As filed with the Securities and Exchange Commission on September 18, 1998
Securities Act Registration No. 33-
Investment Company Act File No. 811-
===========================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM N-2
|X| REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
( ) Pre-Effective Amendment No.
( ) Post-Effective Amendment No.
and
|X| REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
( ) Amendment No.__
THE 1998-1 TEES TRUST
(Exact name of Registrant as specified in charter)
c/o Puglisi & Associates
850 Library Avenue, Suite 204
Newark, Delaware 19715
(Address of principal executive offices)
(302) 738-6680
(Registrant's Telephone Number, including Area Code)
Donald J. Puglisi
Puglisi & Associates
850 Library Avenue, Suite 204
Newark, Delaware 19715
(Name and address of Agent for Service)
with a copy to:
John W. Osborn, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
--------------------------------------
Approximate Date of Proposed Public Offering: As soon as practicable after
the effective date of the Registration Statement. If any securities on this
form are to be offered on a delayed or continuous basis in reliance on Rule
415 under the Securities Act of 1933, other than securities offered in
connection with a dividend reinvestment plan, check the following
box . . . . . . . . . . . . ( )
( ) This form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act and the Securities Act
registration statement number of the earlier effective registration
statement for the same offering is 33-__________.
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<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
========================================================================================
Proposed
Maximum Proposed Maximum
Amount Offering Aggregate Amount of
Title of Securities Being Price Per Offering Registration
Being Registered Registered Share(1) Price Fee
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Equity Enhanced 400,000 $25.00 $10,000,000 $2,950
Securities, no par value
========================================================================================
(1) Estimated solely for purposes of calculating the registration fee
pursuant to Rule 457(c).
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that the
Registration Statement shall thereafter become effective in accordance with
Section 8 (a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such dates as the Commission, acting
pursuant to said Section 8(a), may determine.
THE 1998-1 TEES TRUST
CROSS REFERENCE SHEET
(Pursuant to Rule 404(c) under the Securities Act of 1933)
Parts A & B of Prospectus*
Item 1.Outside Front Cover.................. Front Cover Page
Item 2.Inside Front and Outside Back Cover
Page................................. Front Cover Page; Inside
Front Cover Page;
Outside Back Cover Page
Item 3.Fee Table and Synopsis............... Prospectus Summary; Fee Table
Item 4.Financial Highlights................. Not Applicable
Item 5.Plan of Distribution................. Front Cover Page; Prospectus
Summary; Underwriting
Item 6.Selling Shareholders................. Not Applicable
Item 7.Use of Proceeds...................... Use of Proceeds; Investment
Objective and Policies
Item 8.General Description of the Registrant. Front Cover Page; Prospectus
Summary; The Trust; Investment
Objective and Policies;
Risk Factors
Item 9.Management........................... Management and Administration
of the Trust
Item 10.Capital Stock, Long-Term Debt,
and Other Securities................. Description of the Securities
Item 11.Defaults and Arrears on Senior
Securities........................... Not Applicable
Item 12.Legal Proceedings.................... Not Applicable
Item 13.Table of Contents of the Statement
of Additional Information............ Not Applicable
Item 14.Cover Page........................... Not Applicable
Item 15.Table of Contents.................... Not Applicable
Item 16.General Information and History...... The Trust
Item 17.Investment Objective
and Policies......................... Investment Objective and
Policies
Item 18.Management........................... Management and Administration
of the Trust
Item 19.Control Persons and Principal
Holders of Securities................ Management and Administration
of the Trust
Item 20.Investment Advisory
and Other Services.................. Management and Administration
of the Trust
Item 21.Brokerage Allocation and
Other Practices..................... Investment Objective and
Policies
Item 22.Tax Status........................... Certain Federal Income Tax
Considerations
Item 23.Financial Statements................. Statement of Assets and
Liabilities
* Pursuant to the General Instructions of Form N-2, all information
required to be set forth in Part B: Statement of Additional Information has
been included in Part A: The Prospectus. Information required to be
included in Part C is set forth under the appropriate item, so numbered in
Part C of this Registration Statement.
[FLAG]
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such State.
PROSPECTUS SUBJECT TO COMPLETION, DATED SEPTEMBER 18, 1998
TEES(SM)
THE 1998-1 TEES TRUST
(EXCHANGEABLE FOR SHARES OF COMMON STOCK OF )
---------------
Each of the Trust Equity Enhanced Securities(sm) (the "TEES")
of the 1998-1 TEES Trust (the "Trust") offered hereby represents a
proportionate share of beneficial ownership interest in the assets of the
Trust, which entitles the holder to receive a cash distribution at the rate
of % of $25 (the "Stated Amount") per annum and will be exchanged upon
conclusion of the term of the Trust on , 2000 (the "Exchange
Date") for a number of shares of common stock, par value $ per share
(the "Company Common Stock"), of (the "Company") determined as
provided herein. The cash distribution on the TEES is payable quarterly on
each February 15, May 15, August 15 and November 15, commencing , 1998.
The Trust is a newly created Delaware business trust
established to purchase and hold (i) a forward purchase contract (the
"Contract") with an existing stockholder of the Company (the "Contracting
Party") relating to shares of Company Common Stock and (ii) a series of
zero-coupon U.S. Government securities ("U.S. Treasury Securities")
maturing on a quarterly basis through the Exchange Date. The portion of the
Contract corresponding to one TEES will represent the equivalent of an
investment by the Holder in the Company Common Stock on the Closing Date of
$25, with the number of shares being determined by reference to the Share
Acquisition Price; except that (i) the Holder will have no right to receive
any dividends on such shares prior to the Exchange Date, and (ii) the
actual number of such shares to be delivered by the Contracting Party to
the Holder on the Exchange Date will be limited to the Exchange Amount,
which as described below may be a lower number than the number of such
shares which could have been purchased for $25 on the Closing Date as
described above. The Trust's investment objective is (i) to distribute cash
to Holders on a quarterly basis at the rate of % of the Stated Amount per
annum and (ii) on the Exchange Date, to exchange each TEES for a number of
shares of the Company Common Stock (the "Exchange Amount") determined in
accordance with the following formula (the "Exchange Amount Formula"),
subject to certain adjustments: (a) if the Exchange Value is greater than
or equal to the Maximum Appreciation Value, a number of shares of the
Company Common Stock per TEES equal to the Maximum Appreciation Value
divided by the Exchange Price and (b) if the Exchange Value is less than
the Maximum Appreciation Value, the Exchange Amount will equal the Initial
Share Ratio. The "Exchange Value" per TEES will equal the product of the
Initial Share Ratio multiplied by the Exchange Price. The "Maximum
Appreciation Value" for each TEES will equal the product of $ , (the "Cap
Price") multiplied by the Initial Share Ratio. The "Exchange Price" means
the average Closing Price per share of the Company Common Stock for the 20
Trading Days immediately prior to, but not including, the fourth Trading
Day preceding the Exchange Date. The "Initial Share Ratio" will be
calculated by dividing the Stated Amount by the Share Acquisition Price,
subject to certain adjustments and will initially be . Holders of the
TEES (the "Holders") otherwise entitled to receive fractional shares of Common
Stock in respect of their aggregate holdings of TEES will receive cash in
lieu thereof. AS DESCRIBED HEREIN, THE EXCHANGE PRICE WILL REPRESENT A
DETERMINATION OF THE VALUE OF A SHARE OF COMPANY COMMON STOCK DURING THE
PERIOD IMMEDIATELY PRIOR TO THE EXCHANGE DATE. ACCORDINGLY, THERE CAN BE NO
ASSURANCE THAT THE AMOUNT RECEIVABLE BY HOLDERS OF THE TEES ON THE EXCHANGE
DATE WILL BE EQUAL TO OR GREATER THAN THE STATED AMOUNT. IF THE EXCHANGE
PRICE OF THE COMPANY COMMON STOCK IS LESS THAN THE SHARE ACQUISITION PRICE,
SUCH AMOUNT RECEIVABLE ON THE EXCHANGE DATE WILL BE LESS THAN THE STATED
AMOUNT, IN WHICH CASE AN INVESTMENT IN TEES WILL RESULT IN AN ECONOMIC LOSS
AS OF THE EXCHANGE DATE. See "Investment Objectives and Policies --
General" and "The Contract."
SEE "RISK FACTORS," BEGINNING ON PAGE 22 OF THIS PROSPECTUS, FOR
CERTAIN CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE TEES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
=============================================================================
PRICE TO SALES PROCEEDS TO
PUBLIC LOAD (1)(2)(3) TRUST (4)
- -----------------------------------------------------------------------------
Per TEES................ $25.00 $ $
- -----------------------------------------------------------------------------
Total................... $10,000,000 $ $
=============================================================================
(1) The Trust has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of
1933, as amended. See "Underwriting."
(2) The Sponsor has agreed to advance certain expenses in connection with
the offering as described under "Management Arrangements -- Estimated
Expenses" and "Underwriting" and will be reimbursed by the Trust from
the proceeds of the Offering.
(3) Including a structuring fee of $ to be paid to the Sponsor
(4) Expenses relating to the Offering and the administration of the Trust,
to be paid by the Trust, are estimated to be approximately $ , of
which some amounts will be advanced by the Sponsor and reimbursed by
the Trust with the proceeds of the Offering.
The TEES are offered by the several Underwriters, subject to
prior sale, when, as and if issued to and accepted by them, and subject to
approval of certain legal matters by counsel for the Underwriters and
certain other conditions. The Underwriters reserve the right to withdraw,
cancel or modify such offer and to reject orders in whole or in part. It is
expected that delivery of the TEES will be made through the facilities of
The Depository Trust Company on or about October , 1998.
-----------------------------
SUTRO & CO. INCORPORATED
-----------------------------
The date of this Prospectus is October , 1998.
- -------------
(sm)Service mark of Sutro & Co. Incorporated
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY ENGAGE
IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF
THE TEES OR THE COMPANY COMMON STOCK. SUCH TRANSACTIONS MAY INCLUDE
STABILIZING AND THE PURCHASE OF TEES TO COVER SYNDICATE SHORT POSITIONS.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING".
(continued from cover page)
Pursuant to the terms of the Contract, the Contracting Party is
obligated to deliver to the Trust on the Exchange Date a number of shares
of Company Common Stock equal to the number required by the Trust in order
to exchange all of the TEES on the Business Day immediately preceded by the
Exchange Date in accordance with the Exchange Rate Formula. See "Investment
Objective and Policies -- The Contract."
In the event of certain consolidations or mergers of the
Company or any successor thereto into another entity, or the liquidation of
the Company or any such successor, or certain related events, or upon the
occurrence of certain defaults by the Contracting Party under the Contract
or the collateral arrangements described herein, the Contracting Party's
obligation under the Contract would be accelerated, the net assets of the
Trust would be distributed pro rata to the Holders and the term of the
Trust would expire. See "Investment Objective and Policies -- The
Contract-Reorganization Events Causing a Termination of the Trust" and
"Collateral Arrangements; Acceleration."
Application will be made to list the TEES on the American Stock
Exchange ("AMEX"), subject to official notice of issuance under the symbol
" ". Prior to the Offering there has been no public market for the TEES.
The Trust will be a registered closed-end investment company, and shares of
closed-end investment companies have in the past traded at a discount from
their net asset values and initial public offering prices. The risks
associated with this characteristic of closed-end investment companies may
be greater for investors expecting to sell shares of a closed-end
investment company soon after the completion of an initial public offering.
The TEES are designed to provide investors with a current cash
distribution (the Company Common Stock does not currently pay a cash
dividend). However, Holders will not be entitled to any cash dividends that
may be declared on the Company Common Stock and there can be no assurance
that the distribution yield on the TEES will be higher than the dividend
yield on the Company Common Stock over the term of the Trust. The TEES are
also designed to provide the opportunity for investors to share in the
appreciation, if any, of the value of the Company Common Stock above $
(the "Share Acquisition Price"), which amount is equal to the last reported
sale price of the Company Common Stock on the of , 1998.
However, the opportunity for equity appreciation afforded by an investment
in the TEES is less than that afforded by a direct investment in the Company
Common Stock because the value of the Company Common Stock receivable by a
Holder upon exchange on the Exchange Date will not exceed the Maximum
Appreciation Value, which represents an appreciation of % over the Stated
Amount. ALTHOUGH HOLDERS OF TEES WILL REALIZE THE ENTIRE DECLINE IN VALUE IF
THE EXCHANGE PRICE IS LESS THAN THE SHARE ACQUISITION PRICE, SUCH DECLINE
WILL BE OFFSET BY ANY CASH DISTRIBUTIONS RECEIVED ON THE TEES; PROVIDED,
HOWEVER, THAT THE AMOUNT OF SUCH OFFSET WILL BE REDUCED TO THE EXTENT THAT
THE COMPANY PAYS ANY DIVIDENDS ON THE COMPANY COMMON STOCK DURING THE TERM
OF THE TRUST. ALTHOUGH THE COMPANY DOES NOT CURRENTLY PAY ANY DIVIDENDS,
THERE CAN BE NO ASSURANCE THAT THE COMPANY WILL NOT PAY DIVIDENDS ON THE
COMPANY COMMON STOCK IN THE FUTURE.
The TEES may be a suitable investment for 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 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 may not be disposed of (other than by distributions to
the Holders) prior to their respective maturities. As a result, the Trust
will continue to hold the Contract despite any significant decline in the
market price of the Company Common Stock or adverse changes in the
financial condition of the Company. The Trust will not be managed like a
typical closed-end investment company. The Trust will be treated as a
grantor trust for United States federal income tax purposes and each Holder
will be treated as the owner of its pro rata portion of the Contract and
the U.S. Treasury Securities held by the Trust. For a discussion of certain
United States federal income tax considerations for Holders, see "Certain
United States Federal Income Tax Consequences."
This Prospectus sets forth concisely information about the
Trust that a prospective investor ought to know before investing and should
be read and retained for future reference. A listing of the pages on which
definitions of capitalized terms used in this Prospectus are defined is set
forth in the "Index of Terms for Prospectus" herein.
PROSPECTUS SUMMARY
The following summary should be read in conjunction with the
more detailed information appearing elsewhere in this Prospectus.
