government pursuant to a
Collateral Agreement between the Seller, the Trust and The Bank of New
York, as collateral agent (the "Collateral Agent"). Unless the Seller is in
default in its obligations under the Collateral Agreement, the Seller will
be permitted to substitute for any pledged shares of Common Stock or
Nonvoting Common, collateral consisting of short-term, direct obligations
of the U.S. Government. Any U.S. Government obligations pledged as
substitute collateral will be required to have an aggregate market value at
the time of substitution and at daily mark-to-market valuations thereafter
of not less than 150% (or, from and after any Insufficiency Determination
that shall not be cured by the close of business on the tenth business day
thereafter, as described below, 200%) of the product of the market price of
the Common Stock at the time of each valuation times the number of shares
of Common Stock or Nonvoting Common for which such obligations are being
substituted. The Collateral Agreement will provide that, in the event of an
Adjustment Event, the Seller will pledge as alternative collateral any
Marketable Securities received by it in respect of the maximum number of
shares of Common Stock subject to the Contract at the time of the
Adjustment Event, plus U.S. Government obligations having an aggregate
market value when pledged and at daily mark-to-market valuations thereafter
of not less than 150% of the Seller's Cash Delivery Obligations. The
Seller's "Cash Delivery Obligations" shall be the Transaction Value of any
consideration other than Marketable Securities received by the Seller in
respect of the maximum number of shares subject to the Contract at the time
of the Adjustment Event. The number of shares of Marketable Securities
required to be pledged shall be subject to adjustment if any event
requiring a dilution adjustment under the Contract shall occur. The Seller
will be permitted to substitute U.S. Government obligations for Marketable
Securities pledged at the time of or after any 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 not less than 150% (or, from and after any
Insufficiency Determination that shall not be cured by the close of
business on the tenth business day thereafter, as described below, 200%) of
the product of the market price per share of Marketable Securities at the
time of each valuation times the number of shares of Marketable Securities
for which such obligations are being substituted. The Collateral Agent will
promptly pay over to the Seller any dividends, interest, principal or other
payments received by the Collateral Agent in respect of any collateral,
including any substitute collateral, unless the Seller is in default of its
obligations under the Collateral Agreement, or unless the payment of such
amount to the Seller would cause the collateral to become insufficient
under the Collateral Agreement. The Seller shall have the right to vote any
pledged shares of Common Stock or Marketable Securities for so long as such
shares are owned by it and pledged under the Collateral Agreement,
including after an event of default under the Contract or the Collateral
Agreement.
If the Collateral Agent shall determine that U.S. Government
obligations pledged as substitute collateral shall fail to meet the
foregoing requirements at any valuation (an "Insufficiency Determination"),
or that the Seller has failed to pledge additional collateral required as a
result of a dilution adjustment increasing the maximum number of shares of
Common Stock or shares of Marketable Securities subject to the Contract,
and such failure shall not be cured by the close of business on the tenth
business day after such determination, then, unless a Collateral Event of
Default (as defined below) under the Collateral Agreement shall have
occurred and be continuing, the Collateral Agent shall commence (i) sales
of the collateral consisting of U.S. Government obligations and (ii)
purchases, using the proceeds of such sales, of shares of Common Stock or
shares of Marketable Securities, in an amount sufficient to cause the
collateral to meet the requirements under the Collateral Agreement. The
Collateral Agent shall discontinue such sales and purchases if at any time
a Collateral Event of Default under the Collateral Agreement shall have
occurred and be continuing. A "Collateral Event of Default" under the
Collateral Agreement shall mean, at any time, (A) if no U.S. Government
obligations shall be pledged as substitute collateral at such time, failure
of the collateral to consist of at least the maximum number of shares of
Common Stock subject to the Contract at such time (or, if an Adjustment
Event shall have occurred at or prior to such time, failure of the
collateral to include the maximum number of shares of any Marketable
Securities required to be pledged as described above); (B) if any U.S.
Government obligations shall be pledged as substitute collateral for shares
of Common Stock (or shares of Marketable Securities) at such time, failure
of such U.S. Government obligations to have a market value at such time of
at least 105% of the market price per share of Common Stock (or the then-
current market price per share of Marketable Securities, as the case may
be) equal to the difference between (x) the maximum number of shares of
Common Stock (or shares of Marketable Securities) subject to the Contract
at such time and (y) the number of shares of Common Stock (or shares of
Marketable Securities) pledged as collateral at such time; and (C) at any
time after an Adjustment Event in which consideration other than Marketable
Securities shall have been delivered, failure of the U.S. Government
obligations pledged in respect of the Cash Delivery Obligations to have a
market value at such time of at least 105% of the Cash Delivery
Obligations, if such failure shall not be cured within ten business days
after notice thereof is delivered to the Seller.
The occurrence of a Collateral Event of Default under the Collateral
Agreement, or the bankruptcy or insolvency of the Seller, will cause an
automatic acceleration of the Seller's obligations under the Contract. In
any such event, the Seller will become obligated to deliver shares of
Common Stock or Nonvoting Common (or, after an Adjustment Event, Marketable
Securities or cash or a combination thereof) having an aggregate value
equal to the "Aggregate Acceleration Value" under the Contract. The
Aggregate Acceleration Value will be based on an "Acceleration Value,"
determined by the Administrator on the basis of quotations from up to four
nationally recognized independent investment banking firms (each, an
"Independent Dealer"). Each quotation will be for the amount that would be
paid to the relevant Independent Dealer in consideration of an agreement
between the Trust and such dealer that would have the effect of preserving
the Trust's rights to receive Common Stock (or, after an Adjustment Event,
the alternative consideration provided under the Contract) under a portion
of the Contract that corresponds to an initial number of shares of Common
Stock equal to 1,000. The Administrator will request quotations from four
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
equal to such quotation. The Aggregate Acceleration Value will be computed
by multiplying the Acceleration Value by the quotient obtained by dividing
the initial number of shares of Common Stock subject to the Contract and
the number of shares of Common Stock exercised pursuant to the
Underwriter's overallotment option (if any) by 1,000; except that, if no
quotations are provided, the Aggregate Acceleration Value will be (A) the
closing price per share of Common Stock on the acceleration date times the
number of shares of Common Stock that would be required to be delivered on
such date under the Contract if the Exchange Date were redefined to be the
acceleration date or (B) after an Adjustment Event, the value of the
alternative consideration that would be required to be delivered on such
date under the Contract if the Exchange Date were redefined to be the
acceleration date. Upon the occurrence of a Collateral Event of Default or
the bankruptcy or insolvency of the Seller, the Common Stock (or, after an
Adjustment Event, Marketable Securities or cash or a combination thereof)
deliverable for each TIMES will be based solely on the Aggregate
Acceleration Value described above for the Contract. From time to time, as
determined in good faith by the Trustees of the Fund, the Fund also may
engage third parties to provide additional valuations.
