<PAGE>
PROSPECTUS
MAY 29, 1998
5,300,000 TRENDS
PEAK TRENDS TRUST
TRUST ENHANCED DIVIDEND SECURITIES
(EXCHANGEABLE FOR SHARES OF COMMON STOCK OF PEAK INTERNATIONAL LIMITED)
Each of the Trust Enhanced Dividend Securities (the "TrENDS") of Peak TrENDS
Trust (the "Trust") represents the right to receive an annual distribution of
$1.418, and will be exchanged for between 0.8696 shares and 1 ordinary share,
$0.01 par value per share (the "Common Stock"), of Peak International Limited
(the "Company") on May 15, 2001 (the "Exchange Date"), subject to a cash
settlement feature. The annual distribution of $1.418 per TrENDS is payable
quarterly on each February 15, May 15, August 15 and November 15, commencing
August 15, 1998. The TrENDS 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
relating to the Common Stock (the "Contract") with Luckygold 18A Limited, a
company incorporated in the British Virgin Islands ("Luckygold" or the
"Seller") and an existing shareholder of the Company. Mr. T.L. Li, the sole
shareholder of Luckygold, will guarantee (the "Guaranty") the delivery of
shares of Common Stock covered by the Contract on the Exchange Date and the
maintenance of collateral pursuant to the Collateral Agreement (as defined
herein). See "Investment Objective and Policies--The Contract--The Guaranty."
The Trust's investment objective is to provide each holder of TrENDS (a
"Holder") with a quarterly distribution of $0.354 per TrENDS and, on the
Exchange Date, a number of shares of Common Stock per TrENDS equal to the
Exchange Rate. The "Exchange Rate" is equal to (i) if the Reference Market
Price (as defined below) on the Exchange Date is less than $18.1125 (the
"Threshold Appreciation Price") but equal to or greater than the Price to
Public as shown below (the "Floor Price"), a number (or fractional number) of
shares of Common Stock per TrENDS which, when multiplied by the Reference
Market Price, is equal to the Floor Price, (ii) if the Reference Market Price
on the Exchange Date is equal to or greater than the Threshold Appreciation
Price, 0.8696 shares of Common Stock per TrENDS and (iii) if the Reference
Market Price on the Exchange Date is less than the Floor Price, 1 share of
Common Stock per TrENDS, subject in each case to adjustment in certain events.
The "Reference Market Price" means the average Closing Price (as defined
herein) per share of Common Stock for the 20 Trading Days (as defined herein)
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 Common Stock determined under the above formula
(the "Cash Settlement Alternative"). If the Seller elects the Cash Settlement
Alternative, holders of TrENDS 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 TrENDS will receive cash in
lieu thereof.
Holders of TrENDS will receive quarterly distributions whereas the Company
does not currently pay dividends on the Common Stock. However, the Company
could commence at any time paying dividends on the Common Stock, to which the
Holders of TrENDS would not be entitled, and there is no assurance that the
yield on the TrENDS 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 TrENDS is less than that
afforded by an investment in the Common Stock because holders of the TrENDS
will realize no equity appreciation unless the Reference Market Price of the
Common Stock on the Exchange Date exceeds the Threshold Appreciation Price.
Moreover, because a Holder will only receive 0.8696 shares of Common Stock per
TrENDS if the Reference Market Price on the Exchange Date exceeds the
Threshold Appreciation Price, Holders will only be entitled to receive upon
exchange 87% of any appreciation of the value of the Common Stock in excess of
the Threshold Appreciation Price. Holders of TrENDS will realize the entire
decline in equity value if the Reference Market Price on the Exchange Date is
less than the Floor Price. 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 TrENDS.
The TrENDS have been approved for listing on the American Stock Exchange
(the "ASE") under the symbol "PTT", subject to official notice of issuance.
Prior to this offering there has been no public market for the TrENDS. The
Common Stock is traded on the Nasdaq National Market under the symbol "PEAKF".
The reported last sale price of the Common Stock on the Nasdaq National Market
on May 28, 1998 was $15 3/4 per share.
SEE "RISK FACTORS" COMMENCING ON PAGE 19 OF THIS PROSPECTUS FOR A DISCUSSION OF
CERTAIN FACTORS RELEVANT TO AN INVESTMENT IN THE TRENDS. THESE TRENDS 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.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
PRICE TO PUBLIC SALES LOAD(1) PROCEEDS TO THE TRUST(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per TrENDS............... $15.75 $0.47 $15.75
Total (3)................ $83,475,000 $2,504,250 $83,475,000
- -------------------------------------------------------------------------------
</TABLE>
(1) The Seller has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). See "Underwriting." In light of the fact
that the proceeds of the sale of the TrENDS will be used in part by the
Trust to purchase the Contract from the Seller, the Underwriting Agreement
provides that the Seller will pay to the Underwriters as compensation
("Underwriters' Compensation") $0.473 per TrENDS. See "Underwriting."
(2) Expenses of the offering, which are payable by the Seller, are estimated
to be approximately $433,000.
(3) The Trust has granted to the Underwriters an option, exercisable within 30
days of the date hereof, to purchase up to 795,000 additional TrENDS at
the Price to Public per TrENDS, solely to cover over-allotments, if any.
If the Underwriters exercise such option, the total Price to Public, Sales
Load and Proceeds to the Trust will be $95,996,250, $2,879,887 and
$95,996,250, respectively. See "Underwriting."
The TrENDS are being offered hereby by the several Underwriters, subject to
prior sale, when, as and if delivered to and accepted by the Underwriters and
subject to various prior conditions, including their right to reject orders in
whole or in part. It is expected that delivery of the TrENDS will be made
through the facilities of The Depository Trust Company on or about June 3,
1998.
DONALDSON, LUFKIN & JENRETTE BANCAMERICA ROBERTSON STEPHENS
SECURITIES CORPORATION
<PAGE>
The Company is not affiliated with the Trust, will not receive any of the
proceeds from the sale of the TrENDS and will have no obligations with respect
to the TrENDS. This Prospectus relates only to the TrENDS offered hereby and
does not relate to the Company or the Common Stock.
The Trust has adopted a fundamental 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 TrENDS 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 United States federal income tax
purposes and each holder of TrENDS 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 of
the purchase, ownership and disposition of the TrENDS, see "Certain United
States Federal Income Tax Considerations."
This Prospectus sets forth concisely the 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.
ENFORCEMENT OF CIVIL LIABILITIES
Luckygold is organized under the laws of the British Virgin Islands and Mr.
T.L. Li is a resident of the Hong Kong Special Administrative Region ("Hong
Kong") and all or a substantial portion of their assets are or may be located
outside the United States. In connection with the offering and the
transactions contemplated in connection with the offering, Luckygold has
appointed CT Corporation System and Mr. T.L. Li has appointed CT Corporation
System to accept service of process within the United States. It may not be
possible for investors, however, to enforce against Luckygold or Mr. T.L. Li
judgments obtained in United States courts predicated upon the civil liability
provisions of the federal securities laws or civil liabilities arising from
the transactions contemplated in the offering. Luckygold has been advised by
its British Virgin Islands counsel, Conyers Dill & Pearman, and Mr. T.L. Li
has been advised by his Hong Kong counsel, Richards Butler, that in the
opinion of such counsel there is doubt as to the enforceability in the British
Virgin Islands and Hong Kong, respectively, in original actions or in actions
for enforcement of judgments of United States courts, of civil liabilities
predicated upon the United States federal securities laws or civil liabilities
arising from the transactions contemplated in the offering.
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 INVESTMENT COMPANY THAT MIGHT
TRADE AT A DISCOUNT MAY BE GREATER FOR INVESTORS WHO WISH TO SELL THEIR
INVESTMENTS SOON AFTER COMPLETION OF AN INITIAL PUBLIC OFFERING.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT, IMPOSE
PENALTY BIDS OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN OR OTHERWISE
AFFECT THE MARKET PRICE OF THE TrENDS OR THE COMMON STOCK AT LEVELS ABOVE
THOSE THAT MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY
BE EFFECTED ON THE AMERICAN STOCK EXCHANGE, THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
This summary of the provisions relating to the TrENDS 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, as amended (the "Investment Company Act").