THE TRUST
The 1998-1 TEES Trust (the "Trust") is a newly created Delaware
business trust that 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"). The term of the Trust will expire
on or shortly after , 2000 (the "Exchange Date"), except that the Trust
may be dissolved prior to such date under certain limited circumstances. The
Trust will be treated as a grantor trust for United States federal income
tax purposes.
THE OFFERING
The Trust is offering (the "Offering") 400,000 TEES, each
representing a proportionate share of beneficial interest in the assets of
the Trust, at an initial public offering price of $25 per TEES.
THE COMPANY
The Company Common Stock is listed on the and, accordingly,
the Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Any information
included herein regarding the Company has been derived from information
filed by the Company with the Securities and Exchange Commission (the
"Commission") and other publicly available information. The Company has not
participated in the preparation of this Prospectus and no due diligence
inquiry of the Company has been made by the Trust, the Sponsor, the
Underwriters, the Contracting Party or any other party in connection with
the Offering.
THE COMPANY IS NOT AFFILIATED WITH ANY OF THE TRUST, THE
SPONSOR, THE UNDERWRITERS, THE CONTRACTING PARTY OR ANY OTHER PARTY IN
CONNECTION WITH THE OFFERING, WILL NOT RECEIVE ANY OF THE PROCEEDS FROM THE
SALE OF THE TEES AND WILL HAVE NO OBLIGATIONS WITH RESPECT TO THE TEES.
THERE CAN BE NO ASSURANCE THAT ALL EVENTS OCCURRING PRIOR TO THE DATE
HEREOF (INCLUDING EVENTS THAT WOULD AFFECT THE ACCURACY OR COMPLETENESS OF
SUCH PUBLICLY AVAILABLE INFORMATION ABOUT THE COMPANY) THAT WOULD AFFECT
THE TRADING PRICE OF THE COMMON STOCK HAVE BEEN PUBLICLY DISCLOSED. BECAUSE
THE ASSETS OF THE TRUST CONSIST, PARTLY, OF THE CONTRACT, SUCH EVENTS, IF
ANY, MAY ALSO AFFECT THE TRADING PRICE OF THE TEES.
The Commission maintains a Web Site at http://www.sec.gov
containing reports, proxy and information statements and other information
regarding registrants, such as the Company and the Trust, that file
electronically with the Commission.
INVESTMENT OBJECTIVE AND POLICIES
The portion of the Contract corresponding to one TEES will
represent the equivalent of an investment by the Holder in the Company
Common Stock on the Closing Date of $25, with the number of shares being
determined by reference to the Share Acquisition Price; except that (i) the
Holder will have no right to receive any dividends on such shares prior to
the Exchange Date, and; (ii) the actual number of such shares to be
delivered by the Contracting Party to the Holder on the Exchange Date will
be limited to the Exchange Amount, which as described below may be a lower
number than the number of such shares which could have been purchased for
$25 on the Closing Date as described above. The Trust's investment
objective is: (i) to distribute cash to Holders on a quarterly basis at the
rate of % of the Stated Amount per annum (see "Distributions" below) (which
quarterly distributions will equal the fixed quarterly distributions from
the proceeds of the maturing U.S. Treasury Securities held by the Trust)
and, (ii) on the Exchange Date, to exchange each TEES for a number of
shares (such number of shares being hereinafter referred to as the
"Exchange Amount") of the Company Common Stock determined in accordance
with the following formula (the "Exchange Amount Formula"), subject to
certain adjustments: (a) if the Exchange Value is greater than or equal to
the Maximum Appreciation Value, a number of shares of the Company Common
Stock per TEES having a value equal to the Maximum Appreciation Value
divided by the Exchange Price and (b) if the Exchange Value is less than
the Maximum Appreciation Value, a number of shares of the Company Common
Stock per TEES equal to the Initial Share Ratio. The "Exchange Value" per
TEES will equal the product of the Initial Share Ratio multiplied by the
Exchange Price. The "Exchange Price" means the average Closing Price per
share of the Company Common Stock for the 20 Trading Days immediately prior
to, but not including, the fourth Trading Day preceding the Exchange Date.
The Maximum Appreciation Value for each TEES will equal the product of the
Cap Price multiplied by the Initial Share Ratio (subject to certain
adjustments), which represents an appreciation of % above the Stated
Amount. The "Initial Share Ratio" (which is calculated by dividing the
Stated Amount by the Share Acquisition Price) is , subject to certain
adjustments. Holders otherwise entitled to receive on the Exchange Date
fractional shares in respect of their aggregate holdings of TEES will
receive cash in lieu thereof. See "Investment Objective and Policies --
General," "The Contract -- Dilution Adjustments," and "-- Fractional Shares
and Units."
Holders of record as of each February 1, May 1, August 1 and
November 1, respectively will receive cash distributions at the rate of %
of the Stated Amount per annum. The first distribution (in respect of the
period from , 1998 until , 1998) will be payable on
, 1998 to Holders of record as of , 1998. See
"Investment Objective and Policies -- Trust Assets."
The number of shares of the Company Common Stock distributable
to Holders on the Exchange Date, as determined pursuant to the Exchange
Amount Formula, will be 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 Company Common Stock. In the event of certain consolidations
or mergers of the Company or any successor thereto into another entity, or
the liquidation of the Company or any such successor, or certain related
events, or upon the occurrence of certain defaults by the Contracting Party
under the Contract or the collateral arrangements described herein, the
Contracting Party's obligation under the Contract would be accelerated, the
net assets of the Trust would be distributed pro rata to Holders and the
term of the Trust would expire. See "Investment Objective and Policies --
The Contract -- Dilution Adjustments," "Collateral Arrangements;
Acceleration," and "-- Reorganization Events Causing a Termination of the
Trust."
TRUST ASSETS
The Trust's assets (the "Trust Assets") will consist of: (i)
the Contract with the Contracting Party relating to shares of the Company
Common Stock, comprising approximately % of the initial assets of the
Trust, and (ii) a series of zero-coupon U.S. Treasury Securities with face
amounts and maturities corresponding to the amounts and payment dates of
the distributions payable with respect to the TEES, comprising
approximately % of the initial assets of the Trust.
Pursuant to the terms of the Contract, the Contracting Party is
obligated to deliver to the Trust on the Business Day immediately preceding
the Exchange Date a number of shares of the Company Common Stock equal to
the number required by the Trust in order to exchange all of the TEES on
the Exchange Date in accordance with the Exchange Amount Formula. See
"Investment Objective and Policies -- The Contract."
The purchase price under the Contract is equal to $ in the
aggregate and is payable to the Contracting Party by the Trust on or about
, 1998. No other consideration is payable by the Trust to the
Contracting Party in connection with its acquisition of the Contract or the
performance of the Contract by the Contracting Party. See "Investment
Objective and Policies -- The Contract."
The obligations of the Contracting Party under the Contract
will be secured by a pledge of the maximum number of shares of the Company
Common Stock deliverable by the Contracting Party pursuant to the Contract
(subject to adjustment in accordance with the adjustment provisions of the
Contract, as described herein) or, at the election of the Contracting
Party, by substitute collateral consisting of short-term, direct
obligations of the U.S. Government; provided, however, that notwithstanding
such substitution, the obligation of the Contracting Party under the
Contract will be to deliver the appropriate number of shares of Company
Common Stock to the Trust. See "Investment Objective and Policies -- The
Contract -- Collateral Arrangement; Acceleration."
RELATIONSHIP TO COMPANY COMMON STOCK
Holders will receive cash distributions at the rate of % of the
Stated Amount per annum. Currently, there is no cash dividend on the
Company Common Stock. However, there can be no assurance that the
distribution yield on the TEES will be higher than the dividend yield on
the Company Common Stock over the term of the Trust. Holders will not be
entitled to receive any future cash dividends on the Company Common Stock
unless and until such time, if any, as the Trust shall have delivered
Company Common Stock upon exchange on the Exchange Date, or upon early
dissolution of the Trust, and unless the applicable record date for
determining stockholders entitled to receive such dividends occurs after
such delivery. See "Risk Factors -- No Stockholder Rights."
The opportunity for equity appreciation afforded by an
investment in the TEES is less than that afforded by a direct investment in
the Company Common Stock because the value of the Company Common Stock
receivable by a Holder upon exchange on the Exchange Date will not exceed
the Maximum Appreciation Value, which represents an appreciation of % over
the Stated Amount. ALTHOUGH HOLDERS WILL REALIZE THE ENTIRE DECLINE IN
VALUE IF THE EXCHANGE PRICE IS LESS THAN THE SHARE ACQUISITION PRICE, SUCH
DECLINE WILL BE OFFSET BY ANY CASH DISTRIBUTIONS RECEIVED ON THE TEES;
PROVIDED, HOWEVER, THAT THE AMOUNT OF SUCH OFFSET WILL BE REDUCED TO THE
EXTENT THAT THE COMPANY PAYS DIVIDENDS ON THE COMPANY COMMON STOCK DURING
THE TERM OF THE TRUST. ALTHOUGH THE COMPANY DOES NOT CURRENTLY PAY ANY
DIVIDENDS, THERE CAN BE NO ASSURANCE THAT THE COMPANY WILL NOT PAY
DIVIDENDS ON THE COMPANY COMMON STOCK IN THE FUTURE. See "Risk Factors
- --Limitations on Opportunity for Equity Appreciation; Potential Losses."
DILUTION
The number of shares of the Company Common Stock that Holders
are entitled to receive upon exchange on the Exchange Date or upon early
dissolution of the Trust will not be adjusted for certain events, such as
offerings of the Company Common Stock by the Company for cash or in
connection with acquisitions. The Company is not restricted in connection
with the TEES from issuing additional shares of the Company Common Stock
during the term of the Trust. In addition, stockholders of the Company
(including the Contracting Party) are not precluded from selling shares of
the Company Common Stock, either pursuant to Rule 144 under the Securities
Act of 1933, as amended (the "Securities Act"), or by causing the Company
to register such shares. None of the Company, the Contracting Party or any
stockholder of the Company has any obligation to consider the interests of
Holders for any reason. Additional issuances or sales may materially and
adversely affect the price of the Company Common Stock and, because of the
relationship of the number of shares of the Company Common Stock to be
received on the Exchange Date to the price of the Company Common Stock,
such other events may materially and adversely affect the trading price of
the TEES. 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
stockholders will not sell any of, the Company Common Stock in the future,
or as to the amount of any such offerings or sales. See "Risk Factors --
Dilution Adjustments."
TERM OF THE TRUST
The Trust will dissolve on or shortly after the Exchange Date,
except if dissolved earlier under certain limited circumstances. On or
shortly after the Exchange Date, (i) the shares of the Company Common Stock
to be exchanged for the TEES and (ii) any other remaining Trust assets, net
of any remaining Trust expenses or liabilities if any, will be distributed
pro rata to Holders. In the event that a Reorganization Event shall have
occurred with respect to the Contracting Party under the Contract or the
collateral arrangements described herein, the Contracting Party's
obligation under the Contract would accelerate, the net assets of the Trust
would be distributed pro rata to the Holders and the term of the Trust
would expire. See "Investment Objective and Policies -- The Contract," "--
Trust Dissolution" and "Risk Factors -- Limited Term."
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The Trust will be classified 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 portion of the U.S. Treasury Securities and the Contract. Each
Holder will be required to include in its gross income for United States
federal income tax purposes its allocable share of the income of the Trust.
The U.S. Treasury Securities held by the Trust will be treated for United
States federal income tax purposes as having original issue discount
("OID") which will accrue over the term of the U.S. Treasury Securities and
each Holder must recognize its pro rata portion of such OID as income
regardless of the method of accounting used by the Holder. It is
anticipated that a portion of each quarterly cash distribution to the
Holders will be treated as a return of the Holders' investment in the U.S.
Treasury Securities, and therefore will not be considered current income to
Holders for United States federal income tax purposes. A Holder generally
should not realize any taxable gain or loss upon the receipt of Company
Common Stock pursuant to the Contract and each Holder's tax basis in its
Company Common Stock distributed on the Exchange Date should equal its tax
basis in its pro rata portion of the Contract. Holders should be aware that
there are alternative characterizations of the assets of the Trust which
could require Holders to include more interest in income than they would
include in income under the example set forth above. See "Certain United
States Federal Income Tax Consequences."
MANAGEMENT ARRANGEMENTS
The Trust will be internally managed and will not have an
investment advisor. The Trust's portfolio will not be actively managed. The
administration of the Trust will be overseen by the Trustees. The
day-to-day administration of the Trust will be carried out by
(or its successor) as trust administrator (the "Administrator").
(or its successor) will also act as custodian for the
Trust's assets (the "Custodian") and as paying agent, transfer agent and
registrar (the "Paying Agent") with respect to the TEES. Except as aforesaid,
and except for role as collateral Agent under the Trust's
Collateral Agreement (see "Investment Objective and Policies - The Contract
Collateral Arrangements; Acceleration", has no
other affiliation with, and is not engaged in any other transaction with,
the Trust. For their services, the Trust will pay each of the
Administrator, the Custodian and the Paying Agent at the closing of the
Offering a one-time, up-front amount in respect of their fees. See
"Management Arrangements" below.
RISK FACTORS
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 may not be disposed of (other than by distribution to
the Holders) prior to their respective maturities. The Trust will continue
to hold the Contract despite any significant decline in the market price of
the Company Common Stock or adverse changes in the financial condition of
the Company.
Although the TEES will provide investors with current cash
distributions (the Company Common Stock does not currently pay cash
distributions), there is no assurance that the distribution yield on the
TEES will be higher than the dividend yield on the Company Common Stock
over the term of the Trust. The opportunity for equity appreciation
afforded by an investment in the TEES is less than that afforded by a
direct investment in the Company Common Stock. The Exchange Value of the
Company Common Stock receivable by a Holder upon exchange on the Exchange
Date will not exceed the Maximum Appreciation Value, which represents an
appreciation of % over the Stated Amount. ALTHOUGH HOLDERS WILL REALIZE
THE ENTIRE DECLINE IN VALUE IF THE EXCHANGE PRICE IS LESS THAN THE SHARE
ACQUISITION PRICE, SUCH DECLINE WILL BE OFFSET BY ANY CASH DISTRIBUTIONS
RECEIVED ON THE TEES ; PROVIDED, HOWEVER, THAT THE AMOUNT OF SUCH OFFSET
WILL BE REDUCED TO THE EXTENT THAT THE COMPANY PAYS DIVIDENDS ON THE
COMPANY COMMON STOCK DURING THE TERM OF THE TRUST. ALTHOUGH THE COMPANY
DOES NOT CURRENTLY PAY ANY DIVIDENDS, THERE CAN BE NO ASSURANCE THAT THE
COMPANY WILL NOT PAY DIVIDENDS ON THE COMPANY COMMON STOCK IN THE FUTURE.