Upon any acceleration, the Collateral Agent will distribute to the
Trust, for distribution pro rata to the Holders, the Aggregate Acceleration
Value in the form of shares of Common Stock or Nonvoting Common then
pledged, or cash generated from the liquidation of U.S. Government
obligations then pledged, or a combination thereof (or, after an Adjustment
Event, in the form of Marketable Securities then pledged, cash generated
from the liquidation of U.S. Government obligations then pledged, or a
combination thereof). In addition, in the event that by the Exchange Date
any substitute collateral has not been replaced by Common Stock (or, after
an Adjustment Event, cash or Marketable Securities) sufficient to meet the
obligations under the Contract, the Collateral Agent will distribute to the
Trust for distribution pro rata to the Holders the market value of the
Common Stock required to be delivered thereunder, in the form of any shares
of Common Stock then pledged by the Seller plus cash generated from the
liquidation of U.S. Government obligations then pledged by the Seller (or,
after an Adjustment Event, the market value of the alternative
consideration required to be delivered thereunder, in the form of any
Marketable Securities then pledged, plus any cash then pledged, plus cash
generated from the liquidation of U.S. Government obligations then
pledged).
DESCRIPTION OF SELLER
THE U.S. TREASURY SECURITIES
The Trust will purchase and hold a series of zero-coupon ("stripped")
U.S. Treasury securities with face amounts and maturities corresponding to
the distributions payable with respect to the TIMES and the payment dates
thereof. The Trust may invest up to 30% of its total assets in these U.S.
Treasury Securities. In the event that the Contract is accelerated or
disposed of as described under the caption "Management Administration of
the Trust--Trustees", then any such U.S. Treasury securities then held in
the Trust shall be liquidated by the Administrator and distributed pro rata
to the Holders, together with the amounts distributed upon acceleration or
any consideration received by the Trust upon disposition of the Contract.
See "--Collateral Arrangements; Acceleration" and "--Trust Termination."
TEMPORARY INVESTMENTS
For cash management purposes, the Trust may invest the proceeds of the
U.S. Treasury securities and any other cash held by the Trust in short-term
obligations of the U.S. Government maturing no later than the business day
preceding the next following distribution date. Not more than 5% of the
Trust's total assets will be invested in such short-term obligations or
held in cash at any one time.
INVESTMENT RESTRICTIONS
As a matter of fundamental policy, the Trust may not purchase any
securities or instruments other than the U.S. Treasury securities, the
Contract and the Common Stock or other assets received pursuant to the
Contract and, for cash management purposes, short-term obligations of the
U.S. Government; issue any securities or instruments except for the TIMES;
make short sales or purchase securities on margin; write put or call
options; borrow money; underwrite securities; purchase or sell real estate,
commodities or commodities contracts including futures contracts; or make
loans. The Trust also has adopted a fundamental policy that the Contract
may not be disposed of during the term of the Trust and that the U.S.
Treasury securities held by the Trust may not be disposed of prior to the
earlier of their respective maturities and the termination of the Trust.
TRUST TERMINATION
The Trust will terminate automatically on or shortly after the
Exchange Date. Alternatively, in the event that the Contract is
accelerated, then any U.S. Treasury securities then held in the Trust shall
be liquidated by the Administrator and distributed pro rata to the Holders,
together with the amounts distributed upon acceleration, and the Trust
shall be terminated. See "--Collateral Arrangements; Acceleration" and "--
The U.S. Treasury Securities."
RISK FACTORS
INTERNAL MANAGEMENT; NO PORTFOLIO MANAGEMENT
The Trust will be internally managed by its Trustees and will not have
any separate investment adviser. It is a fundamental policy of the Trust
that the Contract may not be disposed of during the term of the Trust and
that the U.S. Treasury securities held by the Trust may not be disposed of
prior to the earlier of their respective maturities and the termination of
the Trust. As a result, the Trust will continue to hold the Contract
despite significant declines in the market price of the Common Stock or
adverse changes in the financial condition of the Company (or, after an
Adjustment Event, comparable developments affecting any Marketable
Securities or the issuer thereof). The Trust will not be managed like a
typical closed-end investment company.
LIMITED APPRECIATION POTENTIAL; COMMON STOCK DEPRECIATION RISK
The Trust anticipates that on the Exchange Date it will receive the
Common Stock deliverable pursuant to the Contract, which it will then
distribute to Holders. There is no assurance that the yield on the TIMES
will be higher than the dividend yield on the Common Stock over the term of
the Trust. In addition, because the Contract calls for the Seller to
deliver less than the full number of shares of Common Stock subject to the
Contract where the Reference Market Price exceeds $ (and therefore
less than one full share of Common Stock for each outstanding TIMES), the
TIMES have more limited appreciation potential than the Common Stock.
Therefore, the TIMES may trade below the value of the Common Stock if the
Common Stock appreciates in value. The value of the Common Stock to be
received by Holders on the Exchange Date (and any cash received in lieu
thereof) may be less than the amount paid by them for their TIMES. Holders
of TIMES will realize the entire decline in value if the Reference Market
Price is less than the price to public per TIMES shown on the cover page
hereof.
DILUTION ADJUSTMENTS; SHAREHOLDER RIGHTS
The number of shares of Common Stock that Holders are entitled to
receive at the termination of the Trust is subject to adjustment for
certain events arising from stock splits and combinations, stock dividends
and certain other actions of the Company that modify its capital structure.