Consistent with certain provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), and the regulations thereunder applicable to grantor
trusts, the Trustees will not have the power to vary the investments held by
the Trust.
Pursuant to the Contract, the Trust may be deemed an "underwriter" of the
Common Stock as defined in the Securities Act in connection with its purchase
of the Common Stock owned by the Seller, which is deemed an "affiliate" of the
Company for purposes of the Securities Act, and the delivery of the Common
Stock to Holders of TrENDS on the Exchange Date or upon earlier dissolution of
the Trust. In such an event, the Trust may be subject to certain liabilities
under the Securities Act with respect to the Company Prospectus which is
attached hereto and is being delivered to prospective purchasers of the TrENDS
together with this Prospectus for convenience of reference only. The Company
Prospectus does not constitute a part of this Prospectus, nor is it
incorporated by reference herein. See "The Trust" and "Investment Objective and
Policies--The Company."
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 relating to shares of Common Stock.
The Trust's investment objective is to provide the Holders with a quarterly
distribution of $0.354 per TrENDS (which amount equals a pro rata portion of
the fixed quarterly cash 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 TrENDS 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 the Threshhold
Appreciation Price but equal to or greater than the Floor Price, a number (or
fractional number) of shares of Common Stock per TrENDS, which when multiplied
by the Reference Market Price, is equal to the Floor Price, (ii) if the
Reference Market Price is equal to or greater than the Threshhold Appreciation
Price, 0.8696 shares of Common Stock per TrENDS and (iii) if the Reference
Market Price is less than the Floor Price, 1 share of Common Stock per TrENDS,
subject in each case to adjustment in certain events. This provides the Trust
with the potential for a portion of any capital appreciation above the
Threshhold Appreciation Price on the Common Stock, but no protection from
depreciation of the Common Stock and no participation in appreciation through
the Threshhold Appreciation Price. Holders otherwise entitled to receive
fractional shares in respect of their aggregate holdings of TrENDS will receive
cash in lieu thereof. See "Investment Objective and Policies--Trust
Termination."
STRUCTURE
The purchase price under the Contract is equal to $11.91 per share of Common
Stock initially subject thereto and $63,129,806 (5,300,000 shares of Common
Stock) in the aggregate (exclusive of the Underwriters' over-allotment option)
and is payable to the Seller by the Trust at the closing of the offering of the
TrENDS (the "Closing"). The obligations of the Seller under the Contract will
be secured by a pledge of Common Stock or, at the election of the Seller, by
substitute collateral consisting of short-term, direct obligations of the U.S.
Government and will be subject to the Guaranty. See "Investment Objective and
Policies--The Contract--Collateral Arrangements; Acceleration" and "Investment
Objective and Policies--The Contract--The Guaranty."
3
<PAGE>
THE OFFERING
The Trust is offering 5,300,000 TrENDS to the public at a purchase price of
$15.75 per TrENDS (which is equal to the reported last sale price of the Common
Stock on the date of the offering) through the Underwriters. In addition, the
Trust has granted to the Underwriters an option, exercisable within 30 days of
the date hereof, to purchase up to 795,000 additional TrENDS, solely to cover
over-allotments, if any. See "Underwriting."
THE TRENDS
GENERAL
The TrENDS are designed to provide investors with a quarterly distribution at
the annual rate of $1.418 per TrENDS. 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 TrENDS 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 because the Common Stock will not be transferred to the
Trust until the Exchange Date.
There is no assurance that the yield on the TrENDS 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 TrENDS is
less than that afforded by an investment in the Common Stock because Holders
will realize no equity appreciation if, on the Exchange Date, the Reference
Market Price of the Common Stock is below the Threshold Appreciation Price
(which represents an appreciation of 15% of the Floor Price). Moreover, because
a Holder will only receive 0.8696 shares of Common Stock per TrENDS (or an
amount of cash equal to the Reference Market Price times 0.8696), if the
Reference Market Price exceeds the Threshold Appreciation Price, Holders will
only be entitled to receive upon exchange 87% of any appreciation of the value
of the Common Stock in excess of the Threshold Appreciation Price. Holders of
TrENDS will realize the entire decline in equity value if the Reference Market
Price is less than the Floor Price. 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 TrENDS.
DISTRIBUTIONS
Holders are entitled to receive distributions at the rate per TrENDS of
$1.418 per annum or $0.354 per quarter, payable quarterly on each February 15,
May 15, August 15 and November 15 or, if any such date is not a business day,
on the next succeeding business day, to Holders of record as of each February
1, May 1, August 1 and November 1, respectively. The first distribution will be
payable on August 15, 1998 to Holders of record as of August 1, 1998 and will
equal $0.284 per TrENDS. See "Investment Objective and Policies--General."
MANDATORY EXCHANGE
On the Exchange Date, each outstanding TrENDS will be exchanged automatically
for between 0.8696 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 times such number of shares of the Common Stock deliverable
pursuant to the Contract (the "Cash Settlement
4
<PAGE>
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 TrENDS 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 TrENDS," but will have no
voting rights with respect to the Common Stock prior to receipt of shares of
Common Stock by the Holders upon the mandatory exchange of the TrENDS on the
Exchange Date or upon earlier dissolution of the Trust. See "Description of the
TrENDS."
THE COMPANY
Reference is made to the accompanying prospectus of the Company with respect
to the shares of Common Stock which may be received by a Holder of TrENDS on
the Exchange Date or upon earlier dissolution of the Trust. THE COMPANY
PROSPECTUS IS BEING ATTACHED HERETO AND DELIVERED TO PROSPECTIVE PURCHASERS OF
THE TRENDS TOGETHER WITH THIS PROSPECTUS FOR CONVENIENCE OF REFERENCE ONLY. THE
COMPANY PROSPECTUS DOES NOT CONSTITUTE A PART OF THIS PROSPECTUS, NOR IS IT
INCORPORATED BY REFERENCE HEREIN.
The Company is not affiliated with the Trust, will not receive any of the
proceeds from the sale of the TrENDS and will have no obligations with respect
to the TrENDS. This Prospectus relates only to the TrENDS offered hereby and
does not relate to the Company or the Common Stock.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The Trust will be treated as a grantor trust for United States federal income
tax purposes, and accordingly, each Holder will be treated, for United States
federal income tax purposes, as the owner of its pro rata portions of the U.S.
Treasury securities and the Contract. Each Holder will have to include in its
gross income for United States federal income tax purposes its allocable share
of the income received by the Trust and the original issue discount ("OID")
accrued on the U.S. Treasury securities. The U.S. Treasury securities held by
the Trust will be treated for United States federal income tax purposes as
having "OID" that will accrue over the term of the U.S. Treasury securities and
each Holder must recognize its pro rata portion of such discount as income
regardless of its method of accounting. 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 such Holders' investment in the U.S. Treasury
securities and therefore will not be considered current income for United
States federal income tax purposes. A Holder will have taxable gain or loss
upon receipt of cash distributed on the Exchange Date. Each Holder's tax basis
in its Common Stock or Marketable Securities distributed on the Exchange Date
will be equal to its tax basis in its pro rata portion of the Contract less the
portion of such tax basis allocable to any shares of Common Stock for which
cash is received. See "Certain United States Federal Income Tax
Considerations."
5
<PAGE>
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 United States 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 TrENDS. 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 TrENDS and other remaining net assets of
the Trust, 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 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 Trust will continue to hold the Contract despite any
significant decline in the market price of the Common Stock or adverse changes
in the financial condition of the Company. See "Risk Factors--Internal
Management; No Portfolio Management" and "Management and Administration of the
Trust--Trustees."
Holders of TrENDS 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 TrENDS 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 TrENDS is less than
that afforded by an investment in the Common Stock because Holders of TrENDS
will realize no equity appreciation unless the Reference Market Price of the
Common Stock on the Exchange Date exceeds the Threshold Appreciation Price,
(which represents an appreciation of 15% of the Floor Price). Moreover, because
a Holder will only receive 0.8696 shares of Common Stock per TrENDS (or an
amount of cash equal to the Reference Market Price times 0.8696) if the
Reference Market Price on the Exchange Date exceeds the Threshold Appreciation
Price, Holders will only be entitled to receive upon exchange 87% of any
appreciation of the value of the Common Stock in excess of the Threshold
Appreciation Price. Holders of TrENDS will realize the entire decline in equity
value if the Reference Market Price is less than the Floor Price. 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 TrENDS. In addition, because
the Reference Market Price generally is determined on a 20-Trading Day average,
the value of a share of Common Stock distributed on the Exchange Date may be
more or less than the Reference Market Price used to determine the amount
receivable at the Exchange Date.