AS DESCRIBED HEREIN, THE EXCHANGE PRICE WILL REPRESENT A DETERMINATION OF
THE VALUE OF A SHARE OF THE COMPANY COMMON STOCK DURING THE PERIOD
IMMEDIATELY PRIOR TO THE EXCHANGE DATE. ACCORDINGLY, THERE CAN BE NO
ASSURANCE THAT THE AMOUNT RECEIVABLE BY HOLDERS OF THE TEES ON THE EXCHANGE
DATE WILL BE EQUAL TO OR GREATER THAN THE STATED AMOUNT. IF THE EXCHANGE
PRICE OF THE COMPANY COMMON STOCK IS LESS THAN THE SHARE ACQUISITION PRICE,
SUCH AMOUNT RECEIVABLE ON THE EXCHANGE DATE WILL BE LESS THAN THE STATED
AMOUNT, IN WHICH CASE AN INVESTMENT IN TEES WILL RESULT IN AN ECONOMIC LOSS
AS OF THE EXCHANGE DATE.
The Trust is classified as a "non-diversified" investment
company under the Investment Company Act. Consequently, the Trust is not
limited by the Investment Company Act in the proportion of its assets that
may be invested in the securities of a single issuer. Since the only
securities held by the Trust will be the Contract and the U.S. Treasury
Securities, the Trust may be subject to greater risk than would be the case
for an investment company with more diversified investments.
The trading prices of the TEES in the secondary market may be
affected by the trading prices of the Company Common Stock in the secondary
market and by economic, financial and other factors and market conditions.
It is impossible to predict whether the price of the Company Common Stock
will rise or fall. Trading prices of the Company Common Stock may be
influenced by the Company's operating results and prospects and by
economic, financial and other factors and market conditions.
Holders will not be entitled to any rights with respect to the
Company 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 Trust shall have delivered
shares of Company Common Stock upon exchange on the Exchange Date or upon
early dissolution of the Trust, and unless the applicable record date, if
any, for exercise of such rights occurs after such delivery.
The bankruptcy of the Contracting Party could adversely affect
the time of exchange or, as a result, the amount received by the Holders.
See "Risk Factors -- Risk Relating to Bankruptcy."
LISTING
Application will be made to list the TEES on the AMEX, subject
to official notice of issuance.
FEE TABLE
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load (as a percentage of offering price)... %(a)
Automatic Dividend Reinvestment Plan Fees................ Not Applicable
Annual Expenses (as a percentage of net assets)
Management Fees(b)....................................... %
Other Expenses(c)........................................ %
------------
Total Annual Expenses(c)................................. %
============
EXAMPLE 1 YEAR 2 YEARS
- ------- ------ -------
An investor would pay the following expenses on a
$1,000 investment, including the maximum sales
load of $ and assuming no annual expenses..... $ $
- -------------
(a) See the cover page of this Prospectus and "Underwriting."
(b) See "Management Arrangements." The Trust will be internally managed;
consequently there will be no separate investment advisory fee paid
by the Trust. will act as the administrator
of the Trust.
(c) The organization costs of the Trust in the amount of $ , fees
payable to the Administrator, the Custodian and the Paying Agent for
their services in the amount of $ and approximately $ in
respect of costs associated with the initial registration and offering
of the TEES will be advanced by the Sponsor, who will be reimbursed
by the Trust. Anticipated ongoing expenses over the term of the Trust,
estimated to be approximately $ , will be paid by the Sponsor.
See "Management Arrangements-- Estimated Expenses."
The foregoing Fee Table is intended to assist investors in
understanding the costs and expenses that a shareholder in the Trust will
bear directly or indirectly. THE EXAMPLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF FUTURE EXPENSES OR ANNUAL RATES OF RETURN, AND ACTUAL
EXPENSES OR ANNUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE ASSUMED
FOR PURPOSES OF THE EXAMPLE.
THE TRUST
The 1998-1 TEES Trust is a newly created Delaware business
trust and will be registered as a closed-end management investment company
under the Investment Company Act. The Trust was created on August 26, 1998
pursuant to a Certificate of Trust of the Trust, dated as of August 26,
1998, as filed in the office of the Secretary of State of the State of
Delaware on August 26, 1998, and the Trust Agreement, dated as of , 1998
(as amended and restated as of , 1998, the "Trust Agreement"). The term of
the Trust will expire on or shortly after , 2000, except that the Trust may
be dissolved prior to such date under certain limited circumstances. The
Trust will be treated as a grantor trust for United States federal income
tax purposes. The Trust's principal office is located at Puglisi &
Associates, 850 Library Avenue, Suite 204, Newark, Delaware 19715, and its
telephone number is (302) 738-6680.
USE OF PROCEEDS
The net proceeds of the Offering will be approximately
after payment of the sales load. At the time of the closing of the
Offering, or shortly thereafter, the net proceeds of the Offering will be
used to pay the purchase price under the Contract to the Contracting Party,
to purchase a fixed portfolio comprised of a series of zero-coupon U.S.
Treasury Securities with face amounts and maturities corresponding to the
amounts and payment dates of the distributions payable with respect to the
TEES and to pay expenses of the Trust as set forth in "Management
Arrangments -- Estimated Expenses".
INVESTMENT OBJECTIVE AND POLICIES
GENERAL
The Trust will purchase and hold (i) the Contract with the
Contracting Party relating to shares of the Company Common Stock and (ii) a
series of zero-coupon U.S. Treasury Securities maturing on a quarterly
basis through the Exchange Date. The portion of the Contract corresponding
to one TEES will represent the equivalent of an investment by the Holder in
the Company Common Stock on the Closing Date of $25, with the number of
shares being determined by reference to the Share Acquisition Price; except
that (i) the Holder will have no right to receive any dividends on such
shares prior to the Exchange Date, and; (ii) the actual number of such
shares to be delivered by the Contracting Party to the Holder on the
Exchange Date will be limited to the Exchange Amount, which as described
below may be a lower number than the number of such shares which could have
been purchased for $25 on the Closing Date as described above. The Trust's
investment objective is to distribute cash to Holders on a quarterly basis
at the rate of % of the Stated Amount per annum (which quarterly
distributions will equal the fixed quarterly distributions from the
proceeds of the maturing U.S. Treasury Securities held by the Trust) and,
on the Exchange Date, to exchange each TEES for a number of shares (such
number of shares being hereinafter referred to as the "Exchange Amount") of
the Company Common Stock determined in accordance with the following
Exchange Amount Formula, subject to certain adjustments: (a) if the
Exchange Value is greater than or equal to the Maximum Appreciation Value,
a number of shares of the Company Common Stock per TEES equal to the
Maximum Appreciation Value divided by the Exchange Price and (b) if the
Exchange Value is less than the Maximum Appreciation Value, a number of
shares of the Company Common Stock per TEES equal to the Initial Share
Ratio. THE EXCHANGE PRICE WILL REPRESENT A DETERMINATION OF THE VALUE OF A
SHARE OF COMPANY COMMON STOCK DURING THE PERIOD IMMEDIATELY PRIOR TO THE
EXCHANGE DATE. ACCORDINGLY, THERE CAN BE NO ASSURANCE THAT THE AMOUNT
RECEIVABLE BY HOLDERS ON THE EXCHANGE DATE WILL BE EQUAL TO OR GREATER THAN
THE STATED AMOUNT OF THE TEES. IF THE EXCHANGE PRICE OF THE COMPANY COMMON
STOCK IS LESS THAN THE SHARE ACQUISITION PRICE, SUCH AMOUNT RECEIVABLE ON
THE EXCHANGE DATE WILL BE LESS THAN THE STATED AMOUNT, IN WHICH CASE AN
INVESTMENT IN TEES WILL RESULT IN AN ECONOMIC LOSS AS OF THE EXCHANGE DATE.
Holders otherwise entitled to receive fractional shares of the Company
Common Stock in respect of their aggregate holdings of TEES will receive
cash in lieu thereof. See "Fractional Shares and Units."
The "Exchange Price" means the average Closing Price per share
of the Company Common Stock for the 20 Trading Days immediately prior to,
but not including, the fourth Trading Day preceding the Exchange Date. The
"Closing Price" of any security on any date of determination means the
closing sale price (or, if no closing price is reported, the last reported
sale price) of such security on the on such date or, if such security is
not listed for trading on the on any such date, as reported in the
composite transactions for the principal United States securities exchange
on which such security is so listed, or, if such security is not so listed
on a United States national or regional securities exchange, as reported by
National Association of Securities Dealers, Inc. Automated Quotation System
("NASDAQ"), or, if such security is not so reported, the last quoted bid
price for such security in the over-the-counter market as reported by the
National Quotation Bureau or similar organization, or, if such bid price is
not available, the market value of such security on such date as determined
by a nationally recognized independent investment banking firm retained for
this purpose by Administrator. In the event that the Exchange Amount
Formula is adjusted as described under "Dilution Adjustments" below, each
of the Closing Prices used in determining the Exchange Price will be
similarly adjusted to derive, for purposes of determining which of clauses
(a) or (b) of the Exchange Amount Formula will apply on the Exchange Date,
an Exchange Price stated on a basis comparable to the Maximum Appreciation
Value. A "Trading Day" is defined as a day on which the security for which
the Closing Price is being determined (a) is not suspended from trading on
any national or regional securities exchange or association or
over-the-counter market at the close of business and (b) has traded at
least once on the national or regional securities exchange or association
or over-the-counter market that is the primary market for the trading of
such security. The term "Business Day" means any day that is not a
Saturday, a Sunday or a day on which the NYSE, AMEX, NASDAQ, or banking
institutions or trust companies in The City of New York are authorized or
obligated by law or executive order to close.
Pursuant to the terms of the Contract, the Contracting Party is
obligated to deliver to the Trust on the Business Day immediately preceding
the Exchange Date an aggregate number of shares of Company Common Stock
equal to the product of the Exchange Amount and the aggregate number of
TEES then outstanding.
The Trust has adopted a fundamental policy as required by the
Trust Agreement to invest at least % of its portfolio in the Contract. The
Contract will comprise approximately % of the Trust's initial assets. The
Trust has also adopted a fundamental policy that the Contract may not be
disposed of during term of the Trust and that the U.S. Treasury Securities
may not be disposed of (other than by distribution to the Holders) prior to
their respective maturities. The foregoing fundamental policies of the
Trust may not be changed without the vote of 100% in interest of the
Holders.
TRUST ASSETS
The Trust's assets (the "Trust Assets") will consist of: (i)
the Contract and (ii) the U.S. Treasury Securities. The Trust may also make
certain temporary investments. See "-- Temporary Investments." For
illustrative purposes only, the following table shows the number of shares
of the Company Common Stock that a Holder would receive for each TEES on
the Exchange Date at various hypothetical Exchange Prices, given the
Maximum Appreciation Value of $ . In addition, the table assumes that
there will be no dilution adjustments to the Exchange Amount Formula as
described below under "The Contract -- Dilution Adjustments." There can be no
assurance that the Exchange Price will be within the range set forth below.
A Holder would receive on the Exchange Date the following number of shares
of the Company Common Stock per TEES:
EXCHANGE PRICE OF NUMBER OF SHARES OF
COMMON STOCK COMMON STOCK
- -------------------------------------- -------------------------------------
$
The following table sets forth information regarding the
distributions to be received by Holders on the maturity of 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 OID 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), to a U.S.
Holder who acquires its TEES at the Stated Amount from an Underwriter
pursuant to the Offering. A U.S. Holder using the cash method of tax
accounting, however, will not be required to accrue OID with respect to any
short-term U.S. Treasury Securities. See "Certain United States Federal
Income Tax Consequences."
ANNUAL GROSS ANNUAL
ANNUAL GROSS DISTRIBUTIONS INCLUSION OF
DISTRIBUTIONS FROM ORIGINAL ISSUE
FROM U.S. U.S. TREASURY ANNUAL RETURN DISCOUNT IN
TREASURY SECURITIES OF CAPITAL INCOME
SECURITIES PER TEES PER TEES PER TEES (1)
---------------- -------------------------------- ----------------
1998....... $ $ $ $
1999.......
2000.......
(1) Assumes a yield-to-maturity accrual election by the Holder, as
described above.
The anticipated annual distribution of $ per TEES is payable
quarterly on each February 15, May 15, August 15 and November 15,
commencing , 1998. Quarterly distributions on the TEES will consist solely
of the cash received from the proceeds of the maturing U.S. Treasury
Securities held by the Trust . Neither the Trust nor any Holder will be
entitled to any future dividends that my be declared on the Company Common
Stock during the life of the Trust. See "Dividends and Distributions."
ENHANCED YIELD; LESS POTENTIAL FOR EQUITY APPRECIATION THAN THE COMPANY
COMMON STOCK; LIMITED DEPRECIATION PROTECTION
The TEES will provide investors with a current cash
distribution on the TEES (the Company Common Stock does not currently pay a
cash dividend). However, there is no assurance that the distribution yield
on the TEES will be higher than the dividend yield on the Company Common
Stock over the term of the Trust. The opportunity for equity appreciation
afforded by an investment in the TEES is less than that afforded by a
direct investment in the Company Common Stock. The value of the Company
Common Stock receivable by a Holder upon exchange on the Exchange Date will
not exceed the Maximum Appreciation Value, which represents an appreciation
of % over the Stated Amount. ALTHOUGH HOLDERS WILL REALIZE THE ENTIRE
DECLINE IN VALUE IF THE EXCHANGE PRICE IS LESS THAN THE SHARE ACQUISITION
PRICE, SUCH DECLINE WILL BE OFFSET BY ANY CASH DISTRIBUTIONS RECEIVED ON
THE TEES ; PROVIDED, HOWEVER, THAT THE AMOUNT OF SUCH OFFSET WILL BE
REDUCED TO THE EXTENT THAT THE COMPANY PAYS DIVIDENDS ON THE COMPANY COMMON
STOCK DURING THE TERM OF THE TRUST. ALTHOUGH THE COMPANY DOES NOT CURRENTLY
PAY ANY DIVIDENDS, THERE CAN BE NO ASSURANCE THAT THE COMPANY WILL NOT PAY
DIVIDENDS ON THE COMPANY COMMON STOCK IN THE FUTURE.