See "Investment Objective and Policies--The Contract--Dilution
Adjustments." The number of shares to be received by Holders may not be
adjusted for other events, such as offerings of Common Stock for cash or in
connection with acquisitions, that may adversely affect the price of the
Common Stock and, because of the relationship of the amount to be received
pursuant to the Contract to the price of the Common Stock, such other
events may adversely affect the trading price of the TIMES. There can be no
assurance that the Company will not take any of the foregoing actions, or
that it will not make offerings of, or that major shareholders will not
sell any, Common Stock in the future, or as to the amount of any such
offerings or sales. In addition, until the receipt of the Common Stock by
Holders as a result of the exchange of the TIMES for the Common Stock,
Holders will not be entitled to any rights with respect to the Common Stock
(including without limitation voting rights and the rights to receive any
dividends or other distributions in respect thereof).
TRADING VALUE; LISTING
The Trust is a newly organized closed-end investment company with no
previous operating history and the TIMES are innovative securities. It is
not possible to predict how the TIMES will trade in the secondary market.
The trading price of the TIMES may vary considerably prior to the Exchange
Date due to, among other things, fluctuations in the price of the Common
Stock (which may occur due to changes in the Company's financial condition,
results of operations or prospects, or because of complex and interrelated
political, economic, financial and other factors that can affect the
capital markets generally, the stock exchanges or quotation systems on
which the Common Stock is traded and the market segment of which the
Company is a part) and fluctuations in interest rates and other factors
that are difficult to predict and beyond the Trust's control. The Trust
believes, however, that because of the yield on the TIMES and the formula
for determining the number of shares of Common Stock to be delivered on the
Exchange Date, the TIMES will tend to trade at a premium to the market
value of the Common Stock to the extent the Common Stock price falls and at
a discount to the market value of the Common Stock to the extent the Common
Stock price rises.
Shares of closed-end investment companies frequently trade at a
premium to or discount from net asset value. This characteristic of
investments in a closed-end investment company is a risk separate and
distinct from the risk that the Trust's net asset value will decrease. The
Trust cannot predict whether its shares will trade at, below or above net
asset value. The risk of purchasing investments in a closed-end company
that might trade at a discount may be greater for investors who wish to
sell their investments soon after completion of an initial public offering
because for those investors, realization of a gain or loss on their
investments is likely to be more dependent upon the existence of a premium
or discount than upon portfolio performance.
The Underwriter currently intends, but is not obligated, to make a
market in the TIMES. There can be no assurance that a secondary market will
develop or, if a secondary market does develop, that it will provide the
Holders with liquidity of investment or that it will continue for the life
of the TIMES. Application has been made to list the TIMES on the
, but there can be no assurance that, if listed, the TIMES will not
later be delisted or that trading in the TIMES on the will
not be suspended. In the event of a delisting or suspension of trading on
such exchange the Trust will apply for listing of the securities on another
national securities exchange or for quotation on another trading market. If
the TIMES are not listed or traded on any securities exchange or trading
market, or if trading of the TIMES is suspended, pricing information for
the TIMES may be more difficult to obtain, and the price and liquidity of
the TIMES may be adversely affected.
NON-DIVERSIFIED STATUS
The Trust is considered non-diversified under the Investment Company
Act, which means that the Trust is not limited in the proportion of its
assets that may be invested in the obligations of a single issuer. Since
the only securities or instruments held or received by the Trust will be
U.S. Treasury securities and the Contract or other assets consistent with
the terms of the Contract, the Trust may be subject to greater risk than
would be the case for an investment company with diversified investments.
RISK RELATING TO BANKRUPTCY OF SELLER
The Trust believes that the Contract constitutes a "securities
contract" for purposes of the Bankruptcy Code, performance of which would
not be subject to the automatic stay provisions of the Bankruptcy Code in
the event of bankruptcy of the Seller. It is, however, possible that the
Contract will be determined not to qualify as a "securities contract" for
this purpose, in which case the Seller's bankruptcy may cause a delay in
settlement of the Contract, or otherwise subject the Contract to the
bankruptcy proceedings, which could adversely affect the timing of exchange
or, as a result, the amount received by the Holders in respect of the
TIMES.
DESCRIPTION OF THE TIMES
Each TIMES represents an equal proportional interest in the Trust, and
a total of TIMES will be issued (or if the
Underwriter's overallotment option is exercised in full). Upon liquidation
of the Trust, Holders are entitled to share pro rata in the net assets of
the Trust available for distribution. The TIMES have no preemptive,
redemption or conversion rights. The TIMES are fully paid and nonassessable
by the Trust. The only securities that the Trust is authorized to issue are
the TIMES offered hereby and those sold to the initial Holders referred to
below.
Holders are entitled to a full vote for each TIMES held on all matters
to be voted on by Holders and are not able to cumulate their votes in the
election of Trustees. The Trustees of the Trust have been selected
initially by Bear, Stearns & Co. Inc., as the initial Holder of TIMES of
the Trust. The Trustees may call special meetings of Holders for action by
Holder vote as may be required by either the Investment Company Act or the
Trust Agreement. The Holders have the right, upon the declaration in
writing or vote of more than two-thirds of the outstanding TIMES, to remove
a Trustee. The Trustees will call a meeting of Holders to vote on the
removal of a Trustee upon the written request of the Holders of record of
10% of the TIMES or to vote on other matters upon the written request of
the Holders of record of 51% of the TIMES (unless substantially the same
matter was voted on during the preceding 12 months). The Trust will also
assist in communications with other Holders as required by the Investment
Company Act.
BOOK-ENTRY ONLY ISSUANCE
The Depositary Trust Company ("DTC") will act as securities depository
for the TIMES. The information in this section concerning DTC and DTC's
book-entry system is based upon information obtained from DTC. The TIMES
offered hereby will initially be issued only as fully-registered securities
registered in the name of DTC's nominee. One or more fully-registered
global TIMES certificates will be issued, representing in the aggregate the
total number of TIMES, and will be deposited with DTC.
DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code and
a "clearing agency" registered pursuant to the provisions of Section 17A of
the Exchange Act. DTC holds securities that its participants
("Participants") deposit with DTC. DTC also facilitates the settlement
among Participants of securities transactions, such as transfers and
pledges, in deposited securities through electronic computerized book-entry
changes in Participants" accounts, thereby eliminating the need for
physical movement of securities certificates. Direct Participants include
securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations ("Direct Participants").
Access to the DTC system is also available to others such as securities
brokers and dealers, banks and trust companies that clear through or
maintain a custodial relationship with a Direct Participant, either
directly or indirectly ("Indirect Participants").
Purchases of TIMES within the DTC system must be made by or through
Direct Participants, which will receive a credit for the TIMES on DTC's
records. The ownership interest of each actual purchaser of a TIMES
("Beneficial Owner") is in turn to be recorded on the Direct or Indirect
Participants" records. Beneficial Owners will not receive written
confirmation from DTC of their purchases, but Beneficial Owners are
expected to receive written confirmations providing details of the
transactions, as well as periodic statements of their holdings, from the
Direct or Indirect Participants through which the Beneficial Owners
purchased TIMES. Transfers of ownership interests in TIMES are to be
accomplished by entries made on the books of Participants acting on behalf
of Beneficial Owners.
Beneficial Owners will receive certificates representing their
ownership interests in TIMES, upon a resignation of DTC, or upon request
delivered to the Administrator.
DTC has no knowledge of the actual Beneficial Owners of the TIMES;
DTC's records reflect only the identity of the Direct Participants to whose
accounts such TIMES are credited, which may or may not be the Beneficial
Owners. The Participants will remain responsible for keeping account of
their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by
Direct Participants an Indirect Participants to Beneficial Owners will be
governed by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.
In connection with payments on the TIMES, DTC's practice is to credit
Direct Participants" accounts on the relevant payment date in accordance
with their respective holdings shown on DTC's records unless DTC has reason
to believe that it will not receive payments on such payment date. Payments
by Participants to Beneficial Owners will be governed by standing
instructions and customary practices and will be the responsibility of such
Participant and not of DTC or the Trust, subject to any statutory or
regulatory Requirements as may be in effect from time to time. Payment of
dividends to DTC is the responsibility of the Trust, disbursement of such
payments to Direct Participants is the responsibility of DTC, and
disbursement of such payments to the Beneficial Owners is the
responsibility of Direct and Indirect Participants.
DTC may discontinue providing its services as securities depository
with respect to the TIMES at any time by giving reasonable notice to the
Trust. Under such circumstances, in the event that a successor securities
depository is not obtained, certificates representing the TIMES will be
printed and delivered.
MANAGEMENT AND ADMINISTRATION OF THE TRUST
TRUSTEES
The Trust will be internally managed by three Trustees. Consistent
with provisions of the Code applicable to grantor trusts, the Trustees will
not have the power to vary the investments held by the Trust. It is a
fundamental policy of the Trust that the Contract may not be disposed of
during the term of the Trust and that the U.S. Treasury securities held by
the Trust may not be disposed of prior to the earlier of their respective
maturities and termination of the Trust.
The names of the persons who have been elected by Bear, Stearns & Co.
Inc., the initial Holder of the Trust, and who will serve as the Trustees
are set forth below. The positions and the principal occupations of the
individual Trustees during the past five years are also set forth below.
PRINCIPAL OCCUPATION
NAME, AGE AND ADDRESS TITLE DURING PAST FIVE YEARS
. . . . . . . . . . . Each Trustee who is not a director, officer or
employee of any Underwriter or the Administrator, or of any affiliate
thereof, will be paid by the Underwriter, on behalf of the Trust, in
respect of his annual fee and anticipated out-of-pocket expenses, a one-
time, up-front fee of $10,800. The Trust's Managing Trustee will also
receive an additional up-front fee of $3,600 for serving in that capacity.
The Trustees will not receive, either directly or indirectly, any
compensation, including any pension or retirement benefits, from the Trust.
None of the Trustees receives any compensation for serving as a trustee or
director of any other affiliated investment company.
ADMINISTRATOR
. . . . . . . . . . . The day-to-day affairs of the Trust will be managed
by The Bank of New York as Administrator pursuant to an Administration
Agreement. Under the Administration Agreement, the Trustees have delegated
most of their operational duties to the Administrator, including without
limitation, the duties to: (i) receive invoices for expenses incurred by
the Trust; (ii) with the approval of the Trustees, engage legal and other
professional advisors (other than the independent public accountants for
the Trust); (iii) instruct the Paying Agent to pay distributions on TIMES
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. The Administrator, however, will not select the
independent public accountants for the Trust or sell or otherwise dispose
of the Trust assets (except in connection with an acceleration of the
Contract or the settlement of the Contract at the Exchange Date and upon
termination of the Trust).
. . . . . . . . . . . The Administration Agreement may be terminated by
either the Trust or the Administrator upon 60 days prior written notice,
except that no termination shall become effective until a successor
Administrator has been chosen and has accepted the duties of the
Administrator.
. . . . . . . . . . . Except for its roles as Administrator, Custodian,
Paying Agent, registrar and transfer agent for the Trust, 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. Treasury
securities maturing on or shortly before the next quarterly distribution
date. The Custodian will also act as collateral agent under the Collateral
Agreement and will hold a perfected security interest in the Common Stock
and U.S. Government obligations or other assets consistent with the terms
of the Contract.
PAYING AGENT
The transfer agent, registrar and paying agent (the "Paying Agent")
for the TIMES is The Bank of New York pursuant to a paying agent agreement
(the "Paying Agent Agreement"). In the event of any termination of the
Paying Agent Agreement by the Trust or the resignation of the Paying Agent,
the Trust will use its best efforts to engage a new Paying Agent to carry
out the duties of the Paying Agent.
INDEMNIFICATION
The Trust will indemnify each Trustee, the Paying Agent, the
Administrator and the Custodian with respect to any claim, liability, loss
or expense (including the costs and expenses of the defense against any
claim or liability) that it may incur in acting as Trustee, Paying Agent,
Administrator or Custodian as the case may be, except in the case of
willful misfeasance, bad faith, gross negligence or reckless disregard of
their respective duties or where applicable law prohibits such
indemnification. Seller 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.