6
<PAGE>
The Trust is classified as a "non-diversified" investment company under the
Investment Company Act. Consequently, the Trust is not limited by the
Investment Company Act in the proportion of its assets that may be invested in
the securities of a single issuer. Since the only securities held by the Trust
will be the U.S. Treasury securities and the Contract, the Trust may be subject
to greater risk than would be the case for an investment company with
diversified investments. See "Investment Objective and Policies" and "Risk
Factors--Non- Diversified Status."
The trading prices of the TrENDS 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.
A bankruptcy of the Seller or Mr. T.L. Li could adversely affect the timing
of exchange or, as a result, the amount received by the Holders in respect of
the TrENDS. See "Risk Factors--Risk Relating to Bankruptcy of Seller or Mr.
T.L. Li."
HOLDERS OF THE TRENDS 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 OR UPON EARLIER DISSOLUTION
OF THE TRUST. THE SELLER MAY TAKE ACTIONS AS THE CONTROLLING SHAREHOLDER OF THE
COMPANY THAT ARE NOT IN THE BEST INTEREST OF HOLDERS OF THE TRENDS.
LISTING
The TrENDS have been approved for listing on the American Stock Exchange
under the symbol "PTT", subject to official notice of issuance.
FEES AND EXPENSES
In light of the fact that the proceeds of the sale of the TrENDS will be used
in part by the Trust to purchase the Contract from the Seller, the Underwriting
Agreement provides that the Seller will pay Underwriters' Compensation to the
Underwriters of $0.473 per TrENDS. See "Underwriting." Estimated organization
costs of the Trust in the amount of approximately $20,000 have been paid by
Donaldson, Lufkin & Jenrette Securities Corporation and estimated costs of the
Trust in connection with the initial registration and public offering of the
TrENDS in the amount of approximately $433,000 will be paid by the Seller. Each
of the Administrator, the Custodian and the Paying Agent, and each Trustee will
be paid by the Underwriters out of the Underwriters' Compensation at the
closing of the offering of the TrENDS 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 $281,500 in the
aggregate). Any on-going expenses of the Trust in excess of these estimated
amounts and certain indemnification expenses of the Trust will be paid by
Donaldson, Lufkin & Jenrette Securities Corporation and will be reimbursed by
the Seller. See "Management and Administration of the Trust--Estimated
Expenses" and "Management and Administration of the Trust--Indemnification.
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 will not bear any fees or
expenses, investors will not bear any direct expenses. The expenses that an
investor might be considered to be bearing indirectly are (i) the proportion of
the Sales Load payable by the Seller to the Underwriters with respect to such
investor's TrENDS; and (ii) the organizational and offering expenses of the
Trust, an estimated $151,000 of which would
7
<PAGE>
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 $93,834 per year payable by Donaldson, Lufkin &
Jenrette Securities Corporation at the Closing and reimbursed by the Seller.
INVESTOR TRANSACTION EXPENSES
<TABLE>
<S> <C>
Sales Load (as a percentage of Price to Public).................. 3%
Dividend Reinvestment and Cash Purchase Plan Fees................ Not Applicable
</TABLE>
ANNUAL EXPENSES
<TABLE>
<S> <C>
Management Fees............................................................. 0%
Other Expenses (after prepayment)........................................... 0%*
Total Annual Expenses....................................................... 0%*
</TABLE>
* Absent prepayment by the Underwriters out of their underwriting
compensation, the Trust's "total annual expenses" would be equal to
approximately 0.11% 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.
<TABLE>
<CAPTION>
1 3
EXAMPLE YEAR YEARS
<S> <C> <C>
You would bear the following expenses (i.e., the applicable sales
load and allocable portion of ongoing expenses paid by the Under-
writers) on a $1,000 investment, assuming a 5% annual return..... $30 $30
</TABLE>
8
<PAGE>
THE TRUST
The Trust is a newly organized Delaware trust and is registered as a non-
diversified closed-end investment company under the Investment Company Act.
The Trust was formed on March 24, 1998 and operates pursuant to a trust
agreement, as amended and restated on May 28, 1998. The Trust is located at
850 Library Avenue, Newark, Delaware 19715, and its telephone number is (302)
738-6680.
Pursuant to the Contract, the Trust may be deemed an "underwriter" of the
Common Stock as defined in the Securities Act in connection with its purchase
of the Common Stock owned by the Seller, which is deemed an "affiliate" of the
Company for purposes of the Securities Act, and the delivery of the Common
Stock to Holders to TrENDS on the Exchange Date or upon earlier dissolution of
the Trust. In such an event, the Trust may be subject to certain liabilities
under the Securities Act with respect to the Company Prospectus which is
attached hereto and is being delivered to prospective purchasers of the TrENDS
together with this Prospectus for convenience of reference only. The Company
Prospectus does not constitute a part of this Prospectus, nor is it
incorporated by reference herein. See "Investment Objective and Policies--The
Company."
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
TrENDS 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
$0.354 per TrENDS (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 TrENDS equal to the Exchange Rate or, if the Seller elects the Cash
Settlement Alternative, an amount in cash equal to the Reference Market Price
times such number of shares. 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 TrENDS which when multiplied by the Reference Market Price
is equal to the Floor Price, (ii) if the Reference Market Price is equal to or
greater than the Threshold Appreciation Price, 0.8696 shares of Common Stock
per TrENDS and (iii) if the Reference Market Price is less than the Floor
Price, 1 share of Common Stock per TrENDS, 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 TrENDS 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 the Nasdaq National
Market 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
9
<PAGE>
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 75.63% of the
Trust's initial assets. As a consequence, the Trust's investments will be
concentrated in the industry or industries in which the Company does business.
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 TrENDS on the
Exchange Date or upon earlier dissolution of the Trust may be more or less
than the amount paid for the TrENDS offered hereby.
For illustrative purposes only, the following chart shows the number of
shares of Common Stock that a Holder would receive for each TrENDS 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 Floor Price
of $15.75 per TrENDS and the Threshold Appreciation Price of $18.1125, a
Holder would receive in connection with the exchange of TrENDS on the Exchange
Date the following number of shares of Common Stock:
<TABLE>
<CAPTION>
REFERENCE MARKET PRICE NUMBER OF SHARES
OF COMMON STOCK OF COMMON STOCK AMOUNT OF CASH
<S> <C> <C>
$15.5000 1.0000 $15.5000
15.7500 1.0000 15.7500
17.0000 0.9265 15.7500
18.0000 0.8750 15.7500
18.1125 0.8696 15.7500
18.5000 0.8696 16.0870
</TABLE>
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 United States
federal income tax purposes and the amount of original issue discount accruing
on the U.S. Treasury securities, assuming a yield-to-maturity accrual election
with respect to any short-term U.S. Treasury securities (i.e., any U.S.
Treasury security with a maturity date of one year or less from the date of
its issue), with respect to a Holder who acquires its TrENDS at the issue
price from an Underwriter pursuant to the original offering. See "Certain
United States Federal Income Tax Considerations--Recognition of Interest on
the U.S. Treasury Securities."
<TABLE>
<CAPTION>
ANNUAL
ANNUAL GROSS DISTRIBUTIONS ANNUAL INCLUSION
DISTRIBUTIONS FROM ANNUAL RETURN OF ORIGINAL ISSUE
FROM U.S. TREASURIES OF CAPITAL DISCOUNT IN
YEAR U.S. TREASURIES PER TRENDS PER TRENDS INCOME PER TRENDS
<S> <C> <C> <C> <C>
1998........... $4,340,700 $0.8190 $0.8048 $0.0142
1999........... 7,512,750 1.4175 1.3245 0.0930
2000........... 7,512,750 1.4175 1.2592 0.1583
2001........... 2,796,413 0.5276 0.4514 0.0762
</TABLE>
10
<PAGE>
The annual distribution of $1.418 per TrENDS is payable quarterly on each
February 15, May 15, August 15 and November 15, commencing August 15, 1998.