For illustrative purposes only, the following table
demonstrates the comparative rates of return on TEES and the Company Common
Stock for various given Exchange Prices. The hypothetical appreciation
levels, Exchange Prices, Exchange Values and rates of return are for
illustration only. The rate of return represents the cash returns arising
from a Holder's investment in a TEES, adjusted for the time value of money.
This rate of return is equal to a percentage rate that, when applied to
each of the cash returns and the products therefor are summed, generates a
total amount which is equal to the Holder's initial investment. The rates
listed below have been calculated without regard to the imposition of any
federal, state or local income taxes and prospective investors are referred
to "Certain United States Federal Income Tax Consequences" of this
Prospectus for a discussion of certain United States federal income tax
consequences relating to an investment in the TEES. The after-tax
consequences to a Holder will depend on such Holder's individual
circumstances, and may differ appreciably from the pre-tax consequences to
such Holder as shown in the following table, both in absolute and
comparative terms. There can be no assurance that the range of appreciation
levels, Exchange Prices, Exchange Values and rates of return will be
limited by the ranges set forth below or that the Company will not pay any
dividends on the Company Common Stock during the term of the Trust. In
addition, the table assumes that there will be no dilution or adjustments
to the Exchange Amount. The following table is not complete, is general in
nature and is qualified in its entirety by more detailed information
appearing elsewhere in this Prospectus and in documents which are on file
with the Commission.
</TABLE>
<TABLE>
<CAPTION>
% DIFFER-
ENCE IN
RATE
OF RETURN
BETWEEN
INVESTMENT
PRE-TAX IN TEES
APPRECIATIO PRE-TAX RATE OF AND
N RATE OF RETURN FOR INVESTMENT
COMPANY RETURN ON INVEST-MENT IN COMPANY
COMMON TEES IN COMMON
STOCK EXCHANGE EXCHANGE EXCHANGE INVESTMENT COMMON STOCK
PRICE(1) PRICE (2) AMOUNT (3) VALUE (4)(5)(6) STOCK(6)(7) (5)(6)(7)
- ------------ ----------- ----------- ----------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
-30.0% $70.00 0.250 $17.50 -9.7% -16.3% 6.7%
-20.0% $80.00 0.250 $20.00 -4.1% -10.6% 6.4%
-12.3% $87.75 0.250 $21.94 0.0% -6.3% 6.3%
-10.0% $90.00 0.250 $22.50 1.1% -5.1% 6.2%
0.0% $100.00 0.250 $25.00 6.1% 0.0% 6.1%
10.0% $110.00 0.250 $27.50 10.8% 4.9% 5.9%
20.0% $120.00 0.250 $30.00 15.4% 9.5% 5.8%
30.0% $130.00 0.250 $32.50 19.7% 14.0% 5.7%
35.0% $135.00 0.250 $33.75 21.8% 16.2% 5.7%
40.0% $140.00 0.241 $33.75 21.8% 18.3% 3.5%
48.5% $148.50 0.227 $33.75 21.8% 21.9% 0.0%
50.0% $150.00 0.225 $33.75 21.8% 22.5% -0.6%
60.0% $160.00 0.211 $33.75 21.8% 26.5% -4.6%
70.0% $170.00 0.199 $33.75 21.8% 30.4% -8.5%
80.0% $180.00 0.188 $33.75 21.8% 34.2% -12.3%
90.0% $190.00 0.178 $33.75 21.8% 37.8% -16.0%
</TABLE>
- -------------------------
(1) Represents the increase or decrease in the price of the Company
Common Stock over the life of the Trust and thereby represents the
percentage increase or decrease in the Exchange Price with respect to
the Share Acquisition Price.
(2) Assumes a Share Acquisition Price of $100.00 and an Initial Share Ratio
of .250.
(3) Assumes a Cap Price of $135.00 and a Maximum Appreciation Value of
$33.75.
(4) Assumes a 5.50% cash distribution from the U.S. Treasury Securities.
(5) Assumes reinvestment of the cash distribution referred to in (3) above
by Holder at 5.0% pre-tax.
(6) Assumes that the TEES and the Company Common Stock are purchased on
the same date, are held until the maturity date of the TEES, and are
sold at such date.
(7) Assumes no cash dividends on the Company Common Stock during the term
of the Trust.
THE COMPANY
The Company Common Stock is listed on the under the symbol
" ." The Company's fiscal year ends on . The table below sets
forth the high and low sale prices per share of the Company Common Stock on
the for the periods indicated as reported by the National Quotation Bureau.
HIGH LOW
------ ------
1997
First Quarter............................... $ $
Second Quarter..............................
Third Quarter...............................
Fourth Quarter..............................
1998
First Quarter............................... $ $
Second Quarter..............................
Third Quarter...............................
Fourth Quarter..............................
1999
First Quarter............................... $ $
Second Quarter..............................
Third Quarter (through ,1998)...
The last reported sale price of the Company Common Stock on the
of , 1998 was $ per share as reported by the National
Quotation Bureau. According to the Company's Proxy Statement dated as of
, 1998, the Company had approximately stockholders of record.
The Company has not paid any quarterly cash dividends on the
Company Common Stock for the time periods shown above.
The Company is subject to the information requirements of the
Exchange Act. Accordingly, the Company is required to file reports and
other information with 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 "Additional Information." Reports
and other information concerning the Company may also be inspected at the
offices of the .
THE COMPANY IS NOT AFFILIATED WITH THE TRUST, THE UNDERWRITERS,
THE SPONSOR, OR THE CONTRACTING PARTY, AND WILL NOT RECEIVE ANY OF THE
PROCEEDS FROM THE SALE OF THE TEES AND WILL HAVE NO OBLIGATIONS WITH
RESPECT TO THE TEES. THIS PROSPECTUS RELATES ONLY TO THE TEES OFFERED
HEREBY AND DOES NOT RELATE TO THE COMPANY OR THE COMPANY COMMON STOCK.
THE CONTRACT
General. Pursuant to the terms of the Contract, the Contracting
Party is obligated to deliver to the Trust on the Business Day immediately
preceding the Exchange Date an aggregate number of shares of Company Common
Stock equal to the product of the Exchange Amount and the aggregate number
of TEES then outstanding.
Dilution Adjustments. The Exchange Amount Formula is subject to
adjustment if the Company shall: (i) pay a stock dividend or make a
distribution with respect to the Company Common Stock in shares of such
stock; (ii) subdivide or split the outstanding shares of the Company Common
Stock into a greater number of shares; (iii) combine the outstanding shares
of the Company Common Stock into a smaller number of shares; (iv) issue by
reclassification of shares of the Company Common Stock any shares of other
common stock of the Company; (v) issue rights or warrants to all holders of
the Company Common Stock entitling them to subscribe for or purchase shares
of the Company Common Stock at a price per share less than the then current
market price of the Company Common Stock (other than rights to purchase the
Company Common Stock pursuant to a plan for the reinvestment of dividends
or interest); or (vi) pay a dividend or make a distribution to all holders
of the Company Common Stock of evidences of its indebtedness or other
assets (excluding any stock dividends or distributions referred to in
clause (i) above or any dividends other than any Extraordinary Cash
Dividends (as defined below)) or issue to all holders of the Company Common
Stock rights or warrants to subscribe for or purchase any of its securities
(other than those referred to in clause (v) above).
In the case of the events referred to in clauses (i), (ii),
(iii) and (iv) above, the Exchange Amount Formula shall be adjusted so that
the Trust will receive on the Business Day immediately preceding the
Exchange Date the number of shares of the Company Common Stock (or, in the
case of a reclassification referred to in clause (iv) above, the number of
shares of other common stock of the Company issued pursuant thereto) which
the Trust would have owned or been entitled to receive immediately
following any event described above had the Contracting Party's obligation
under the Contract been satisfied by delivery of the Company Common Stock
immediately prior to such event or any record date with respect thereto.
In the case of the event referred to in clause (v) above, the
Exchange Amount Formula shall be adjusted by multiplying the Initial Share
Ratio in effect immediately prior to the date of issuance of the rights or
warrants referred to in clause (v) above by a fraction, the numerator of
which shall be the number of shares of the Company Common Stock outstanding
on the date of issuance of such rights or warrants, immediately prior to
such issuance, plus the number of additional shares of the Company Common
Stock so offered for subscription or purchase pursuant to such rights or
warrants, less the number of additional shares of the Company Common Stock
which the aggregate offering price of the total number of shares of the
Company Common Stock so offered for subscription or purchase pursuant to
such rights or warrants would purchase at the current market price
(determined as the average Closing Price per share of the Company Common
Stock on the 20 Trading Days immediately prior to the date such rights or
warrants are issued, subject to certain adjustments), which shall be
determined by multiplying such total number of shares by the exercise price
of such rights or warrants and dividing the product so obtained by such
current market price, and the denominator of which shall be the number of
shares of the Company Common Stock outstanding on the date of issuance of
such rights or warrants. To the extent that shares of the Company Common
Stock are not delivered after the expiration of such rights or warrants,
the Exchange Amount Formula shall be readjusted to the Exchange Amount
Formula which would then be in effect had such adjustments for the issuance
of such rights or warrants been made upon the basis of delivery of only the
number of shares of the Company Common Stock actually delivered.
In the case of the event referred to in clause (vi) above, the
Exchange Amount Formula shall be adjusted by multiplying the Initial Share
Ratio in effect on the record date referred to below by a fraction, the
numerator of which shall be the market price per share of the Company
Common Stock on the record date for the determination of stockholders
entitled to receive the dividend or distribution or the rights or warrants
referred to in clause (vi) above (such market price being determined as the
average Closing Price per share of the Company Common Stock for the 20
Trading Days immediately prior to such record date, subject to certain
adjustments), and the denominator of which shall be such market price per
share of the Company Common Stock less the fair market value (as determined
by a nationally recognized independent investment banking firm retained for
this purpose by the Administrator, whose determination shall be conclusive)
as of such record date of the portion of the assets or evidences of
indebtedness to be distributed or of such subscription rights or warrants
applicable to one share of the Company Common Stock.
An "Extraordinary Cash Dividend" means, with respect to any
consecutive 12-month period, the amount, if any, by which the aggregate
amount of all cash dividends on the Company Common Stock occurring in such
12-month period (excluding any such dividends occurring in such period for
which a prior adjustment to the Exchange Amount Formula was previously
made) exceeds on a per share basis 10% of the average of the Closing Prices
per share of the Company Common Stock over such 12-month period. All
adjustments to the Exchange Amount Formula will be calculated to the
nearest 1/10,000th of a share of the Company Common Stock (or if there is
not a nearest 1/10,000th of a share to the next lower 1/10,000th of a
share). No adjustment in the Exchange Amount Formula shall be required
unless such adjustment would require an increase or decrease of at least
one percent therein; provided, however, that any adjustments which by
reason of the foregoing are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. If an
adjustment is made to the Exchange Amount Formula as described above, an
adjustment will also be made to the Exchange Price solely to determine
which of clauses (a) or (b) of the Exchange Amount Formula will apply on
the Exchange Date. The required adjustment to the Exchange Price will be
made by multiplying each of the Closing Prices used in determining the
Exchange Price by a fraction, the numerator of which shall be the Initial
Share Ratio immediately after such adjustment described above, and the
denominator of which shall be the Initial Share Ratio immediately before
such adjustment described above. Each such adjustment to the Exchange
Amount Formula shall be made successively.
In the event of a statutory merger effected solely for the
purpose of changing the state of incorporation of the Company, or any
surviving entity or subsequent surviving entity of the Company (a "Company
Successor"), the Exchange Amount Formula shall be adjusted so that the
Trust will receive on the Business Day immediately preceding the Exchange
Date the number of shares of capital stock of the continuing corporation in
such statutory merger which the Trust would have owned or been entitled to
receive immediately following such statutory merger had the Contracting
Party's obligation under the Contract been satisfied by delivery of the
Company Common Stock immediately prior to the effective date for such
statutory merger.
The Administrator is required, within ten Business Days
following the occurrence of an event that requires an adjustment to the
Exchange Amount Formula (or if the Administrator is not aware of such
occurrence, as soon as practicable after becoming so aware), to provide
written notice to the Holders of the occurrence of such event and a
statement in reasonable detail setting forth the adjusted Exchange Amount
Formula and the method by which the adjustment to the Exchange Amount
Formula was determined, provided that, in respect of any adjustment to the
Exchange Price, such notice will only disclose the factor by which each of
the Closing Prices used in determining the Exchange Price is so multiplied
in order to determine the Exchange Amount on the Exchange Date. Until the
Exchange Date, it will not be possible to determine the Exchange Amount.
No adjustments will be made for certain other events, such as
offerings of the Company Common Stock by the Company for cash or in
connection with acquisitions. Likewise, no adjustments will be made for any
sales of the Company Common Stock by any stockholder of the Company
(including the Contracting Party).