DISTRIBUTIONS
The Trust intends to distribute to Holders on a quarterly basis an
amount equal to $ per TIMES (which amount equals the pro rata
portion of the fixed quarterly cash distributions from the proceeds of the
maturing U.S. Treasury securities held by the Trust). The first
distribution, in respect of the period from the Closing until
will be payable on to Holders of record as of November 1 and
will equal $ per TIMES. Thereafter, distributions will be made on
, , , and of each year to Holders
of record as of each , , , and
, respectively. A portion of each such distribution will be treated as a
tax-free return of the Holder's investment. See "Investment Objective and
Policies--General", and "Certain Federal Income Tax Considerations--
Recognition of Interest on the U.S. Treasury Securities."
Upon termination of the Trust, as described under the caption
"Investment Objective and Policies--Trust Termination," each Holder will
receive any remaining net assets of the Trust.
The Trust does not permit the reinvestment of distributions.
ESTIMATED EXPENSES
At the closing of this offering the Underwriter 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, TIMES certificates and
Holder reports, expenses of the Trustees, fidelity bond coverage, stock
exchange listing fees and regulatory filings. Organization costs of the
Trust in the amount of $ have been paid by Bear, Stearns & Co.
Inc., and estimated costs of the Trust in connection with the initial
registration and public offering of the TIMES in the amount of $
will be paid by the Seller.
The amount payable to the Administrator in respect of ongoing expenses
of the Trust was determined based on estimates made in good faith on the
basis of information currently available to the Trust, including estimates
furnished by the Trust's agents.
There cannot, however, be any assurance that actual operating expenses of
the Trust will not be substantially more than this amount. Any on-going
expenses of the Trust in excess of these estimated amounts will be paid by
Bear, Stearns & Co. Inc., which will be reimbursed by the Seller.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following summary of certain of the principal United States
federal income tax consequences of ownership of TIMES is based upon the
opinion of Skadden, Arps, Slate, Meagher & Flom LLP, special tax counsel to
the Trust. It deals only with TIMES held as capital assets by a Holder who
acquires its TIMES at the issue price from an Underwriter pursuant to the
original offering, and not with special classes of Holders, such as dealers
in securities or currencies, banks, life insurance companies, persons who
are not United States Holders (as defined below), persons that hold TIMES
that are part of a straddle, hedging or conversion transaction, or persons
whose functional currency is not the U.S. dollar. The summary is based on
the Internal Revenue Code of 1986, as amended (the "Code"), its legislative
history, existing and proposed regulations thereunder, published rulings
and court decisions, all as currently in effect and all subject to change
at any time, perhaps with retroactive effect.
Prospective purchasers of TIMES should consult their own tax advisors
concerning the consequences, in their particular circumstances, under the
Code and the laws of any other taxing jurisdiction, of ownership of TIMES.
A United States Holder is a beneficial owner who or that is (i) a
citizen or resident of the United States, (ii) a domestic corporation or
(iii) otherwise subject to United States federal income taxation on a net
income basis in respect of TIMES.
Holders should also be aware that there are alternative
characterizations of the assets of the Trust which could result in
different federal income tax consequences. See "Alternative
Characterizations" below. While Skadden, Arps, Slate, Meagher & Flom LLP
does not believe these alternative characterizations should apply for
federal income tax purposes, there can be no assurance in this regard, and
Holders should consult their tax advisors concerning the risks associated
with alternative characterizations. The following discussion assumes that
no such alternative characterizations will apply.
TAX STATUS OF THE TRUST
The Trust will be treated as a grantor trust for federal income tax
purchases, and each Holder will be considered the owner of its pro rata
portions of the stripped U.S. Treasury securities and the Contract in the
Trust under the grantor trust rules of the Code. Income received by the
Trust will be treated as income of the Holders in the manner set forth
below.
RECOGNITION OF INTEREST ON THE U.S. TREASURY SECURITIES
The U.S. Treasury securities in the Trust will consist of stripped
U.S. Treasury securities. A Holder will be required to treat its pro rata
portion of each U.S. Treasury security in the Trust as a bond that was
originally issued on the date the Holder purchased its TIMES at an original
issue discount equal to the excess of the Holder's pro rata portion of the
amounts payable on such U.S. Treasury security over the Holder's tax basis
therefor (determined as described below). The amount of such excess,
however, will constitute only a portion of the total amounts payable in
respect of U.S. Treasury securities held by the Trust and, consequently, a
substantial portion of each quarterly cash distribution to the Holders will
be treated as a tax-free return of the Holders' investment in the U.S.
Treasury securities and will not be considered current income for federal
income tax purposes. See "Investment Objective and Policies--General."
A Holder (whether on the cash or accrual method of tax accounting)
will be required to include original issue discount (other than original
issue discount on short-term U.S. Treasury securities as defined below) in
income for federal income tax purposes as it accrues on a constant yield
basis. The Trust expects that more than 20% of the Holders will be accrual
basis taxpayers, in which case original issue discount on any short-term
U.S. Treasury security (i.e., any U.S. Treasury security with a maturity of
one year or less from the date it is purchased) held by the Trust also will
be required to be included in income by the Holders as it accrues. Unless a
Holder elects to accrue the original issue discount on a short-term U.S.
Treasury security according to a constant yield method based on daily
compounding, such original issue discount will be accrued on a straight-
line basis. The Holder's tax basis in a U.S. Treasury security will be
increased by the amounts of any original issue discount included in income
by the Holder with respect to such U.S. Treasury security.
TAX BASIS OF THE U.S. TREASURY SECURITIES AND THE CONTRACT
A Holder's tax basis in the Contract and the U.S. Treasury securities,
respectively, will equal its pro rata portion of the amounts paid for them
by the Trust. It is currently anticipated that % and % of the
proceeds of the offering will be used by the Trust to purchase the U.S.
Treasury securities and as payments for the Contract, respectively.