Quarterly distributions on the TrENDS will consist solely of the cash received
from the U.S. Treasury securities. The first distribution will be payable on
August 15, 1998 to Holders of record as of August 1, 1998 and will equal
$0.284 per TrENDS. 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 TrENDS 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 TrENDS is less than
that afforded by an investment in the Common Stock because Holders will
realize no equity appreciation if, on the Exchange Date, the Reference Market
Price of the Common Stock is below the Threshold Appreciation Price (which
represents an appreciation of 15% of the Floor Price). Moreover, because
Holders will only receive 0.8696 shares of Common Stock (or cash in an amount
equal to the Reference Market Price times 0.8696) if the Reference Market
Price exceeds the Threshold Appreciation Price, Holders will only be entitled
to receive upon exchange 87% (the percentage equal to the Floor Price divided
by the Threshold Appreciation Price) of any appreciation of the value of the
Common Stock in excess of the Threshold Appreciation Price. Holders of TrENDS
will realize the entire decline in equity value if the Reference Market Price
is less than the Floor Price. 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 TrENDS.
THE COMPANY
The Company is a leading supplier of precision engineered packaging products
for the storage, transportation and automated handling of semiconductor
devices and other electronic components.
The Company is not affiliated with the Trust, will not receive any of the
proceeds from the sale of the TrENDS and will have no obligations with respect
to the TrENDS. This Prospectus relates only to the TrENDS offered hereby and
does not relate to the Company or the Common Stock.
The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Accordingly, the
Company files reports, proxy and information statements and other information
with the Securities and Exchange Commission (the "Commission"). Copies of such
material can be inspected and copied at the public reference facilities
maintained by the Commission at the address specified under "Further
Information."
Effective October 31, 1997, the Common Stock began to trade on Nasdaq under
the symbol "PEAKF". Prior to October 31, 1997, the Common Stock traded on
Nasdaq under the symbol "PITLF". Public trading of the Common Stock commenced
on June 20, 1997. Prior to that time, there was no public market for the
Common Stock. The following table sets forth the high and low sale prices for
the Common Stock as reported by Nasdaq for the periods indicated:
<TABLE>
<CAPTION>
PRICE RANGE OF
COMMON STOCK
----------------
HIGH LOW
<S> <C> <C>
Year Ending March 31, 1998:
1st Quarter (from June 20, 1997)............................. $12 3/4 $11 7/8
2nd Quarter.................................................. 26 1/8 10 7/8
3rd Quarter.................................................. 31 1/2 15 1/8
4th Quarter.................................................. 25 7/8 18 1/2
Year Ending March 31, 1999:
1st Quarter (through May 28, 1998)........................... $25 5/16 $15 3/4
</TABLE>
11
<PAGE>
On May 28, 1998, the reported last sale price of the Common Stock on Nasdaq
was $15 3/4 per share. As of May 28, 1998, there were seven holders of record
of the Common Stock.
The Company has filed a registration statement on Form F-1 with the
Commission with respect to the shares of Common Stock that may be received by
a Holder of TrENDS on the Exchange Date or upon earlier dissolution of the
Trust. The Company Prospectus constituting a part of such registration
statement includes information relating to the Company and the Common Stock,
including certain risk factors relevant to an investment in the Common Stock.
THE COMPANY PROSPECTUS IS BEING ATTACHED HERETO AND DELIVERED TO PROSPECTIVE
PURCHASERS OF THE TRENDS TOGETHER WITH THIS PROSPECTUS FOR CONVENIENCE OF
REFERENCE ONLY. THE COMPANY PROSPECTUS DOES NOT CONSTITUTE A PART OF THIS
PROSPECTUS, NOR IS IT INCORPORATED BY REFERENCE HEREIN.
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 TrENDS offered hereby (subject to increase in
the event the Underwriters exercise their over-allotment 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. Mr. T.L. Li, the sole shareholder of
Luckygold, will guarantee the delivery of shares of Common Stock or the cash
equivalent of such shares subject to the Contract on the Exchange Date and the
maintenance of collateral pursuant to the Collateral Agreement (as defined
herein). See "--The Contract--The Guaranty."
The purchase price of the Contract was arrived at by arms-length negotiation
between the Trustees of the Trust, none of whom is affiliated with the Seller,
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 TrENDS. 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 (as
defined below) of the Common Stock (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
12
<PAGE>
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 Price to Public of the
shares so offered for subscription or purchase would purchase at the Then-
Reference Market Price. To the extent that, after expiration of such rights or
warrants, the shares offered thereby shall not have been delivered, the
Exchange Rate shall be further adjusted to equal the Exchange Rate that would
have been in effect had the foregoing adjustment been made upon the basis of
delivery of only the number of shares of Common Stock actually delivered. The
"Then-Reference Market Price" of the Common Stock means the average Closing
Price per share of Common Stock for a Calculation Period of five Trading Days
immediately prior to the time such adjustment is calculated (or, in the case
of an adjustment calculated at the opening of business on the business day
following a record date, as described below, immediately prior to the earlier
of the time such adjustment is calculated and the related "ex-date" on which
the shares of Common Stock first trade regular way on their principal market
without the right to receive the relevant dividend, distribution or issuance);
provided, however, 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 (as
defined below), 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 (as defined below) (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 Exchange Act) 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 $25.0 million 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
and the Floor Price, 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
13
<PAGE>
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 TrENDS 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 and (A) if the Reference Market Price is greater than or equal to the
Threshold Appreciation Price, 0.8696 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 TrENDS ("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
14
<PAGE>
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 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 Marketable Security 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 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 or short-term, direct obligations of the U.S. Government pursuant to
a Collateral Agreement and a Securities Account Control Agreement between the
Seller, the Trust and The Bank of New York, as collateral agent and securities
intermediary (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 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 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
15
<PAGE>
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 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 Marketable
Security at the time of each valuation times the number of Marketable
Securities for which such obligations are being substituted. The Collateral
Agent on behalf of the Trust will promptly pay over to the Seller any
dividends, interest, principal or other payments received by the Trust,
directly or indirectly through 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
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 on behalf of the Trust 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 Marketable
Securities, in an amount sufficient to cause the collateral to meet the
requirements under the Collateral Agreement. The Collateral Agent on behalf of
the Trust 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 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 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 Marketable Security, as the case may be) times the difference
between (x) the maximum number of shares of Common Stock (or Marketable
Securities) subject to the Contract at such time and (y) the number of shares
of Common Stock (or 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, 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
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<PAGE>
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 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 TrENDS 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 Trust, the Trust may
also engage third parties to provide additional valuations.
Upon any acceleration, the Collateral Agent will distribute to the Trust,
for distribution pro rata to the Holders, the Aggregate Acceleration Value in
the form of shares of Common Stock then pledged, or cash generated from the
liquidation of U.S. Government obligations then pledged, or a combination
thereof (or, after 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).
THE GUARANTY
Under the Guaranty, Mr. T.L. Li will guarantee the delivery of shares of
Common Stock or the cash equivalent of such shares subject to the Contract on
the Exchange Date. Mr. T.L. Li will also guarantee the maintenance of
collateral pursuant to the Collateral Agreement and the obligations of the
Seller to reimburse Donaldson, Lufkin & Jenrette Securities Corporation for
certain on-going expenses of the Trust and certain expenses described herein
under "Management and Administration of the Trust--Indemnification." Mr. T.L.
Li is not affiliated with the Trust, the Administrator or the Underwriters.
Mr. T.L. Li is not a resident of the United States and all or substantial
portion of his assets may be located outside the United States. Mr. T.L. Li
has been advised by his Hong Kong counsel that there is doubt as to whether
the Guaranty may be enforced against Mr. T.L. Li in Hong Kong. See
"Enforcement of Civil Liabilities."