Reorganization Events Causing a Dissolution of the Trust. In
the event of (A) any consolidation or merger of the Company or any Company
Successor with or into another entity (other than (x) a consolidation or
merger in which the Company is the continuing corporation and in which the
Company Common Stock outstanding immediately prior to the consolidation or
merger is not exchanged for cash, securities or other property of the
Company or another corporation or (y) a statutory merger effected solely
for the purpose of changing the state of incorporation of the Company or a
Company Successor), (B) any sale, transfer, lease or conveyance to another
entity of the property of the Company or any Company Successor as an
entirety or substantially as an entirety, (C) any statutory exchange of
securities of the Company or any Company Successor with another entity
(other than in connection with a merger or acquisition) or (D) any
liquidation, dissolution or winding up of the Company or any Company
Successor (other than any liquidation, dissolution or winding up
constituting an Event of Default) (any such event described in clause (A),
(B), (C) or (D), a "Reorganization Event"), the Contracting Party's
obligation under the Contract shall be automatically accelerated and the
Contracting Party shall be obligated to deliver to the Trust, on the tenth
Business Day after the effective date for such Reorganization Event (the
"Early Settlement Date"), an amount of cash per TEES equal to: (i) if the
Transaction Value (as defined below) is greater than the Maximum
Appreciation Value, the Maximum Appreciation Value and (ii) if the
Transaction Value is less than or equal to the Maximum Appreciation Value,
the Transaction Value. "Transaction Value" means (i) for any cash received
in any such Reorganization Event, the amount of cash received per share of
the Company Common Stock, (ii) for any property other than cash or
securities received in any such Reorganization Event, an amount equal to
the market value on the date the Reorganization Event is consummated of
such property received per share of the Company Common Stock as determined
by a nationally recognized independent investment banking firm retained for
this purpose by the Administrator and (iii) for any securities received in
any such Reorganization Event, an amount equal to the average Closing Price
per unit of such securities on the 20 Trading Days immediately prior to,
but not including, the second Trading Day preceding the Early Settlement
Date, multiplied by the number of such securities (subject to adjustment on
a basis consistent with the adjustment provisions described above) received
for each share of the Company Common Stock; provided, however, if one or
more adjustments to the Exchange Amount Formula shall have become effective
prior to the effective date for such Reorganization Event, then the
Transaction Value determined in accordance with the foregoing shall be
adjusted by multiplying such Transaction Value by the Initial Share Ratio
immediately before the effective date for such Reorganization Event.
Notwithstanding the foregoing, if any Marketable Securities (as defined
below) are received by holders of the Company Common Stock in such
Reorganization Event, then in lieu of delivering cash as provided above,
the Contracting Party may at its option deliver a proportional amount of
such Marketable Securities. If the Contracting Party elects to deliver
Marketable Securities, Holders will be responsible for the payment of any
and all brokerage and other transaction costs upon the sale of such
securities. "Marketable Securities" means any securities listed on a U.S.
national securities exchange or reported by NASDAQ.
IF A REORGANIZATION EVENT OCCURS, THE NET ASSETS OF THE TRUST
WILL BE DISTRIBUTED PRO RATA TO THE HOLDERS AND THE TERM OF THE TRUST WILL
EXPIRE.
Collateral Arrangements; Acceleration The Contracting Party's
obligation under the Contract will be secured by a security interest in the
maximum number of shares of the Company 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 , as collateral agent and securities
intermediary (the "Collateral Agent"). Unless the Contracting Party is in
default in its obligations under the Collateral Agreement, the Contracting
Party will be permitted to substitute for any pledged shares of the Company
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 Company Common Stock at the time of each valuation times the number of
shares of the Company Common Stock for which such obligations are being
substituted. The Collateral Agreement will provide that, in the event of a
dilution adjustment, the Contracting Party will pledge as alternative
collateral any Marketable Securities received by it in respect of the
maximum number of the Company Common Stock subject to the Contract at the
time of the dilution adjustment, plus U.S. Government obligations having an
aggregate market value when pledged and at daily mark-to-market valuations
thereafter of not less than 150% of the Contracting Party's Delivery
Obligations. The Contracting Party's "Delivery Obligations" shall be the
Transaction Value of any consideration other than Marketable Securities
received by the Contracting Party in respect of the maximum number of
shares subject to the Contract at the time of the dilution adjustment. 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 Contracting Party will be permitted to substitute U.S.
Government obligations for Marketable Securities pledged at the time of or
after any dilution adjustment. 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
Contracting Party 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 Contracting Party is in default of its obligations under the Collateral
Agreement, or unless the payment of such amount to the Contracting Party
would cause the collateral to become insufficient under the Collateral
Agreement. The Contracting Party shall have the right to vote any pledged
shares of the Company 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 , 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 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 the Company 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
the Company Common Stock subject to the Contract at such time (or if a
dilution adjustment 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 the Company 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 the Company 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 the Company Common Stock (or Marketable Securities) subject to the
Contract at such time and (y) the number of shares of the Company Common
Stock (or Marketable Securities) pledged as collateral at such time; and
(C) at any time after a dilution adjustment in which consideration other
than Marketable Securities shall have been delivered, failure of the U.S.
Government obligations pledged in respect of the Delivery Obligations to
have a market value at such time of at least 105% of the Delivery
Obligations, if such failure shall not be cured within ten Business Days
after notice thereof is delivered to the Contracting Party.
The occurrence of a Default under the Collateral Agreement, or
the bankruptcy or insolvency of the Contracting Party, will cause an
automatic acceleration of the Contracting Party's obligations under the
Contract. In any such event, the Contracting Party will become obligated to
deliver shares of the Company Common Stock (or, after a dilution
adjustment, Marketable Securities) having an aggregate value equal to the
"Aggregate Acceleration Value" under the Contract. The Aggregate
Acceleration Value will be based on an "Acceleration Value," determined by
the Administrator on the basis of quotations from up to four nationally
recognized independent investment banking firms (each, an "Independent
Dealer"). Each quotation will be for the amount that would be paid to the
relevant Independent Dealer in consideration of an agreement between the
Trust and such dealer that would have the effect or preserving the Trust's
rights to receive Common Stock (or, after a dilution adjustment, the
alternative consideration provided under the Contract) under a portion of
the Contract that corresponds to an initial number of shares of the Company
Common Stocks equal to 1,000. The Administrator will request quotations
from four Independent Dealers on or as soon as reasonably practical
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 the
Company 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 the Company Common Stock on the acceleration
date times the number of shares of the Company Common Stock that would be
required to be delivered on such date under the Contract if the Exchange
Date were redefined to be the acceleration date or (B) after a dilution
adjustment, 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
Default or the bankruptcy or insolvency of the Contracting Party, the
Company Common Stock (or, after a dilution adjustment, Marketable
Securities) deliverable for each TEES 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 the Company Common Stock then
pledged, or cash generated from the liquidation of U.S. Government
obligations then pledged, or a combination thereof (or, after a dilution
adjustment, 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 the Company Common
Stock (or, after a dilution adjustment, 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 Company Common Stock required to be delivered
thereunder, in the form of any shares of the Company Common Stock then
pledged by the Contracting Party plus cash generated from the liquidation
of U.S. Government obligations then pledged by the Contracting Party (or,
after a dilution adjustment, 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).
Fractional Shares and Units. No fractional share of the Company
Common Stock will be delivered to the Trust if at any time the Contracting
Party satisfies its obligation under the Contract in whole or in part by
delivering shares of the Company Common Stock. In lieu of any fractional
share otherwise deliverable in respect of the Contracting Party's
obligation under the Contract, the Trust shall be entitled to receive an
amount in cash equal to the value of such fractional share based on the
average Closing Price per share of the Company Common Stock on the 20
Trading Days immediately prior to, but not including, the second Trading
Day preceding the Exchange Date. No fractional unit of any Marketable
Security will be delivered to the Trust if the Contracting Party elects to
deliver Marketable Securities on any Early Settlement Date. In lieu of any
fractional unit otherwise deliverable on the Early Settlement Date in
respect of the Contracting Party's obligation under the Contract, the Trust
shall be entitled to receive an amount in cash equal to the value of such
fractional unit based on the average Closing Price per unit of such
Marketable Security on the 20 Trading Days immediately prior to, but not
including, the second Trading Day preceding the Early Settlement Date.
Description of Contracting Party. The Contracting Party is
. The Contracting Party is a major investment banking firm which may
have investment banking or other relationships with the Company and may from
time to time buy or sell the Company Common Stock or other securities of
the Company or enter into related derivative or other contracts. The
Contracting Party has no obligations in connection with any of these
activities to consider the interests of the Holders.
Purchase Price. The purchase price under the Contract is equal
to $ in the aggregate and is payable to the Contracting Party by the Trust
on or about , 1998. The portion of the Contract corresponding to one TEES
will represent the equivalent of an investment by the Holder in the Company
Common Stock on the Closing Date of $25, with the number of shares being
determined by reference to the Share Acquisition Price, with the Holder
having no right to receive any dividends on such shares prior to the
Exchange Date, and with the actual amount of such shares to be delivered by
the Contracting Party to the Holder on the Exchange Date will be limited to
the Exchange Amount, which as described below may be a lower number than
the number of such shares which could have been purchased for $25 on the
Closing Date as described above. No other consideration is payable by the
Trust to the Contracting Party in connection with its acquisition of the
Contract or the performance of the Contract by the Contracting Party.
The Contract will be valued by the Trust at fair value as
determined in good faith at the direction of the Trustees (if necessary,
through consultation with accountants, bankers and other specialists). See
"Net Asset Value."
THE U.S. TREASURY SECURITIES
The Trust will purchase and hold a series of zero-coupon U.S.
Treasury Securities with face amounts and maturities corresponding to the
amounts and payment dates of the cash distributions payable with respect to
the TEES. % of the Trust's total initial assets are invested in such U.S.
Treasury Securities. In the event that the Contracting Party's obligation
under the Contract is accelerated as described under "-- Reorganization
Event Causing a Termination of the Trust," or "-- Collateral Agreements;
Acceleration," the Administrator will distribute pro rata to the Holders
all or a portion of such U.S. Treasury Securities then held in the Trust,
together with amounts distributed upon acceleration.
TEMPORARY INVESTMENTS
To the extent necessary to enable the Paying Agent to make the
next succeeding quarterly distribution on the TEES, any moneys deposited
with or received by the Trust will be invested by the Paying Agent in
short-term obligations of the U.S. Government maturing no later than the
Business Day preceding the next following distribution date on the TEES.
TRUST DISSOLUTION
The Trust will dissolve on or shortly after the Exchange Date,
except if dissolved earlier under certain limited circumstances. The Trust
has adopted a fundamental policy that it will not dispose of the Contract
prior to the Exchange Date. Under certain circumstances, the Contract may
terminate prior to the Exchange Date. In the event that a Reorganization
Event or Default shall have occurred, the net assets of the Trust would be
distributed pro rata to the Holders and the term of the Trust would expire.
Written notice of any dissolution shall be sent to Holders
specifying the record date for the liquidating distribution to Holders, the
amount distributable (including, if applicable, the number of shares of the
Company Common Stock or, if a Reorganization Event shall have occurred, the
number of units of any Marketable Security) with respect to each TEES and
the time of dissolution as determined by the Trustees. Any such notice will
be provided by mail, sent to each Holder at such Holder's address as it
appears on the register for the TEES, first class, postage prepaid not less
than nine days prior to the date on which such distribution is to be made.
At or prior to the mailing of such notice, the Administrator shall publish
a public announcement in The Wall Street Journal or another daily newspaper
of national circulation.
See "-- The Contract," "-- Reorganization Event Causing
Termination of the Trust" and "-- Collateral Arrangements; Acceleration".
FRACTIONAL SHARES AND UNITS
No fractional shares of the Company Common Stock, or fractional
unit of any Marketable Security, will be distributed by the Trust to
Holders upon exchange on the Exchange Date or upon early dissolution of the
Trust. All fractional shares or units to which Holders would otherwise be
entitled will be aggregated and liquidated by the Administrator on the
third Business Day prior to the Exchange Date and, in lieu of the
fractional share or units to which a Holder would otherwise have been
entitled in respect of the total number of TEES held by such Holder, such
Holder will receive on the Exchange Date its pro rata portion of the
proceeds from such liquidation, which will equal to the product of such
fractional share of the Company Common Stock or fractional unit of any
Marketable Security, as the case may be, multiplied by the net aggregate
proceeds realized by the Trust upon the sale by the Administrator of the
aggregate number of fractional shares.
As described herein, upon dissolution of the Trust prior to the
Exchange Date, the Trust will distribute pro rata to the Holders all or a
portion of the U.S. Treasury Securities then held by the Trust. The U.S.
Treasury Securities will be distributed in authorized denominations only.
All fractional amounts of any issue of U.S. Treasury Securities to which
Holders would otherwise be entitled upon any acceleration of the Contract
will be aggregated and liquidated by the Administrator and, in lieu of the
fractional amount of such issue to which a Holder would otherwise be
entitled in respect of the total number of TEES held by such Holder, such
Holder will receive its pro rata portion of the proceeds from such
liquidation.
INVESTMENT RESTRICTIONS
The Trust has adopted a fundamental policy that the Trust may
not purchase any securities or instruments other than the U.S. Treasury
Securities, the Contract and the Company Common Stock or other assets
received pursuant to the Contract (including Marketable Securities) and,
for cash management purposes, short-term obligations of the U.S.
Government; issue any securities or instruments except for the TEES; make
short sales or purchase securities on margin; write put or call options;
borrow money; underwrite securities; purchase or sell real estate,
commodities or commodities contracts; or make loans. The Trust has also
adopted a fundamental policy that the Contract may not be disposed of
during the term of the Trust and that the U.S. Treasury Securities may not
be disposed of prior to their respective maturities other than by
distribution to the Holders.
Because of the foregoing limitations, the Trust's investments
will be concentrated initially in the industries in which the Company
currently operates. However, to the extent that in the future the Company
diversifies its operations into one or more other industries, the Trust's
investments will be less concentrated in the industries in which it
currently operates.
RISK FACTORS
NO ACTIVE PORTFOLIO MANAGEMENT
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 may not be disposed of (other than by distribution to the
Holders) prior to their respective maturities. As a result, the Trust will
continue to hold the Contract despite any significant decline in the market
price of the Company Common Stock or adverse changes in the financial
condition of the Company. The Trust will not be managed like a typical
closed-end investment company.