TREATMENT OF THE CONTRACT
Each Holder will be treated as having entered into a pro rata portion
of the Contract and, at the Exchange Date, as having received a pro rata
portion of the Common Stock, cash, Marketable Securities or a combination
thereof delivered to the Trust.
DISTRIBUTION OF THE COMMON STOCK
The delivery of Common Stock pursuant to the Contract will not be
taxable to the Holders. Each Holder's basis in its Common Stock will be
equal to its basis in its pro rata portion of the Contract less the portion
of such basis allocable to any fractional share of Common Stock for which
cash is received. A Holder will recognize capital gain or loss upon receipt
of cash in lieu of a fractional share of Common Stock distributed upon
termination of the Trust equal to the difference between the amount of cash
received and the basis of such fractional share. The holding period for the
Common Stock will begin on the date it is acquired.
DISTRIBUTION OF CASH AND MARKETABLE SECURITIES OR OTHER PROPERTY
If the Seller elects the Cash Settlement Alternative or, as a result
of an Adjustment Event, cash, Marketable Securities or a combination
thereof is delivered pursuant to the Contract, a Holder will recognize
capital gain or loss upon receipt equal to the difference between the
amount of cash received and its basis in its pro rata portion of the
Contract allocable to any Common Stock for which such cash was received.
Any gain or loss will be capital gain or loss and, if the Holder has held
the TIMES for more than one year, such gain or loss will be long-term
capital gain or loss. Recent legislation reduces the maximum tax rate
applicable to the sale or exchange of a capital asset held for more than
eighteen months. A Holder's basis in any Marketable Securities received
will be equal to its basis in its pro rata portion of the Contract less the
portion of such basis allocable to any Common Stock for which cash was
received. See "Investment Objective and Policies--The Contract."
SALE OF TIMES
Upon a sale of all or some of a Holder's TIMES, a Holder will be
treated as having sold its pro rata portions of the U.S. Treasury
securities and the Contract underlying the TIMES. The selling Holder will
recognize gain or loss equal to the difference between the amount realized
and the Holder's aggregate tax bases in its pro rata portions of the U.S.
Treasury securities and the Contract. Any gain or loss will be long-term
capital gain or loss if the Holder has held the TIMES for more than one
year. Recent legislation reduces the maximum tax rate applicable to the
sale or exchange of a capital asset held for more than eighteen months.
ALTERNATIVE CHARACTERIZATIONS
Skadden, Arps, Slate, Meagher & Flom LLP believes the Contract should
be treated for federal income tax purposes as a prepaid forward contract
for the purchase of a variable number of shares of Common Stock. The
Internal Revenue Service could conceivably take the view that the Contract
should be treated as a loan to the Seller in exchange for a contingent debt
obligation of the Seller. If the Internal Revenue Service were to prevail
in making such an assertion, a Holder would be required to include original
issue discount in income over the life of the TIMES at a market rate of
interest for the Seller, taking account of all the relevant facts and
circumstances. In addition, a Holder might be required to treat any gain
realized on the sale, exchange, or redemption of the TIMES as ordinary
income to the extent that such gain is allocable to the Contract. Any loss
realized on such sale, exchange or redemption that is allocable to the
Contract would be treated as an ordinary loss to the extent of the Holder's
original issue discount inclusions with respect to the Contract, and as
capital loss to the extent in excess of such inclusions. The Internal
Revenue Service could also conceivably take the view that a Holder should
simply include in income as interest the amount of cash actually received
each year in respect of the TIMES.
BACKUP WITHHOLDING AND INFORMATION REPORTING
The payments of principal and interest (including original issue
discount) on, and the proceeds received from the sale of, TIMES may be
subject to U.S. backup withholding tax at the rate of 31% if the Holder
thereof fails to supply an accurate taxpayer identification number or
otherwise to comply with applicable U.S. information reporting or
certification requirements. Any amounts so withheld will be allowed as a
credit against such Holder's U.S. federal income tax liability and may
entitle such Holder to a refund, provided that the required information is
furnished to the Internal Revenue Service.
After the end of each calendar year, the Trust will furnish to each
record Holder of TIMES an annual statement containing information relating
to the payments on the U.S. Treasury securities received by the Trust. The
Trust will also furnish annual information returns to each record Holder of
the TIMES and to the Internal Revenue Service.
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Trust has agreed to sell to Bear, Stearns & Co. Inc. (the "Underwriter"),
and the Underwriter has agreed to purchase from the Trust the following
aggregate principal amount of TIMES (assuming no exercise of the
Underwriter's over-allotment option).
UNDERWRITER NUMBER OF SHARES
Bear, Stearns & Co. Inc. . . . . . .
Under the terms and conditions of the Underwriting Agreement, the
Underwriter is committed to take and pay for all of the TIMES offered
hereby (other than the TIMES subject to the Underwriter's over-allotment
option, if any are taken).
The Underwriter proposes to offer the TIMES in part directly to the
public at the price to the public set forth on the cover page of this
Prospectus and in part to certain securities dealers at such price less a
concession of $ per TIMES. The Underwriter may allow, and such
dealers may re-allow, a concession not in excess of $ per TIMES to
certain brokers and dealers. After the TIMES are released for sale to the
public, the offering price and other selling terms may from time to time be
varied by the Underwriter.
In light of the fact that the proceeds of the sale of the TIMES will
be used in part by the Trust to purchase the Contract from the Seller, the
Underwriting Agreement provides that the Seller will pay to the Underwriter
as compensation $ per TIMES.
The Trust has granted the Underwriter an option exercisable for 30
calendar days after the date of this Prospectus to purchase up to an
aggregate of TIMES solely to cover over-allotments, if any. If the
Underwriter exercises its over-allotment option, they will receive the
Underwriter compensation referred to above for each TIMES so purchased. In
addition, in connection with any such exercise, the Underwriter has agreed,
subject to certain conditions, to purchase approximately the same
percentage thereof that the number of the TIMES to be purchased by it as
shown in the foregoing table, bears to the TIMES initially
offered.