DESCRIPTION OF SELLER
The Seller is Luckygold 18A Limited ("Luckygold"), a company incorporated in
the British Virgin Islands. Mr. T.L. Li owns all of the outstanding shares of
Luckygold. Luckygold owns 7,888,038 shares of Common Stock
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<PAGE>
of the Company, or 58.6% of the Common Stock outstanding. The Memorandum of
Association of Luckygold prohibits Luckygold from conducting operating
activities and only authorizes it to hold and deal in the Common Stock and
interests in the capital of the Company. Luckygold does not have any
indebtedness. Luckygold is organized under the laws of the British Virgin
Islands and except for the shares of Common Stock pledged to the Trust in
connection with the offering, all or a substantial portion of Luckygold's
other assets are or may be located outside the United States. Luckygold has
been advised by its British Virgin Islands counsel that there is doubt as to
whether the Contract, the Collateral Agreement or other agreements relating to
the offering may be enforced against Luckygold in the British Virgin Islands.
See "Enforceability of Civil Liabilities." Reference is made to the caption
"Principal Shareholders and Selling Shareholder" in the Company Prospectus for
further information about the Seller and Mr. T.L. Li.
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 TrENDS and the payment dates
thereof. The Trust may invest up to 30% of its total assets in such 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 TrENDS; 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 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.
TRUST TERMINATION
The Trust will terminate automatically on or shortly after the Exchange
Date. Alternatively, in the event that the Contract is accelerated, 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."
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<PAGE>
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 TrENDS will be higher
than the dividend yield on the Common Stock over the term of the Trust. In
addition, because the Contract calls for the Seller to deliver less than the
full number of shares of Common Stock subject to the Contract where the
Reference Market Price exceeds the Floor Price (and therefore less than one
full share of Common Stock for each outstanding TrENDS), the TrENDS have more
limited appreciation potential than the Common Stock. Therefore, the TrENDS
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 TrENDS. Holders of TrENDS will realize the
entire decline in equity value if the Reference Market Price is less than the
Floor Price. In addition, because the Reference Market Price generally is
determined based on a 20-Trading Day average, the value of a share of Common
Stock distributed on the Exchange Date may be less than the Reference Market
Price used to determine the amount receivable at the Exchange Date.
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 TrENDS. 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 TrENDS 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).
The Seller is not responsible for the determination or calculation of the
amount receivable by Holders of the TrENDS at the Exchange Date. The Contract
between the Trust and the Seller is a commercial transaction and does not
create any rights in, or for the benefit of, any third party, including any
Holder of the TrENDS. The Seller may take actions as the controlling
shareholder of the Company that are not in the best interest of Holders of the
TrENDS.
TRADING VALUE; LISTING; NEED FOR QUALIFIED INDEPENDENT UNDERWRITER
The Trust is a newly organized closed-end investment company with no
previous operating history and the TrENDS are innovative securities. It is not
possible to predict how the TrENDS will trade in the secondary
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<PAGE>
market. The trading price of the TrENDS 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 TrENDS and the formula for
determining the number of shares of Common Stock to be delivered on the
Exchange Date, the TrENDS 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 Underwriters currently intend, but are not obligated, to make a market
in the TrENDS. 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 TrENDS.
The TrENDS have been approved for listing on the ASE, subject to official
notice of issuance, but there can be no assurance that the TrENDS will not
later be delisted or that trading in the TrENDS on the ASE 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 TrENDS are not listed or traded on any securities exchange or trading
market, or if trading of the TrENDS is suspended, pricing information for the
TrENDS may be more difficult to obtain, and the price and liquidity of the
TrENDS may be adversely affected.
Approximately 75.63% of the net proceeds of this offering will be used on or
shortly after the Closing to pay the purchase price under the Contract to
Luckygold. Luckygold will, in turn, distribute as a dividend the net proceeds
it receives from this offering to its sole shareholder, Mr. T.L. Li.
Approximately $30.7 million of such distribution will be used by Mr. T.L. Li
to partially repay amounts outstanding under a personal loan owed to an
affiliate of Donaldson, Lufkin & Jenrette Securities Corporation. Donaldson,
Lufkin and Jenrette Securities Corporation is a member of the National
Association of Securities Dealers, Inc. (the "NASD") and one of its affiliates
will receive more than 10% of the net proceeds from the offering as a result
of such repayment. Accordingly, under the Conduct Rules of the NASD, the price
at which the TrENDS are distributed to the public must be no higher than that
recommended by a "qualified independent underwriter" meeting certain
standards. BancAmerica Robertson Stephens has agreed to act as the qualified
independent underwriter in connection with the offering.
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 OR MR. T.L. LI
The right of the Trust to (i) realize on the collateral held by the
Collateral Agent to secure the Seller's obligations under the Contract or (ii)
enforce the Guaranty upon the bankruptcy or insolvency of the Seller or
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<PAGE>
Mr. T.L. Li may be significantly impaired by British Virgin Islands, Hong
Kong, and United States bankruptcy or similar laws, as well as other foreign
bankruptcy or similar laws which may apply to Mr. T.L. Li or the Seller.
Mr. T.L. Li is domiciled in Hong Kong and the Seller is incorporated in the
British Virgin Islands and is not engaged in business in the United States.
Consequently, if the Seller were to become insolvent, the Seller would most
likely not be subject to Title 11 of the United States Bankruptcy Code (the
"Bankruptcy Code"). However, it is possible that the Seller could become a
debtor under the Bankruptcy Code.
In the event the Seller were to become a debtor under the Bankruptcy Code or
subject to an ancillary proceeding case, the Trust believes that the Contract
would constitute a "securities contract" for purposes of the Bankruptcy Code,
performance, termination or liquidation of which may not be subject to the
automatic stay provisions of the Bankruptcy Code as well as the provisions
voiding the effect of bankruptcy termination clauses, and should not be stayed
by an order of a United States bankruptcy court. It is, however, possible that
the Contract will be determined not to qualify as a "securities contract" for
this purpose, or not to be covered by the exemption from the automatic stay
provisions and bankruptcy termination clauses granted to a "securities
contract," in which event, if the Seller becomes subject to a case, including
an ancillary case, under the Bankruptcy Code, there could be a delay in
settlement of the Contract, including the risk that the Contract may continue
to its full term, which would adversely affect the time of exchange or, as a
result, the amount received by the Holders in respect of the TrENDS.
Investors should be aware that the bankruptcy or insolvency of the Seller
or, Mr. T.L. Li could give rise to concurrent bankruptcy, insolvency or other
legal proceedings in different countries, including the British Virgin
Islands, Hong Kong or Bermuda. There can be no assurance that any of the
courts involved in the proceedings would recognize the jurisdiction, orders
and judgments of the others, or respect the applicable law followed by any
other court. Under these circumstances, it is difficult to predict whether or
when the Trust would be able to enforce its rights against the collateral held
by the Collateral Agent or enforce the Guaranty following commencement, during
the pendency, or as a result of bankruptcy, insolvency or similar proceedings
with respect to the Seller or Mr. T.L. Li.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The law regarding the treatment of the TrENDS for United States federal
income tax purposes is subject to some uncertainty. Although the Trust and the
Seller will take the position that, for United States federal income tax
purposes, a Holder will be treated as the owner of its pro rata portions of
the stripped U.S. Treasury securities and the Contract, and the Contract
should be treated as a prepaid forward contract, there are other conceivable
alternative characterizations of the TrENDS which could require Holders to
include more interest in income than would be includable in income under the
analysis set forth herein under "Certain United States Federal Income Tax
Considerations." Accordingly, prospective investors should consult their tax
advisors with respect to the tax consequences to them of the purchase,
ownership and disposition of the TrENDS in light of their particular
circumstances and the tax risks associated with possible alternative
characterizations of the TrENDS. See "Certain United States Federal Income Tax
Considerations."
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<PAGE>
DESCRIPTION OF THE TRENDS
Each TrENDS represents an equal proportional interest in the Trust, and a
total of 5,300,000 TrENDS will be issued (or 6,095,000 TrENDS if the
Underwriters' over-allotment 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 TrENDS have no preemptive, redemption or
conversion rights. The TrENDS are fully paid and nonassessable by the Trust.
The only securities that the Trust is authorized to issue are the TrENDS
offered hereby and those sold to the initial Holders referred to below.