ABSENCE OF TRADING HISTORY; MARKETABILITY; POSSIBILITY OF THE TEES TRADING AT
A DISCOUNT FROM NET ASSET VALUE
The TEES have no trading history and it is not possible to
predict how they will trade in the secondary market. The trading price of
the TEES may vary considerably prior to the Exchange Date due to, among
other things, fluctuations in trading prices of the Company 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 Company 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 TEES are a new issue of securities and, accordingly, have
no established trading market. 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 TEES. Application will be made to list the TEES on the
AMEX, subject to official notice of issuance. There can be no assurance
that, if approved for listing, the TEES will not later be delisted or that
trading in the TEES on the AMEX will not be suspended. In the event of a
delisting or suspension of trading on such exchange, the Trust will apply
for listing of the TEES on another national securities exchange or for
quotation on another trading market. If the TEES are not listed or traded
on any securities exchange or trading market, or if trading of the TEES is
suspended, pricing information for the TEES may be more difficult to
obtain, and the price and liquidity of the TEES may be adversely affected.
The Trust is a newly organized closed-end investment company
with no previous operating history. Shares of closed-end investment
companies frequently trade at a discount from their net asset value, which
is a risk separate and distinct from the risk that the Trust's net asset
value will decrease. The Trust cannot predict whether the TEES will trade
at, below or above their net asset value. The risk of purchasing
investments that might trade at a discount is more pronounced for investors
who wish to sell their investments in a relatively short period of time
after completion of the Trust's initial public offering because for those
investors realization of a gain or loss on their investments is likely to
be more dependent upon the existence of a premium or discount than upon
portfolio performance. The TEES are not subject to redemption.
DILUTION ADJUSTMENTS
The number of shares of the Company Common Stock that the Trust
will deliver to Holders on the Exchange Date 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- Dilution Adjustments." Such number
of shares of the Company Common Stock to be received by the Holders will
not be adjusted for other events, such as offerings of the Company Common
Stock for cash or in connection with acquisitions. Likewise, no adjustments
will be made for any sales of the Company Common Stock by any stockholder
of the Company.
The Company is not restricted in connection with the TEES from
issuing additional shares of the Company Common Stock during the term of
the Trust. In addition, the stockholders of the Company (including the
Contracting Party) are not precluded from selling shares of the Company
Common Stock, either pursuant to Rule 144 under the Securities Act or by
causing the Company to register such shares. None of the Company, the
Contracting Party or any stockholder of the Company has any obligation to
consider the interests of the Holders for any reason. Additional issuances
or sales may materially and adversely affect the price of the Company
Common Stock and, because of the relationship of the number of shares of
the Company Common Stock to be received to the price of the Company Common
Stock, such other events may materially and adversely affect the trading
price of the TEES. 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 stockholders (including the Contracting Party) will not sell any, the
Company Common Stock in the future, or as to the amount of any such
offerings or sales.
LIMITED TERM
The term of the Trust will expire on or shortly after the
Exchange Date, unless the Trust is dissolved earlier under certain limited
circumstances. On or shortly after the Exchange Date, the Trust will
distribute the shares of the Company Common Stock and other net assets held
by the Trust pro rata to the Holders, and dissolve shortly thereafter. In
the event that a Reorganization Event or a Default shall have occurred, the
net assets of the Trust would be distributed pro rata to Holders and the
term of the Trust would expire.
NON-DIVERSIFIED PORTFOLIO
The Trust's assets will consist almost entirely of the Contract
and the U.S. Treasury Securities. As a result, investments in the Trust may
be subject to greater risk than would be the case for a company with a more
diversified portfolio of investments.
COMPARISON TO OTHER EQUITY SECURITIES; RELATIONSHIP TO THE COMPANY COMMON
STOCK
The terms of the TEES are similar to those of ordinary equity
securities in that the value of the Company Common Stock that a Holder will
receive on the Exchange Date is not fixed, but is based on the Exchange
Price of the Company Common Stock (see "Investment Objective and Policies
- --General"). THE EXCHANGE PRICE WILL REPRESENT A DETERMINATION OF THE VALUE
OF A SHARE OF COMPANY COMMON STOCK DURING THE PERIOD IMMEDIATELY PRIOR TO
THE EXCHANGE DATE. ACCORDINGLY, THERE CAN BE NO ASSURANCE THAT THE AMOUNT
RECEIVABLE BY HOLDERS OF THE TEES ON THE EXCHANGE DATE WILL BE EQUAL TO OR
GREATER THAN THE STATED AMOUNT. IF THE EXCHANGE PRICE OF THE COMPANY COMMON
STOCK IS LESS THAN THE SHARE ACQUISITION PRICE, SUCH AMOUNT RECEIVABLE ON
THE EXCHANGE DATE WILL BE LESS THAN THE STATED AMOUNT, IN WHICH CASE AN
INVESTMENT IN TEES WILL RESULT IN AN ECONOMIC LOSS AS OF THE EXCHANGE DATE.
ACCORDINGLY, A HOLDER ASSUMES THE RISK THAT THE MARKET VALUE OF THE COMPANY
COMMON STOCK MAY DECLINE, AND THAT SUCH DECLINE COULD BE SUBSTANTIAL.
The trading prices of the TEES in the secondary market may be
affected by the trading prices of the Company Common Stock in the secondary
market and by economic, financial and other factors and market conditions
that can affect the capital markets generally. It is impossible to predict
whether the price of the Company Common Stock will rise or fall. Trading
prices of the Company Common Stock may be influenced by the Company's
operating results and prospects and by economic, financial and other
factors and market conditions that can affect the capital markets
generally, including the level of, and fluctuations in, the trading prices
of stocks generally and sales of substantial amounts of the Company Common
Stock in the market subsequent to the Offering or the perception that such
sales could occur.
LIMITATIONS ON OPPORTUNITY FOR EQUITY APPRECIATION; POTENTIAL LOSSES
The opportunity for equity appreciation afforded by an
investment in the TEES is less than the opportunity for equity appreciation
afforded by a direct investment in the Company Common Stock because the
amount in value receivable by a Holder upon exchange on the Exchange Date
will not exceed the Maximum Appreciation Value, which represents an
appreciation of % over the Stated Amount. ALTHOUGH HOLDERS WILL REALIZE THE
ENTIRE DECLINE IN VALUE IF THE EXCHANGE PRICE IS LESS THAN THE SHARE
ACQUISITION PRICE, SUCH DECLINE WILL BE OFFSET BY ANY CASH DISTRIBUTIONS
RECEIVED ON THE TEES; PROVIDED, HOWEVER, THAT THE AMOUNT OF SUCH OFFSET
WILL BE REDUCED TO THE EXTENT THAT THE COMPANY PAYS DIVIDENDS ON THE
COMPANY COMMON STOCK DURING THE TERM OF THE TRUST. ALTHOUGH THE COMPANY
DOES NOT CURRENTLY PAY ANY DIVIDENDS, THERE CAN BE NO ASSURANCE THAT THE
COMPANY WILL NOT PAY DIVIDENDS ON THE COMPANY COMMON STOCK IN THE FUTURE.
See "Investment Objective and Policies." Because the price of the Company
Common Stock is subject to market fluctuations, the value of the Company
Common Stock received by a Holder in exchange for a TEES on the Exchange
Date, determined as described herein, may be more or less than the Stated
Amount paid for such TEES.
NO STOCKHOLDER RIGHTS
Holders will not be entitled to any rights with respect to the
Company Common Stock (including, without limitation, voting rights and
rights to receive any dividends or other distributions in respect thereof)
until such time, if any, as the Trust shall have delivered the Company
Common Stock to Holders on the Exchange Date or upon early dissolution of
the Trust, and unless the applicable record date, if any, for the exercise
of such right occurs after such delivery. For example, in the event that an
amendment is proposed to the of the Company and the record date for
determining the stockholders of record entitled to vote on such amendment
occurs prior to such delivery, Holders will not be entitled to vote on such
amendment.
The Contracting Party is not responsible for the determination
or calculation of the amount receivable by Holders upon exchange on the
Exchange Date or upon early dissolution of the Trust. The Contract among
the Trust, the Collateral Agent and the Contracting Party is a commercial
transaction and does not create any rights in, or for the benefit of, any
third party, including any Holder.
RISK RELATING TO BANKRUPTCY OF CONTRACTING PARTY
The Trust believes that the Contract would constitute a
"securities contract" for purposes of Title 11 of the United States
Bankruptcy Code (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 Contracting Party becomes subject to a
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 TEES.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
No statutory, judicial or administrative authority directly
addresses the treatment of TEES or instruments similar to TEES for United
States federal income tax purposes. Accordingly, prospective investors
should consult their tax advisors with respect to the tax consequences to
them of the purchase, ownership and disposition of the TEES in light of
their particular circumstances. See "Certain United States Federal Income
Tax Consequences."
DESCRIPTION OF THE TEES
Each TEES represents a proportionate share of beneficial
ownership interest in the assets of the Trust, and a total of 400,000 TEES
will be issued in the Offering. Upon liquidation of the Trust, Holders are
entitled to share pro rata in the net assets of the Trust available for
distribution. The TEES have no preemptive, redemption or conversion rights.
The TEES, when issued and outstanding, will be fully paid and
nonassessable.
Holders are entitled to one vote for each TEES held on all
matters to be voted on by Holders and are not able to cumulate their votes
in the election of Trustees. The Trust intends to hold annual meetings as
required by the rules of the AMEX. The Holders have the right, upon the
declaration in writing or vote of more than two-thirds of the outstanding
TEES, to remove a Trustee. The Trustees will call a meeting of Holders to
vote on the removal of a Trustee upon the written request of the record
Holders of 10% of the TEES or to vote on other matters upon the written
request of the record Holders of more than 50% of the TEES (unless
substantially the same matter was voted on during the preceding 12 months).
BOOK-ENTRY SYSTEM
The TEES will be issued in the form of one or more global
securities (the "Global Securities") deposited with the Depositary and
registered in the name of a nominee of the Depositary.
The Depositary has advised the Trust and the Underwriters as
follows: The Depositary is a limited-purpose trust company organized under
the laws of the State of New York, a member of the Federal Reserve System,
a "clearing corporation" within the meaning of the New York Uniform
Commercial Code and a "clearing agency" registered pursuant to Section 17A
of the Exchange Act. The Depositary was created to hold securities of
persons who have accounts with the Depositary ("participants") and to
facilitate the clearance and settlement of securities transactions among
its participants in such securities through electronic book-entry changes
in accounts of the participants, thereby eliminating the need for physical
movement of certificates. Such participants include securities brokers and
dealers, banks, trust companies and clearing corporations. Indirect access
to the Depositary's book-entry system is also available to others, such as
banks, brokers, dealers and trust companies that clear through or maintain
a custodial relationship with a participant, either directly or indirectly.
Upon the issuance of a Global Security, the Depositary or its
nominee will credit the respective TEES represented by such Global Security
to the accounts of participants. The accounts to be credited shall be
designated by the Underwriters. Ownership of beneficial interests in such
Global Securities will be limited to participants or persons that may hold
interests through participants. Ownership of beneficial interests by
participants in such Global Securities will be shown on, and the transfer
of those ownership interests will be effected only through, records
maintained by the Depositary or its nominee for such Global Securities.
Ownership of beneficial interests in such Global Securities by persons that
hold through participants will be shown on, and the transfer of that
ownership interest within such participant will be effected only through,
records maintained by such participant. The laws of some jurisdictions
require that certain purchasers of securities take physical delivery of
such securities in definitive form. Such limits and such laws may impair
the ability to transfer beneficial interests in a Global Security.
So long as the Depositary for a Global Security, or its
nominee, is the registered owner of such Global Security, such Depositary
or such nominee, as the case may be, will be considered the sole owner or
Holder. Except as set forth below, owners of beneficial interests in such
Global Securities will not be entitled to have the TEES registered in their
names and will not receive or be entitled to receive physical delivery of
the TEES in definitive form and will not be considered the owners or
Holders thereof.
Payment of shares of the Company Common Stock or amounts
payable or other consideration deliverable on exchange of, and any
quarterly distributions on, TEES registered in the name of or held by the
Depositary or its nominee will be made to the Depositary or its nominee, as
the case may be, as the registered owner or the holder of the Global
Security. None of the Trust, any Trustee, the Administrator, the Paying
Agent or the Custodian for the TEES will have any responsibility or
liability for any aspect of the records relating to, or payments made on
account of, beneficial ownership interests in a Global Security or for
maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
The Trust expects that the Depositary, upon receipt of any
payment in respect of a Global Security, will credit immediately
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in such Global Security as shown on the
records of the Depositary. The Trust also expects that payments by
participants to owners of beneficial interests in such Global Security held
through such participants will be governed by standing instructions and
customary practices, as is now the case with securities held for the
accounts of customers registered in "street name," and will be the
responsibility of such participants.
A Global Security may not be transferred except as a whole by
the Depositary to a nominee or a successor of the Depositary. If the
Depositary is at any time unwilling or unable to continue as depositary and
a successor depositary is not appointed by the Trust within ninety days,
the Trust will issue TEES in definitive registered form in exchange for the
Global Security representing such TEES. In addition, the Trust may at any
time and in its sole discretion determine not to have any TEES represented
by one or more Global Securities and, in such extent, will issue TEES in
definitive form in exchange for all of the Global Securities representing
the TEES. Further, if the Trust so specifies with respect to the TEES, an
owner of a beneficial interest in a Global Security representing TEES may,
on terms acceptable to the Trust and the Depositary for such Global
Security, receive TEES in definitive form. In any such instance, an owner
of a beneficial interest in a Global Security will be entitled to physical
delivery in definitive form of TEES represented by such Global Security
equal in number to that represented by such beneficial interest and to have
such TEES registered in its name.
TRUSTEES
The Trustees of the Trust consist of three individuals, none of
whom is an "interested person" of the Trust within the meaning of the
Investment Company Act. The Trustees of the Trust are responsible for the
overall supervision of the operations of the Trust and perform the various
duties imposed on the trustees of management investment companies by the
Investment Company Act.
The Trustees of the Trust are:
PRINCIPAL OCCUPATION
NAME, AGE AND ADDRESS TITLE DURING PAST FIVE YEARS
- --------------------------------- ---------------- -------------------------
Donald J. Puglisi, 53............ Managing Trustee Professor of Finance
Department of Finance University of Delaware
University of Delaware
Newark, DE 19716
William R. Latham III, 54........ Trustee Professor of Economics
Department of Economics University of Delaware
University of Delaware
Newark, DE 19716
James B. O'Neill, 59............. Trustee Professor of Economics
Center for Economic University of Delaware
Education & Entrepreneurship
University of Delaware
Newark, DE 19716
COMPENSATION OF TRUSTEES
Each unaffiliated Trustee will be paid by the Trust in respect
of its annual fees and anticipated out-of-pocket expenses, a one-time,
up-front fee of $7,200. The Trust's Managing Trustee will also receive an
additional up-front fee of $2,400 for serving in that capacity. None of the
Trustees receives any compensation for serving as a trustee or director of
any other affiliated investment company.