The Seller has agreed that, during the period beginning from the date
of this Prospectus and continuing to and including the date 90 days after
the date of this Prospectus, the Seller will not offer, sell, contract to
sell or otherwise dispose of any Common Stock or other securities of the
Company which are substantially similar to the Common Stock or which are
convertible or exchangeable into Common Stock or other securities which are
substantially similar to the Common Stock, without the prior written
consent of Bear, Stearns & Co. Inc. as representative of the Underwriters;
provided, however, to the extent that the Seller borrows under a margin
loan (which loan shall not be in excess of $ ) the foregoing
restrictions shall not apply to those shares of Common Stock that are
pledged by the Seller as collateral for such margin loan; provided,
further, that the foregoing restrictions shall not apply to pledges of
Common Stock as collateral pursuant to any margin loans existing on the
date of this Prospectus.
The TIMES will be a new issue of securities with no established
trading market. Application has been made to list the TIMES on the
. The Underwriter has advised the Company that they intend to make a
market in
the TIMES, but they are not obligated to do so and may discontinue market
making at any time without notice. No assurance can be given as to the
liquidity of the trading market for the TIMES.
The Seller has agreed to indemnify the Underwriter against certain
liabilities, including certain liabilities under the Securities Act. The
Underwriter has agreed to pay certain expenses of the Trust.
Until distribution of the TIMES is completed, rules of the Commission
may limit the ability of the Underwriter and any selling group members to
bid for and purchase the TIMES or shares of Common Stock. As an exception
to these rules, the Underwriter is permitted to engage in certain
transactions to stabilize the price of the TIMES or the Common Stock. Such
transactions consist of bids or offers for the purpose of pegging, fixing
or maintaining the price of the TIMES or the Common Stock.
If the Underwriter creates a short position in the TIMES in connection
with the Offering, i.e., if it sells more TIMES than are set forth on the
cover page of this Prospectus, the Underwriter may reduce that short
position by purchasing TIMES in the open market. The Underwriter may also
elect to reduce any short position by exercising all or part of the over-
allotment option described above.
The Underwriter may also impose a penalty bid on certain Underwriters
and selling group members. This means that if the Underwriter purchases
TIMES in the open market to reduce the Underwriter's short position or to
stabilize the price of the TIMES, they may reclaim the amount of the
selling concession to the Underwriter and any selling group members who
sold those TIMES as part of the Offering.
The purchase of a TIMES for the purpose of stabilization or to reduce
a short position could cause the price of the security to be higher than it
might be in the absence of such purchases. The imposition of a penalty
might also have an effect on the price of a security to the extent that it
were to discourage resales of such securities.
Neither the Trust nor any of the Underwriter makes any representation
or prediction as to the direction or magnitude of any effect that the
transactions described above may have on the price of the TIMES or on the
Common Stock. In addition, neither the Trust nor any of the Underwriter
makes any representation that the Underwriter will engage in such
transactions or that such transactions, once commenced, will not be
discontinued without notice.
Certain of the Underwriters render investment banking and other
financial services to the Company and/or the Seller from time to time.
VALIDITY OF TIMES
The validity of the TIMES will be passed upon for the Trust and the
Underwriter by their counsel, Skadden, Arps, Slate, Meagher & Flom LLP, 919
Third Avenue, New York, New York 10022.
EXPERTS
The financial statement included in this Prospectus has been audited
by Deloitte & Touche LLP, independent accountants, as stated in their
opinion appearing herein, and has been so included in reliance upon such
opinion given upon the authority of that firm as experts in accounting and
auditing.
FURTHER INFORMATION
The Trust has filed with the Securities and Exchange Commission,
Washington, D.C. 20549, a Registration Statement under the Securities Act
with respect to the TIMES offered hereby. Further information concerning
the TIMES 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. In addition, the
Registration Statement may be accessed electronically at the Commission's
site on the World Wide Web located at http://www.sec.gov.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Shareholders of Mandatory Common Exchange
Trust II:
We have audited the accompanying statement of assets and liabilities
of Mandatory Common Exchange Trust II (the "Trust") as of .
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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statement of assets and
liabilities is free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
statement of assets and liabilities. An audit also includes assessing the
accounting principles used and significant estimates made by the Trust's
management, as well as evaluating the overall statement of assets and
liabilities presentation. We believe that our audit of the statement of
assets and liabilities provides a reasonable basis for our opinion.
In our opinion, such statement of assets and liabilities referred to
above presents fairly, in all material respects, the financial position of
Mandatory Common Exchange Trust II, as of in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
New York, New York
MANDATORY COMMON EXCHANGE TRUST II
STATEMENT OF ASSETS AND LIABILITIES
ASSETS
Cash. . . . . . . . . . . . . . . . . . . . . . . . .$ 100,000
Total Assets. . . . . . . . . . . . . . . . . . . . .$ 100,000
LIABILITIES
Total Liabilities . . . . . . . . . . . . . . . . . . . $0
Net Assets. . . . . . . . . . . . . . . . . . . . . .$ 100,000
Balance applicable to 2 TIMES issued and outstanding.$ 100,000
Net Asset Value. . . . . . . . . . . . . . . . . . . $ 50,000
NOTE 1. ORGANIZATION
The Trust was established on October 4, 1996 and is registered as a
non-diversified, closed-end management investment company under the
Investment Company Act of 1940.
NOTE 2. ISSUANCE OF TRUST ISSUED MANDATORY EXCHANGED SECURITIES ("TIMES")
The Trust proposes to sell Trust Issued Mandatory Exchanged Securities
("TIMES") to the public pursuant to a Registration Statement on Form N-2
under the Securities Act of 1933, as amended, and the Investment Company
Act of 1940, as amended, as filed on . The Trust intends to use
the proceeds to purchase a portfolio comprised of stripped U.S. Treasury
securities and to pay the purchase price of forward contracts relating to
shares of common stock of . The proceeds of the
Public Offering will be recorded as shareholders' equity upon receipt of
such proceeds by the Trust. All offering costs of the Trust will be paid by
the seller of the forward contracts. Organizational costs have been paid by
Bear, Stearns & Co. Inc.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF ANY OFFER TO BUY ANY TIMES OTHER THAN THE TIMES
TO WHICH IT RELATES OR ANY OFFER TO SELL OR THE SOLICITATION OF ANY OFFER
TO BUY SUCH TIMES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION
IS UNLAWFUL.