Holders are entitled to a full vote for each TrENDS 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 Donaldson, Lufkin & Jenrette Securities Corporation as the initial Holder
of TrENDS of the Trust. The Trust intends to hold annual meetings as required
by the rules of the ASE. 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 TrENDS, 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
TrENDS or to vote on other matters upon the written request of the Holders of
record of 51% of the TrENDS (unless substantially the same matter was voted on
during the preceding 12 months). The Trust will also assist Holders in
communications with other Holders as required by the Investment Company Act.
BOOK-ENTRY ONLY ISSUANCE
The Depository Trust Company ("DTC") will act as securities depository for
the TrENDS. The information in this section concerning DTC and DTC's book-
entry system is based upon information obtained from DTC. The TrENDS 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 TrENDS
certificates will be issued, representing in the aggregate the total number of
TrENDS, 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 TrENDS within the DTC system must be made by or through Direct
Participants, which will receive a credit for the TrENDS on DTC's records. The
ownership interest of each actual purchaser of a TrENDS ("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 TrENDS. Transfers of ownership interests in TrENDS
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 TrENDS, upon a resignation of DTC, or upon request delivered to
the Administrator.
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DTC has no knowledge of the actual Beneficial Owners of the TrENDS; DTC's
records reflect only the identity of the Direct Participants to whose accounts
such TrENDS 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 and 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 TrENDS, 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 TrENDS 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 TrENDS will be printed and
delivered.
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<PAGE>
MANAGEMENT AND ADMINISTRATION OF THE TRUST
TRUSTEES
The Trust will be internally managed by three Trustees and will not have any
separate investment adviser. 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 Donaldson, Lufkin &
Jenrette Securities Corporation, 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. The Trustee who is deemed to be an "interested person" of the
Trust, as defined in the Investment Company Act, is indicated by an asterisk.
<TABLE>
<CAPTION>
NAME, AGE AND ADDRESS TITLE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS
<S> <C> <C>
*Donald J. Puglisi, 52 Managing Trustee Professor of Finance, University of Delaware
Department of Finance
University of Delaware
Newark, DE 19176
William R. Latham III, Trustee Professor of Economics, University of Delaware
53
Department of Economics
University of Delaware
Newark, DE 19176
James B. O'Neill, 58 Trustee Professor of Economics, University of Delaware
Center for Economic Ed-
ucation &
Entrepreneurship
University of Delaware
Newark, DE 19176
</TABLE>
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
Underwriters, 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 TrENDS 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).
24
<PAGE>
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 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.
PAYING AGENT
The transfer agent, registrar and Paying Agent for the TrENDS 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. Donaldson, Lufkin &
Jenrette Securities Corporation 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. The Seller has agreed to
reimburse Donaldson, Lufkin & Jenrette Securities Corporation for any such
amounts.
DISTRIBUTIONS
The Trust intends to distribute to Holders on a quarterly basis an amount
equal to $0.354 per TrENDS (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 will be payable
on August 15, 1998 to Holders of record as of August 1, 1998 and will equal
$0.284 per TrENDS. Thereafter, distributions will be made on February 15, May
15, August 15 and November 15 of each year to Holders of record as of each
February 1, May 1, August 1 and November 1, respectively. A portion of each
such distribution will be treated as a return of the Holder's investment,
which will not be subject to tax. See "Investment Objective and Policies--
General," and "Certain United States 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 its pro
rata portion of any remaining net assets of the Trust.
The Trust does not permit the reinvestment of distributions.
25
<PAGE>
ESTIMATED EXPENSES
At the Closing, the Underwriters out of the Underwriters' Compensation 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, TrENDS 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
approximately $20,000 will be paid by Donaldson, Lufkin & Jenrette Securities
Corporation and estimated costs of the Trust in connection with the initial
registration and public offering of the TrENDS in the amount of approximately
$433,000 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 Donaldson, Lufkin & Jenrette Securities Corporation
and will be reimbursed by the Seller.
YEAR 2000 COMPLIANCE
As the year 2000 approaches, an issue has emerged regarding how existing
application software programs and operating systems can accommodate the 2000
date value. Like other investment companies, financial and business
organizations and individuals around the world, the Trust could be adversely
affected if the computer systems used by the Trust's service providers do not
properly process and calculate date-related information and data from and
after January 1, 2000. Failure to adequately address this issue could have
potentially serious repercussions on the Trust's managing and administrative
functions. The Trust is in the process of working with its service providers
to prepare for the year 2000. Based on information currently available, the
Trust does not expect that it will incur significant operating expenses or be
required to incur material costs to be year 2000 compliant. At this time,
however, there can be no assurances that the Trust's efforts will be
sufficient to avoid any adverse impact on the Trust.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain of the principal United States federal
income tax consequences of the purchase, ownership and disposition of the
TrENDS. It deals only with TrENDS held as capital assets by a Holder who
acquires its TrENDS 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 who hold TrENDS 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 Code,
its legislative history, existing and proposed Treasury regulations
thereunder, Internal Revenue Service (the "IRS") rulings and pronouncements
and court decisions, all as currently in effect and all subject to change at
any time, perhaps with retroactive effect.
For purposes of this summary, a "United States Holder" is (i) a person who
is a citizen or resident of the United States, (ii) a corporation or
partnership created or organized in or under the laws of the United States or
any state thereof or the District of Columbia, (iii) an estate the income of
which is subject to United States federal income taxation, regardless of its
source, or (iv) a trust if a court within the United States is able to
exercise primary supervision over the administration of such trust and one or
more United States persons have the authority to control all substantial
decisions of such trust.
26
<PAGE>
Holders should also be aware that there are alternative characterizations of
the assets of the Trust which could result in different United States federal
income tax consequences. See "Alternative Characterizations" below. While
these alternative characterizations should not apply for United States federal
income tax purposes, there can be no assurance in this regard. The following
discussion assumes that no such alternative characterizations will apply.
Prospective investors should consult their tax advisors with respect to the
tax consequences to them of the purchase, ownership and disposition of the
TrENDS in light of their particular circumstances, including the tax
consequences under state, local, foreign and other tax laws and the possible
effects of changes in the United States federal or other tax laws. Holders
should also consult their tax advisors regarding the tax risks associated with
possible alternative characterizations of the TrENDS.
TAX STATUS OF THE TRUST
The Trust will be treated as a grantor trust for United States federal
income tax purposes, and, accordingly, each Holder will be considered the
owner of its pro rata portions of the stripped U.S. Treasury securities and
the Contract held by the Trust. 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. Each Holder will be required to treat its pro rata
portion of each U.S. Treasury security as an interest in a bond that was
originally issued on the date the Holder purchased its TrENDS and that has OID
equal to the excess of such Holder's pro rata portion of the amount payable on
such U.S. Treasury securities and the Holder's tax basis therefor (determined
as described below). Each Holder, regardless of its method of tax accounting,
must accrue OID in income (other than OID on short-term U.S. Treasury
securities as defined below) over the life of the U.S. Treasury securities on
a constant yield to maturity basis. The amount of such excess will constitute
only a portion of the total amounts payable in respect of the Treasury
securities. Consequently, a portion of each scheduled interest payment to
Holders will be treated as a return of such Holders' investment in the
Treasury securities, which will not be subject to tax. A Holder's tax basis in
its pro rata portion of a U.S. Treasury security will be increased by the
amount of OID included in income by the Holder with respect to such U.S.
Treasury security (including any OID accrued on a short-term U.S. Treasury
security, determined as described below).
In the case of any U.S. Treasury security with a maturity of one year or
less from the date of its issue (a "short-term U.S. Treasury security"), in
general only accrual basis taxpayers will be required to include OID in income
as it accrues. Unless such an accrual basis Holder elects to accrue the OID on
a short-term U.S. Treasury security according to the constant-yield-to-
maturity method, such OID will be accrued on a straight-line basis.
TAX BASIS OF THE U.S. TREASURY SECURITIES AND THE CONTRACT
A Holder's initial tax basis in the Contract and the U.S. Treasury
securities, respectively, will equal its pro rata portions of the amounts paid
for them by the Trust. It is currently anticipated that 24.37% and 75.63% of
the proceeds of the offering will be used by the Trust to purchase the U.S.
Treasury securities and as payment 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 combination thereof delivered
to the Trust.