MANAGEMENT ARRANGEMENTS
PORTFOLIO MANAGEMENT AND ADMINISTRATION
The Trust will be internally managed and will not have an
investment adviser. The Trust's portfolio will not be actively managed. The
Trustees of the Trust will authorize the purchase of the Contract and the
U.S. Treasury Securities as directed by the Trust Agreement. It is a
fundamental policy of the Trust that the Contract may not be disposed of
during the Term Agreement of the Trust and that the U.S. Treasury
Securities may not be disposed of (other than by distribution to the
Holders) prior to their respective maturities.
The Trust will pay for all of its anticipated expenses,
including, among other things, accounting services, expenses for legal and
auditing services, taxes, costs of printing proxies, listing fees, if any,
stock certificates and shareholder reports, charges of the Administrator,
the Custodian and the Paying Agent, expenses of registering the TEES under
federal and state securities laws, Commission fees, and fees and expenses
of Trustees, accounting costs, brokerage costs, mailing and other expenses
properly payable by the Trust. See "-- Estimated Expenses."
ADMINISTRATOR
The day-to-day affairs of the Trust will be managed by
, as trust administrator pursuant
to an Administration Agreement. Under the Administration Agreement, the
Trustees have delegated most of their operational duties to the
Administrator, including without limitation, the duties to: (i) pay, or
cause to be paid, all expenses incurred by the Trust; (ii) with the
approval of the Trustees, engage legal and other professional advisors
(other than the independent public accountants for the Trust); (iii)
instruct the Paying Agent to pay distributions on TEES as described herein;
(iv) cause the legal and other professional advisors engaged by it to
prepare and mail, file or publish all notices, proxies, reports, tax
returns and other communications and documents for the Trust, and keep all
books and records for the Trust; (v) at the direction of the Trustees, and
upon being furnished with reasonable security and indemnity as the
Administrator may require, institute and prosecute legal and other
appropriate proceedings to enforce the rights and remedies of the Trust;
and (vi) make, or cause to be made, all necessary arrangements with respect
to meetings of Trustees and any meetings of Holders. The Administrator will
not, however, select the independent public accountants for the Trust or
sell or otherwise dispose of the Trust assets (except in connection with
the settlement of the Contract on the Business Day immediately preceding
the Exchange Date).
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 and Paying
Agent of the Trust, and except for its role as Collateral Agent under the
Collateral Agreement, has no other affiliation with,
and is not engaged in any other transactions with, the Trust.
The address of the Administrator is .
CUSTODIAN AND COLLATERAL AGENT
The Trust's custodian is pursuant to a
custodian agreement (the "Custodian Agreement"). In the event of any
termination of the Custodian Agreement by the Trust or the resignation of
the Custodian, the Trust must engage a new Custodian to carry out the
duties of the Custodian as set forth in the Custodian Agreement. The
Custodian will also act as Collateral Agent under the Collateral Agreement
and will hold a perfected security interest in the shares of Company Common
Stock or other assets consistent with the terms of the Contract pledged
thereunder.
PAYING AGENT
The paying agent, transfer agent and registrar for the TEES is
pursuant to a paying agent agreement (the "Paying
Agent Agreement"). In the event of any termination of the Paying Agent
Agreement by the Trust or the resignation of the Paying Agent, the Trust
will use its best efforts to engage a new Paying Agent to carry out the
duties of the Paying Agent.
INDEMNIFICATION
The Trust, to the fullest extent permitted by law, will
indemnify each Trustee, the Sponsor, the Administrator, the Paying Agent
and the Custodian with respect to any claim, liability, loss which it may
incur in acting as Trustee, Sponsor, Administrator, Paying Agent or
Custodian, as the case may be, and any reasonable expense incurred in
connection with any such claim, liability or loss (including the reasonable
costs and expenses of the defense against any claim or liability) except in
the case of willful misfeasance, bad faith, gross negligence or reckless
disregard of their respective duties. Subject to the satisfaction of
certain conditions, the Sponsor will reimburse the Trust for any amounts it
may be required to pay as indemnification to any Trustee, the
Administrator, the Paying Agent or the Custodian.
ESTIMATED EXPENSES
At the closing of the Offering, the Trust will pay to each of the
Administrator, the Custodian and the Paying Agent a one-time, up-front fee
in the amount of $ . In addition, the Trust will pay to the
Administrator at the closing of the Offering an amount, estimated to be
approximately $ , in respect of certain anticipated
ongoing expenses of the Trust over the term of the Trust. The anticipated
Trust expenses include, among other things, expenses for legal and
independent accountants' services, costs of printing proxies, TEES
certificates and Holder reports and stock exchange fees. Organization costs
of the Trust in the amount of $ and approximately $ in respect
of costs associated with the initial registration and public offering of
the TEES will be paid by the Sponsor, who will be reimbursed for such
amounts by the Trust at the closing of the Offering. In addition, the Trust
will pay a structuring fee of $ to the Sponsor at the closing of the
Offering.
The amount payable to the Administrator in respect of the
anticipated ongoing expenses of the Trust was determined based on expense
estimates made in good faith on the basis of information currently
available to the Trust, including estimates furnished by the Trust's
agents. Any unanticipated expenses not provided for up-front will be paid
by the Sponsor.
DISTRIBUTIONS
The Trust intends to distribute cash to Holders on a quarterly
basis at the rate of % of the Stated Amount per annum (which quarterly
distribution will equal the fixed quarterly distributions from the proceeds
of the maturing U.S. Treasury Securities held by the Trust). The first
distribution, in respect of the period from , 1998 until , 1998, will be
made on , 1998 to Holders of record as of , 1998. 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.
The "Stated Amount" means, with respect to each TEES, $25.
Upon dissolution of the Trust as described in "Investment
Objective and Policies -- Trust Dissolution," each Holder will share pro
rata in any remaining net assets of the Trust.
NET ASSET VALUE
The net asset value of the TEES will be calculated by the Trust
no less frequently than quarterly by dividing the value of the net assets
of the Trust (the value of its assets less its liabilities) by the total
number of TEES outstanding. The Trust's net asset value will be published
semi-annually as part of the Trust's semi-annual report to Holders and at
such other times as the Trustees may determine. The U.S. Treasury
Securities held by the Trust will be valued at the mean between the last
current bid and asked prices or, if quotations are not available, as
determined in good faith by the Trust. Short-term investments having a
maturity of 60 days or less are valued at cost with accrued interest or
discount earned included in interest receivable. The Contract will be
valued at the bid price received by the Administrator from an independent
broker-dealer firm unaffiliated with the Trust which is in the business of
making bids on financial instruments similar to the Contract and with terms
comparable thereto.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain of the material United
States federal income tax consequences of the purchase, ownership and
disposition of TEES and Company Common Stock. Unless otherwise stated, this
summary applies only to U.S. Holders who purchase TEES upon original
issuance for an amount equal to the initial offering price thereof. The tax
treatment of a Holder may vary depending on such Holder's particular
situation. This summary does not deal with special classes of Holders such
as banks, thrifts, real estate investment trusts, regulated investment
companies, insurance companies, dealers in securities or currencies,
tax-exempt investors, certain U.S. expatriates, or Holders that will hold
TEES or Company Common Stock as part of a "synthetic security" or "hedge,"
as part of a "conversion transaction" or other integrated investment, or as
other than a capital asset. This summary does not address the tax
consequences to Holders that have a functional currency other than the U.S.
dollar or the tax consequences to shareholders, partners or beneficiaries
of a Holder. Further, it does not include any description of any
alternative minimum tax consequences or the tax laws of any state, local or
foreign government that may be applicable.
This summary is based upon the Internal Revenue Code of 1986,
as amended (the "Code"), Treasury regulations (including proposed Treasury
regulations) issued thereunder, Internal Revenue Service ("IRS") rulings
and pronouncements and judicial decisions now in effect, all of which are
subject to change. Any such changes may be applied retroactively in a
manner that could cause the tax consequences to vary substantially from the
consequences described below, possibly adversely affecting a Holder.
No statutory, administrative or judicial authority directly
addresses the treatment of TEES or instruments similar to TEES for United
States federal income tax purposes. As a result, no assurance can be given
that the IRS will agree with the tax consequences described herein.
PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISORS WITH RESPECT
TO THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION
OF THE TEES 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 UNITED STATES FEDERAL OR OTHER TAX LAWS.
As used herein, (A) the term "U.S. Holder" means a beneficial
owner of TEES that is, for United Stated federal income tax purposes, (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 and (B) the
term "Non-U.S. Holder" means a beneficial owner of TEES that is not a U.S.
Holder.
CLASSIFICATION OF THE TRUST
In connection with the issuance of the TEES, Skadden, Arps,
Slate, Meagher & Flom LLP will render an opinion that, under current law
and assuming compliance with the terms of the Trust Agreement, and based on
certain facts and assumptions contained in such opinion, the Trust will be
classified as a grantor trust and not as an association taxable as a
corporation for United States federal income tax purposes. As such, Holders
will be treated for United States federal income tax purposes as owners of
a pro rata undivided interest in the Trust's assets, which will consist of
the U.S. Treasury Securities and the Contract. Accordingly, each Holder
will be required to include in its gross income its pro rata share of the
income of the Trust in the manner described below.
TAX BASIS OF THE U.S. TREASURY SECURITIES AND THE CONTRACT
As previously discussed, each Holder will be considered the
owner of its pro rata portion of the U.S. Treasury Securities and the
Contract held by the Trust. The cost to a Holder of its TEES will be
allocated among such Holder's pro rata portion of the U.S. Treasury
Securities and the Contract (in proportion to the relative fair market
values thereof on the date on which the U.S. Holder acquires its TEES) in
order to determine the Holder's initial tax basis in the U.S. Holder's pro
rata portion of the U.S. Treasury Securities and the Contract. It is
currently anticipated that % and % of the net proceeds of the offering
will be used by the Trust to purchase the U.S. Treasury Securities and as
payment under the Contract, respectively.
TREATMENT OF THE U.S. TREASURY SECURITIES
The U.S. Treasury Securities will consist of stripped U.S.
Treasury Securities. A Holder will be required to treat its pro rata
portion of each U.S. Treasury Security as a bond that was originally issued
on the date the Trust acquired the relevant U.S. Treasury Security and that
has OID equal to the Holder's pro rata portion of the excess of the amount
payable on such U.S. Treasury Security over the value of the U.S. Treasury
Security at the time the Trust acquires such U.S. Treasury Security on
behalf of Holders. A Holder, whether on the cash or accrual method of tax
accounting, will be required to include such 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 with respect to the U.S. Treasury Securities. Consequently, a
portion of each scheduled payment to Holders will be treated as a tax-free
return of the Holders' investment in the U.S. Treasury Securities and will
reduce the Holder's adjusted tax basis in its pro rata portion of the U.S.
Treasury Securities. A Holder's adjusted 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 on a straight-line basis (unless such
an accrual basis Holder elects to accrue the OID on a short-term Treasury
Security according to the constant-yield-to-maturity method). Cash basis
taxpayers generally will include OID on a short-term U.S. Treasury Security
in income when received. Such cash-basis taxpayers generally will not be
allowed a deduction for interest paid during the taxable year on
indebtedness incurred or continued to purchase or carry a short-term U.S.
Treasury Security except to the extent such interest expense exceeds the
OID accrued but not included in income with respect to such short-term U.S.
Treasury Security. Cash basis taxpayers may elect to include OID on a
short-term U.S. Treasury Security in income as it accrues, in which case
the limitation on the deductibility of interest set forth above will not
apply.
A Holder will be required to recognize capital gain or loss
with respect to such Holder's pro rata portion of the U.S. Treasury
Securities upon an early dissolution of the Trust in an amount equal to the
difference between the amount of cash, if any, received by the Holder in
respect of such Holder's pro rata portion of the U.S. Treasury Securities
and the Holder's tax basis in its pro rata portion of the U.S. Treasury
Securities for which cash is received. Such capital gain or loss would be
long-term capital gain or loss if the TEES have been held by the U.S.
Holder for more than one year. Such capital gain or loss will be subject to
tax in the manner described under "-- Sale of TEES. The receipt by a Holder
of its pro rata portion of U.S. Treasury Securities upon dissolution of the
Trust will not be a taxable event to the Holder. The Holder's tax basis in
such U.S. Treasury Securities will be the same as such Holder's tax basis
in such U.S. Treasury Securities immediately prior to the receipt thereof
less the portion of such tax basis that is allocable to such Holder's pro
rata portion of the U.S. Treasury Securities for which cash is received,
and the Holder's holding period for such U.S. Treasury Securities will
include the period during which the Holder held the related TEES.
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 or upon a Default, as
having received a pro rata portion of the Company Common Stock delivered to
the Trust. On the Exchange Date or upon a "Default", if the Contracting
Party delivers the Company Common Stock to the Trust pursuant to the
Contract in respect of a Holder's TEES, the Holder generally should not
realize any taxable gain or loss upon the receipt of such Company Common
Stock. However, a Holder generally should be required to recognize capital
gain or loss with respect to any cash received in lieu of fractional
shares. The amount of such capital gain or loss recognized by a Holder
should be equal to the difference, if any, between the amount of cash
received by the Holder and the portion of the Holder's tax basis in the
Contract that is allocable to the fractional share. Any such capital gain
or loss should be treated as short-term capital gain or loss. Such capital
gain or loss will be subject to tax in the manner described under "-- Sale
of TEES." A Holder will have an initial tax basis in any Company Common
Stock received thereby on the Exchange Date or upon a "Default" in an
amount equal to the Holder's tax basis in the Contract less the portion of
such tax basis that is allocable to any fractional share (as described
above) and will realize taxable gain or loss with respect to any such
Company Common Stock received thereby on the Exchange Date or upon a
"Default" only upon the subsequent sale or disposition by the Holder of
such Company Common Stock. In addition, a Holder's holding period for any
Company Common Stock received by such Holder on the Exchange Date or upon a
"Default" will begin on the date following the Exchange Date, and will not
include the period during which the Holder held the related TEES.