TABLE OF CONTENTS
PAGE
Prospectus Summary . . . . . . . . . . . . . . . . . . . . .
The Trust. . . . . . . . . . . . . . . . . . . . . . . . . .
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . .
Investment Objective and Policies. . . . . . . . . . . . . .
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . .
Description of the TIMES . . . . . . . . . . . . . . . . . .
Management and Administration of the Trust . . . . . . . . .
Certain Federal Income Tax Considerations. . . . . . . . . .
Underwriting . . . . . . . . . . . . . . . . . . . . . . . .
Validity of TIMES. . . . . . . . . . . . . . . . . . . . . .
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . .
Further Information. . . . . . . . . . . . . . . . . . . . .
Report of Independent Accountants. . . . . . . . . . . . . .
Statement of Assets and Liabilities. . . . . . . . . . . . .
UNTIL (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE TIMES, 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.
TIMES
TRUST ISSUED MANDATORY
EXCHANGE SECURITIES
(SUBJECT TO EXCHANGE INTO SHARES OF COMMON STOCK OF
PROSPECTUS
BEAR, STEARNS & CO. INC.
* Pursuant to the General Instructions of Form N-2, all information
required to be set forth in Part B: Statement of Additional Information has
been included in Part A: The Prospectus. Information required to be
included in Part C is set forth under the appropriate item, so numbered in
Part C of this Registration Statement.
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
*Part A - Report of Independent Accountants.
Statement of Assets and Liabilities.
Part B - None.
(b) Exhibits:
*2.a.(i) Form of Amended and Restated Trust Agreement
2.a.(ii) Certificate of Trust has been incorporated by reference to
Exhibit 2.a.(ii) of the Registration Statement filed with
the Commission on November 13, 1996.
*2.d Form of Specimen Certificate of Trust Issued Mandatory
Exchange Security
*2.h Form of Underwriting Agreement
*2.j Form of Custodian Agreement
*2.k.(i) Form of Administration Agreement
*2.k.(ii) Form of Paying Agent Agreement
*2.k.(iii) Form of Purchase Agreement
*2.k.(iv) Form of Collateral Agreement
*2.k.(v) Form of Fund Expense Agreement
*2.k.(vi) Form of Fund Indemnity Agreement
*2.l Opinion and Consent of Counsel to the Trust
*2.n.(i) Tax Opinion of Counsel to the Trust (Consent contained in
Exhibit 2.n.(i))
*2.n.(iii) Consent of Independent Public Accountants
*2.p Form of Subscription Agreement
_______________
* To be furnished by Amendment
Item 25. Marketing Arrangements
See the form of Underwriting Agreement to be filed as Exhibit 2.h to
this Registration Statement.
Item 26. Other Expenses of Issuance and Distribution
The following table sets forth the estimated expenses to be incurred
in connection with the offering described in this Registration Statement:
Registration fees . . . . . . . . . . . . . . . $[ . ]
Stock Exchange listing fee . . . . . . . . . . . *
Printing (other than certificates) . . . . . . . *
Engraving and printing certificates . . . . . . *
Fees and expenses of qualification under
state securities laws (excluding fees
of counsel) . . . . . . . . . . . . . . . . . *
Accounting fees and expenses . . . . . . . . . . *
Legal fees and expenses . . . . . . . . . . . . *
NASD fee . . . . . . . . . . . . . . . . . . . . *
Miscellaneous . . . . . . . . . . . . . . . . . *
Total . . . . . . . . . . . . . . . . . . . $
__________
* To be furnished by amendment.
Item 27. Person Controlled by or under Common Control with Registrant
Prior to October 4, 1996 the Trust had no existence. As of the
effective date, the Trust will have entered into a Subscription Agreement
for TIMES with Bear, Stearns & Co. Inc. and an Underwriting Agreement with
respect to TIMES with Bear, Stearns & Co. Inc.
Item 28. Number of Holders of TIMES
Number of
Title of class Record Holders
Trust Issued Mandatory Exchange Securities 0
Item 29. Indemnification
The Underwriting Agreement, to be filed as Exhibit 2.h to this
Registration Statement by amendment, provides for indemnification to the
Underwriter against certain liabilities, including liabilities under the
Securities Act of 1933, as amended (the "Act").
Insofar as indemnification for liabilities arising under the Act, may
be permitted to trustees, officers and controlling persons of the
Registrant, pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment
by the Registrant of expenses incurred or paid by a trustee, officer or
controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such trustee, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Item 30. Business and Other Connections of Investment Adviser
Not Applicable
Item 31. Location of Accounts and Records
The Trust's accounts, books and other documents are currently located
at the offices of the Registrant, c/o Bear, Stearns & Co. Inc., 245 Park
Avenue, New York, New York 10167.
Item 32. Management Services
Not Applicable
Item 33. Undertakings
(a) The Registrant hereby undertakes to suspend offering of its units
until it amends its prospectus if (1) subsequent to the effective date of
its Registration Statement, the net asset value declines more than 10
percent from its net asset value as of the effective date of the
Registration Statement or (2) the net asset value increases to an amount
greater than its net proceeds as stated in the prospectus.
(b) The Registrant hereby undertakes that (i) for the purpose of
determining any liability under the Act, the information omitted from the
form of prospectus filed as part of this registration statement in reliance
upon Rule 430A and contained in a form of prospectus filed by the
Registrant under Rule 497(h) under the Act shall be deemed to be part of
this registration statement as of the time it was declared effective; (ii)
for the purpose of determining any liability under the Act, each post-
effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of the securities at that time shall be deemed to be the
initial bona fide offering thereof.
SIGNATURE
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, and State of New York,
on the 17th day of March, 1998.
MANDATORY COMMON EXCHANGE TRUST II
By: /s/ Wesley M. Jones
_____________________________
Pursuant to the requirements of the Securities Act of 1933,
this registration statement has been signed by the following persons in the
capacities and on the date indicated.
Name Title Date
Wesley M. Jones Trustee March 16, 1998