27
<PAGE>
DELIVERY OF THE COMMON STOCK
The delivery of Common Stock pursuant to the Contract will not be taxable to
the Holders. Each Holder's tax basis in its Common Stock will be equal to its
tax 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 in an amount equal to the
difference between the amount of cash received and the tax basis of such
fractional share. A Holder's holding period for the Common Stock will begin on
the date following the date it is acquired by the Trust.
DELIVERY 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 in an amount equal to the difference between the amount of
cash received and its tax basis in its pro rata portion of the Contract
allocable to any Common Stock for which such cash was received. Such gain or
loss will be long-term capital gain or loss if the Holder has held the TrENDS
for more than one year immediately prior to such receipt of cash. Net capital
gain (i.e., generally capital gain in excess of capital loss) recognized by an
individual upon the sale of a capital asset that has been held for more than
18 months will generally be subject to tax at a rate not to exceed 20% and net
capital gain recognized from the sale of an asset held for more than 12 months
but less than 18 months will be subject to tax at a rate not to exceed 28%.
Net capital gain derived from the sale of assets held for 12 months or less
will be subject to tax at ordinary income tax rates. Capital gain derived by
corporations is subject to ordinary income tax rates applicable to
corporations. The deductibility of capital losses is subject to limitations.
A Holder's tax basis in any Marketable Securities received will be equal to
its tax basis in its pro rata portion of the Contract less the portion of such
tax basis allocable to any Common Stock for which cash was received. A
Holder's holding period for the Marketable Securities will begin on the date
following the date such Marketable Securities are acquired by the Trust. See
"Investment Objective and Policies--The Contract."
SALE OF TRENDS
Upon a sale, exchange or other taxable disposition of all or some of a
Holder's TrENDS, a Holder will be treated as having sold its pro rata portions
of the U.S. Treasury securities and the Contract underlying the TrENDS. Such
selling Holder will recognize capital gain or loss in an amount 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. Such
capital gain or loss will be long-term capital gain or loss if the Holder has
held the TrENDS for more than one year immediately prior to such sale,
exchange or disposition. Capital gain and loss will be subject to tax in the
manner described under "--Delivery of Cash and Marketable Securities or Other
Property."
ALTERNATIVE CHARACTERIZATIONS
Although the Trust and the Seller will take the position that the Contract
should be treated for United States federal income tax purposes as a prepaid
forward contract for the purchase of a variable number of shares of Common
Stock, the IRS 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 IRS were to prevail in making such an assertion, a
Holder would be required to include OID in income over the life of the TrENDS
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 TrENDS 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
OID inclusions with respect to the Contract, and as capital loss to the extent
in excess of such inclusions. The IRS 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 TrENDS.
28
<PAGE>
UNDERWRITING
Subject to the terms and conditions contained in the Underwriting Agreement
(the "Underwriting Agreement"), the underwriters named below (the
"Underwriters") have severally agreed to purchase from the Trust and the Trust
has agreed to sell to each of the Underwriters, the number of TrENDS set forth
opposite each Underwriter's name in the table below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS TRENDS
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation................... 4,240,000
BancAmerica Robertson Stephens........................................ 1,060,000
---------
Total................................................................. 5,300,000
</TABLE>
The Underwriting Agreement provides that the obligation of the several
Underwriters to purchase and accept delivery of the TrENDS offered hereby are
subject to approval of certain legal matters by counsel and to certain other
conditions. If any of the TrENDS are purchased by the Underwriters pursuant to
the Underwriting Agreement, the Underwriters are obligated to purchase all
such TrENDS (other than the TrENDS covered by the over-allotment option
described below).
The Underwriting Agreement contains covenants of indemnity among the
Underwriters, the Company, the Trust and the Seller against certain
liabilities, including liabilities under the Securities Act. The Underwriters
have agreed to pay certain expenses of the Trust.
The Underwriters have advised the Company and the Seller that they propose
to offer the TrENDS to the public initially at the price set forth on the
cover page of this Prospectus and to certain dealers (who may include the
Underwriters) at such price, less a concession not to exceed $0.284 per
TrENDS. After the offering, the offering price and other selling terms may be
changed by the Underwriters. The Sales Load of $0.473 per TrENDS is equal to
3% of the initial offering price set forth on the cover page of this
Prospectus. Investors must pay for any TrENDS purchased in the offering on or
before June 3, 1998.
In light of the fact that the proceeds of the sale of the TrENDS will be
used in part by the Trust to purchase the Contract from the Seller, the
Underwriting Agreement provides that the Seller will pay to the Underwriters
as Underwriters' Compensation $0.473 per TrENDS.
The Trust has granted the Underwriters an option, exercisable for 30
calendar days after the date of this Prospectus, to purchase up to an
aggregate of 795,000 TrENDS, solely to cover over-allotments, if any. If the
Underwriters exercise their over-allotment option, they will receive the
Underwriters' Compensation referred to above for each TrENDS so purchased. In
addition, in connection with any such exercise, the Underwriters have
severally agreed, subject to certain conditions, to purchase approximately the
same percentage thereof that the number of the TrENDS to be purchased by each
of them, as shown in the foregoing table, bears to the TrENDS initially
offered.
Subject to certain exceptions, each of the Company, the Seller, Mr. T.L. Li
and the executive officers and directors of the Company has agreed not to
offer, sell, contract to sell, grant any option to purchase or otherwise
dispose of any Common Stock of the Company or any securities convertible into
or exercisable or exchangeable for such Common Stock or in any other manner
transfer all or a portion of the economic consequences associated with the
ownership of any such Common Stock, except to the Underwriters pursuant to the
Underwriting Agreement, for a period of 90 days after the date hereof without
the prior written consent of Donaldson, Lufkin & Jenrette Securities
Corporation.
29
<PAGE>
The TrENDS will be a new issue of securities with no established trading
market. The TrENDS have been approved for listing on the ASE under the symbol
"PTT", subject to official notice of issuance. The Underwriters have advised
the Company that they intend to make a market in the TrENDS, 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 TrENDS.
The TrENDS have not been and must not be offered or sold in the United
Kingdom, by means of any document, except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of their business or otherwise in
circumstances which do not constitute an offering to the public in the United
Kingdom within the meaning of the Public Offers of Securities Regulations
1995. This document may only be issued or passed on to a person who is of a
kind described in Article 11(3) of the Financial Services Act of 1986
(Investment Advertisements) (Exemptions) Order 1996 or is a person to whom
such document may otherwise lawfully be issued or passed on under the
Financial Services Act of 1986.
Other than in the United States, no action has been taken by the Company,
the Seller or the Underwriters that would permit a public offering of the
TrENDS offered hereby in any jurisdiction where action for that purpose is
required. The TrENDS offered hereby may not be offered or sold, directly or
indirectly, nor may this Prospectus or any other offering material or
advertisements in connection with the offer and sale of any such TrENDS be
distributed or published in any jurisdiction, except under circumstances that
will result in compliance with the applicable rules and regulations of such
jurisdiction. Persons into whose possession this Prospectus comes are advised
to inform themselves about and to observe any restrictions relating to the
offering and the distribution of this Prospectus. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any TrENDS
offered hereby in any jurisdiction in which such an offer or solicitation is
unlawful.
Until distribution of the TrENDS is completed, rules of the Commission may
limit the ability of the Underwriters and any selling group members to bid for
and purchase the TrENDS or shares of Common Stock. As an exception to these
rules, the Underwriters are permitted to engage in certain transactions to
stabilize the price of the TrENDS or the Common Stock. Such transactions
consist of bids or offers for the purpose of pegging, fixing or maintaining
the price of the TrENDS or the Common Stock.
If the Underwriters create a short position in the TrENDS in connection with
the offering, i.e., if it sells more TrENDS than are set forth on the cover
page of this Prospectus, the Underwriters may reduce that short position by
purchasing TrENDS in the open market. The Underwriters may also elect to
reduce any short position by exercising all or part of the over-allotment
option described above.
The Underwriters may also impose a penalty bid on certain Underwriters and
selling group members. This means that if the Underwriters purchase TrENDS in
the open market to reduce the Underwriters' short position or to stabilize the
price of the TrENDS, they may reclaim the amount of the selling concession to
the Underwriters and any selling group members who sold those TrENDS as part
of the offering.
The purchase of a TrENDS 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 Underwriters 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 TrENDS or on the
Common Stock. In addition, neither the Trust nor any of the Underwriters makes
any representation that the Underwriters will engage in such transactions or
that such transactions, once commenced, will not be discontinued without
notice.
30
<PAGE>
Approximately 75.63% of the net proceeds of this offering will be used on or
shortly after the Closing to pay the purchase price under the Contract to
Luckygold. Luckygold will, in turn, distribute as a dividend the net proceeds
it receives from this offering to its sole shareholder, Mr. T.L. Li.
Approximately $30.7 million of such distribution will be used by Mr. T.L. Li
to partially repay amounts outstanding under a personal loan owed to an
affiliate of Donaldson, Lufkin & Jenrette Securities Corporation. Donaldson,
Lufkin & Jenrette Securities Corporation is a member of the NASD and one of
its affiliates will receive more than 10% of the net proceeds from the
offering as a result of such repayment. Accordingly, under the Conduct Rules
of the NASD, the price at which the TrENDS are distributed to the public must
be no higher than that recommended by a "qualified independent underwriter"
meeting certain standards. BancAmerica Robertson Stephens has agreed to act as
the qualified independent underwriter in connection with the offering, has
participated in the preparation of this Prospectus and of the Registration
Statement of which this Prospectus forms a part and has exercised the usual
standard of due diligence with respect thereto. The price of the TrENDS is no
higher than that recommended by BancAmerica Robertson Stephens.
In connection with the offering of the TrENDS, Luckygold and Donaldson,
Lufkin & Jenrette Securities Corporation intend to enter into a securities
loan agreement (the "Securities Loan Agreement") on or prior to the closing of
the offering of the TrENDS, which is anticipated to provide that, subject to
certain restrictions, Donaldson, Lufkin & Jenrette Securities Corporation may
from time to time borrow, return and reborrow Shares (the "Borrowed Shares")
from Luckygold. The number of Borrowed Shares borrowed under the Securities
Loan Agreement at any time is not expected to exceed 1,793,038 Borrowed
Shares. In addition, in the course of ordinary trading or market-making
activities, Donaldson, Lufkin & Jenrette Securities Corporation intends to
lend to third parties Borrowed Shares borrowed from Luckygold. It is
anticipated that such third parties may offer for sale such Borrowed Shares
directly to one or more purchasers at negotiated prices, at market prices
prevailing at the time of sale or at prices related to such market prices.
The obligations of Donaldson, Lufkin & Jenrette Securities Corporation under
the Securities Loan Agreement are expected to be secured by cash, U.S.
government securities, irrevocable letters of credit or other collateral, as
the case may be, in an amount not less than 102% of the market value of the
Borrowed Shares. Donaldson, Lufkin & Jenrette Securities Corporation intends
to borrow Borrowed Shares under the Securities Loan Agreement to, among other
things, facilitate its ordinary trading and market-making activity with
respect to the TrENDS. The availability of Borrowed Shares under the
Securities Loan Agreement does not assure market-making activity in the TrENDS
by Donaldson, Lufkin & Jenrette Securities Corporation. Donaldson, Lufkin &
Jenrette Securities Corporation is not under any obligation to engage in
market-making activity with respect to the TrENDS, and any such market-making
activity engaged in by Donaldson, Lufkin & Jenrette Securities Corporation, if
commenced, may be discontinued at any time.
The execution of the Securities Loan Agreement and the performance of the
obligations thereunder are subject to a registration statement with respect to
the Borrowed Shares being declared effective by the Commission and completion
and preparation of satisfactory and definitive documentation, and accordingly
may occur later than currently planned or not at all. Any fees payable by
Donaldson, Lufkin & Jenrette Securities Corporation under the Securities Loan
Agreement will be paid directly to Luckygold.
Certain of the Underwriters render investment banking and other financial
services to the Company and/or the Seller from time to time.
VALIDITY OF TRENDS
The validity of the TrENDS will be passed upon for the Trust by its counsel,
Skadden, Arps, Slate, Meagher & Flom LLP, 919 Third Avenue, New York, New York
10022, and certain legal matters will be passed upon for the Underwriters by
Paul, Weiss, Rifkind, Wharton & Garrison, 13/F, Hong Kong Club Building, 3A
Chater Road, Central, Hong Kong.
31
<PAGE>
EXPERTS
The financial statement included in this Prospectus has been audited by
Deloitte, Touche & Tohmatsu, independent auditors, as stated in their opinion
appearing herein, and has been so included in reliance upon the report of such
firm given upon their authority 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 TrENDS offered hereby. Further information concerning the TrENDS 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.
32
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees of
Peak TrENDS Trust
We have audited the accompanying statement of assets and liabilities of Peak
TrENDS Trust (the "Trust") as of May 21, 1998. This statement is the
responsibility of the Trust's management. Our responsibility is to express an
opinion on this statement based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. 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
management, as well as evaluating the overall presentation of the statement of
assets and liabilities. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the statement of assets and liabilities presents fairly, in
all material respects, the financial position of the Trust as of May 21, 1998
in conformity with accounting principles generally accepted in the United
States of America.
DELOITTE TOUCHE TOHMATSU
Hong Kong, May 21, 1998
33
<PAGE>
PEAK TRENDS TRUST
STATEMENT OF ASSETS AND LIABILITIES
MAY 21, 1998
<TABLE>
<S> <C>
ASSETS
Cash...................................................................... $100
----
Total Assets.............................................................. $100
====
LIABILITIES
Total Liabilities......................................................... $ 0
----
Net Assets................................................................ $100
----
Balance applicable to 1 TrENDS issued and outstanding..................... $100
====
Net Asset Value per TrENDS................................................ $100
====
</TABLE>
NOTE 1. ORGANIZATION
The Trust was established on March 24, 1998 and is registered as a non-
diversified, closed-end management investment company under the Investment
Company Act of 1940.
NOTE 2. ISSUANCE OF TRUST ENHANCED DIVIDEND SECURITIES ("TRENDS")
The Trust proposes to sell Trust Enhanced Dividend Securities ("TrENDS") 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 initially filed on April 7, 1998. 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 Peak International Limited, a company incorporated
in Bermuda. All offering costs of the Trust will be paid by the seller of the
forward contract. Organizational costs will be paid by Donaldson, Lufkin &
Jenrette Securities Corporation or an affiliate thereof.
The Trust issued one TrENDS on May 21, 1998 to Donaldson, Lufkin & Jenrette
Securities Corporation in consideration for the aggregate purchase price of
$100.
The Amended and Restated Declaration of Trust provides that prior to the
offering, the Trust will split the outstanding TrENDS to be effected on the
date that the price and underwriting discount of the TrENDS being offered to
the public is determined, but prior to the sale of the TrENDS to the
Underwriters. The initial TrENDS will be split into the smallest whole number
of TrENDS that would result in the per TrENDS amount recorded as shareholder's
equity after effecting the split not exceeding the Price to Public per TrENDS.
34
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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 TRENDS OTHER THAN THE TRENDS TO WHICH IT
RELATES OR ANY OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY SUCH
TRENDS IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Enforcement of Civil Liabilities........................................... 2
Prospectus Summary......................................................... 3
The Trust.................................................................. 9
Use of Proceeds............................................................ 9
Investment Objective and Policies.......................................... 9
Risk Factors............................................................... 19
Description of the TrENDS.................................................. 22
Management and Administration of the Trust................................. 24
Certain United States Federal Income Tax Considerations.................... 26
Underwriting............................................................... 29
Validity of TrENDS......................................................... 31
Experts.................................................................... 32
Further Information........................................................ 32
Independent Auditors' Report............................................... 33
Statement of Assets and Liabilities........................................ 34
</TABLE>
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UNTIL JUNE 23, 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE TRENDS, 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.
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5,300,000 TRENDS
PEAK TRENDS TRUST
TRUST ENHANCED DIVIDEND SECURITIES
(EXCHANGEABLE FOR SHARES
OF COMMON STOCK OF
PEAK INTERNATIONAL LIMITED)
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PROSPECTUS
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DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
BANCAMERICA ROBERTSON STEPHENS
May 29, 1998
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