SALE OF TEES
Upon the sale or other disposition of a TEES prior to the
Exchange Date, a Holder generally will be treated as having sold its pro
rata portion of the U.S. Treasury Securities and the Contract underlying
the related TEES and generally will be required to allocate the total
amount realized by such Holder upon such sale or other disposition between
the Holder's pro rata portion of the U.S. Treasury Securities and the
Contract based upon their relative fair market values (as determined on the
date of disposition). A Holder will generally be required to recognize
capital gain or loss with respect to each such component (i.e., the
Holder's pro rata portion of the U.S. Treasury Securities and the Contract)
in an amount equal to the difference, if any, between the amount realized
with respect to each such component upon the sale or disposition of the
TEES (as determined in the manner described above) and the Holder's
adjusted tax basis in each such component. Such gain or loss will generally
be capital gain or loss (except to the extent the Holder is treated as
receiving an amount with respect to accrued but unpaid interest on the U.S.
Treasury Securities that such Holder has not included in gross income
previously, which amount will be treated as ordinary income) and will
generally be treated as long-term capital gain or loss if the Holder has
held the TEES for more than one year at the time of disposition. Under
recently adopted amendments to the Code, capital gain recognized by an
individual investor upon a disposition of a capital asset that has been
held for more than one year immediately prior to such disposition will
generally be subject to a maximum federal income tax rate of 20% or, in the
case of a capital asset that has been held for one year or less immediately
prior to such disposition (short-term capital gain), will be subject to tax
at ordinary federal income tax rates. Corporate Holders will generally be
taxed on capital gains (short-term and long-term) at a maximum federal
income tax rate of 35%. The deductibility of capital losses is subject to
limitations.
TREATMENT OF TRUST EXPENSES
An individual Holder who itemizes deductions should be able to
amortize and deduct over the term of the Trust (subject to any applicable
limitation such as Section 67(a) of the Code) its pro rata portion of the
one-time, up-front fees paid to the Administrator, the Custodian and the
Paying Agent, and should be able to deduct (subject to any applicable
limitations such as those in Section 67(a) of the Code) its pro rata
portion of the other expenses described under "Management Arrangements --
Estimated Expenses" incurred by the Trust resulting from its ongoing
operations (including the fees payable to the Trustees) as such expenses
are incurred. A Holder's pro rata portion of the expenses directly incurred
by a Holder in connection with the organization of the Trust, underwriting
discounts and commissions and other offering expenses should be includable
in the cost to the Holder of the TEES. However, there can be no assurance
that the IRS will not take a contrary view. If the IRS were to prevail in
treating such expenses as excludible from a Holder's cost of the TEES, such
expenses would not be includable in the basis of the assets of the Trust
and should instead, subject to the limitations provided for under Section
67(a) of the Code, be amortizable and deductible over the term of the
Trust. In general, Section 67(a) of the Code provides that an individual
may only deduct miscellaneous itemized deductions for a particular taxable
year to the extent that the aggregate amount of the individual's
miscellaneous itemized deductions for such taxable year exceed two percent
of the individual's adjusted gross income for such taxable year (the
miscellaneous itemized deductions and other itemized deductions allowable
to high-income individuals, however, are generally subject to further
limitations under Section 68 of the Code).
POSSIBLE ALTERNATIVE CHARACTERIZATIONS OF THE CONTRACT
Skadden, Arps, Slate, Meagher & Flom LLP, counsel to the Trust,
believes 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 the Company Common Stock. The IRS could conceivably
take the view that the Contract should be treated as a loan to the
Contracting Party in exchange for a contingent debt obligation of the
Contracting Party. If the IRS were to prevail in making such an assertion,
a Holder would be required to include OID in income over the term of the
TEES based on the excess of the anticipated value of the Company Common
Stock to be received in respect of the Contract over the amount paid for
the Contract. In addition, a Holder would be required to include interest
(rather than capital gain) in income on the Exchange Date in an amount
equal to the excess, if any, of the value of the Company Common Stock
received on the Exchange Date (or the proceeds from prior disposition of
the Contract) over the aggregate of the basis of the Contract and any
interest on the Contract previously included in income (or might be
entitled to an ordinary deduction to the extent of interest previously
included in income and not ultimately received). 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
TEES.
DELIVERY OF CASH AND MARKETABLE SECURITIES
If as a result of a Reorganization Event, cash, Marketable
Securities or a combination thereof is delivered pursuant to the Contract,
a Holder should recognize capital gain or loss upon receipt in an amount
equal to the difference between the amount of cash received, if any, and
such Holder's tax basis in its pro rata portion of the Contract allocable
to any Company Common Stock for which cash was received. Such capital gain
or loss will be long-term capital gain or loss if the Holder has held the
TEES for more than one year immediately prior to the receipt of such cash.
Such capital gain or loss will be subject to tax in the manner described
under "-Sale of TEES." A Holder's tax basis in any Marketable Securities
received should equal its tax basis in its pro rata portion of the Contract
less the portion of such tax basis allocable to any Company 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.
NON-U.S. HOLDERS
Subject to the discussion below concerning income that is
effectively connected with a trade or business conducted by a Non-U.S.
Holder in the United States, payments of interest (including OID) made with
respect to the U.S. Treasury Securities will not be subject to United
States withholding tax, provided that such Non-U.S. Holder complies with
applicable certification requirements. In general, for a Non-U.S. Holder to
qualify for this exemption from taxation, the last United States payor in
the chain of payment prior to payment to a Non-U.S. Holder (the
"Withholding Agent") must have received in the year in which a payment of
interest or principal occurs, or in either of the two preceding calendar
years, a statement that (i) is signed by the beneficial owner of the U.S.
Treasury Securities under penalties of perjury, (ii) certifies that such
owner is not a U.S. Holder and (iii) provides the name and address of the
beneficial owner. The statement may be made on an IRS Form W-8 or a
substantially similar form, and the beneficial owner must inform the
Withholding Agent of any change in the information on the statement within
30 days of such change. If TEES is held through a securities clearing
organization or certain other financial institutions, the organization or
institution may provide a signed statement to the Withholding Agent.
However, in such case, the signed statement must be accompanied by a copy
of the IRS Form W-8 or the substitute form provided by the beneficial owner
to the organization or institution.
Any capital gain realized in respect of TEES by a Non-U.S.
Holder will generally not be subject to United States federal income tax if
(i) such gain is not effectively connected with a United States trade or
business of such non-U.S. Holder, (ii) in the case of an individual
non-U.S. Holder, such individual is not present in the United States for
183 days or more in the taxable year of the sale or other disposition, or
the gain is not attributable to a fixed place of business maintained by
such individual in the United States and such individual does not have a
"tax home" (as defined for United States federal income tax purposes) in
the United States and (iii) the Non-U.S. Holder is not subject to tax
pursuant to provisions of the United States federal income tax law
applicable to certain United States expatriates.
If any interest or gain realized by a non-U.S. Holder is
effectively connected with the Non-U.S. Holder's conduct of a trade or
business in the United States, such interest or gain will be subject to
United States federal income tax on net income that applies to United
States persons generally. In addition, in such event, if such Non-U.S.
Holder is a foreign corporation, such interest or gain may be included in
the earnings and profits of such Non-U.S. Holder in determining such
Non-U.S. Holder's United States branch profits tax liability.
BACKUP WITHHOLDING AND INFORMATION REPORTING
A beneficial owner of TEES may be subject to information
reporting and to backup withholding at a rate of 31 percent of certain
amounts paid to the beneficial owner unless such beneficial owner provides
proof of an applicable exemption or a correct taxpayer identification
number, and otherwise complies with applicable requirements of the backup
withholding rules.
Any amounts withheld under the backup withholding rules from a
payment to a beneficial owner would be allowed as a refund or a credit
against such beneficial owner's United States federal income tax provided
the required information is furnished to the IRS.
NEW WITHHOLDING REGULATIONS
On October 6, 1997, the Treasury Department issued new
regulations (the "New Regulations") which make certain modifications to the
withholding, backup withholding and information reporting rules described
above. The New Regulations attempt to unify certification requirements and
modify reliance standards. The New Regulations will generally be effective
for payments made after December 31, 1999, subject to certain transition
rules. Prospective investors are urged to consult their tax advisors
concerning the New Regulations.
POSSIBLE LEGISLATION
A bill recently introduced in Congress by a member of the House
of Representatives (H.R. 3170) would treat some or all of the net long-term
capital gain arising from "constructive ownership" transactions involving
certain derivative financial instruments as short-term capital gain, and
would impose an interest charge on such short-term capital gain. The bill
is proposed to be effective with respect to gain recognized after the date
the legislation is enacted into law, without regard to when the
constructive ownership transaction was entered into. It is not clear
whether, if enacted in its current form, the legislation would apply to the
TEES (and, even if the legislation in its current form were extended to
cover the TEES, whether the legislation would have a material effect on the
TEES). It is not presently possible to predict whether legislation
addressing constructive ownership transactions will be enacted or what form
such legislation might take (including with respect to effective dates).
UNDERWRITING
Subject to the terms and conditions set forth in an
underwriting agreement (the "Underwriting Agreement"), the Trust has agreed
to sell to each of the underwriters named below (the "Underwriters"), and
each of the Underwriters has severally agreed to purchase, the aggregate
number of TEES set forth opposite its name below:
NUMBER OF
UNDERWRITER TEES
----------- -----------
Sutro & Co. Incorporated................................
Total.............................. 400,000
=======
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will be obligated to purchase all of the TEES offered hereby
if any of such TEES are purchased. In the event of a failure to close, any
funds debited from any investor's account maintained with an Underwriter
will be credited to such account and any funds received by such Underwriter
by check or money order from any investor will be returned to such investor
by check.
The Underwriters have advised the Trust that they propose to
offer the TEES to the public initially at the public offering price set
forth on the cover page of this Prospectus and to certain dealers at such
price less a concession not in excess of $ per TEES. The Underwriters may
allow, and such dealers may reallow, a discount not in excess of $ per TEES
to certain other dealers. After the initial public offering, the public
offering price, concession and discount may be changed. The sales load of $
per TEES is equal to % of the initial public offering price. In addition,
the Trust will pay the Sponsor a structuring fee of $ , which will be
payable in its entirety from the proceeds of the Offering. Investors must
pay for any TEES purchased in the initial public offering on or before ,
1998.
The Underwriters do not intend to confirm sales of TEES offered
hereby to any accounts over which they exercise discretionary authority.
Prior to the Offering, there has been no public market for the
TEES. Application will be made to list the TEES on the AMEX, subject to
official notice of issuance. In connection with the listing, the
Underwriters will undertake that sales of TEES will meet the AMEX minimum
distribution standards.
The Trust has agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act, or to
contribute to payments the Underwriters may be required to make in respect
thereof.
Until the distribution of the TEES is completed, rules of the
Commission may limit the ability of the Underwriters and any selling group
members to bid for and purchase the TEES or shares of Company Common Stock.
As an exception to these rules, the Underwriters are permitted to engage in
certain transactions that stabilize the price of the TEES or the Company
Common Stock. Such transactions consist of bids or purchases for the
purpose of pegging, fixing or maintaining the price of the TEES or the
Company Common Stock.
If the Underwriters create a short position in the TEES in
connection with the Offering, i.e., if they sell more TEES than are set
forth on the cover page of this Prospectus, the Underwriters may reduce
that short position by purchasing TEES in the open market.
In general, purchases of a security 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.
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 TEES or
the Company 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.
LEGAL MATTERS
Certain legal matters will be passed upon for the Trust and the
Underwriters by their counsel, Skadden, Arps, Slate, Meagher & Flom LLP,
New York, New York.
EXPERTS
The statement of assets, liabilities and capital included in this
Prospectus has been audited by
, independent auditors, as
stated in their opinion appearing herein, and has been included in reliance
upon such opinion given on the authority of said firm as experts in
auditing and accounting.
ADDITIONAL INFORMATION
The Trust has filed with the Commission, Washington, D.C.
20549, a Registration Statement on Form N-2 under the Securities Act with
respect to the TEES offered hereby. Further information concerning the TEES
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 public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549,
and copies of all or any part thereof may be obtained from such office
after payment of the fees prescribed by the Commission. The Commission
maintains a Web site at http://www.sec.gov containing reports, proxy and
information statements and other information regarding registrants, such as
the Trust, that file electronically with the Commission.
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees and Shareholder of The 1998-1 TEES
Trust:
We have audited the accompanying statement of assets,
liabilities and capital of The 1998-1 TEES Trust as of , 1998. This
financial statement is the responsibility of the Trust's management. Our
responsibility is to express an opinion on this financial statement based
on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statement
is free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statement. An audit also includes assessing the accounting principles used
and significant estimates made by the Trust's management, as well as
evaluating the overall financial statement presentation. We believe that
our audit of the financial statement provides a reasonable basis for our
opinion.
In our opinion, the financial statement referred to above
presents fairly, in all material respects, the financial position of The
1998-1 TEES Trust, as of , 1998 in conformity with generally accepted
accounting principles.
TEES TRUST
THE 1998-1
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
, 1998
ASSETS
Cash..............................................................$ 100,000
----------
Total Assets..........................................$ 100,000
==========
LIABILITIES
Total Liabilities.................................................$
==========
NET ASSETS........................................................$ 100,000
==========
CAPITAL TEES, par value $.10 per TEES (Note 3)....................$ 100,000
==========
- -------------
(1) The Trust was created as a Delaware business trust on August 26, 1998
and has had no operations other than matters relating to its
organization and registration as a non-diversified, closed-end
management investment company under the Investment Company Act of
1940, as amended. Costs incurred in connection with the organization
of the Trust and ongoing administrative expenses will be paid by the
Sponsor.
(2) Offering expenses will be payable upon completion of the Offering and
will be paid by the Trust.
(3) On , 1998, the Trust issued one TEES to in
consideration for a purchase price of $100,000 each,
equaling $ in the aggregate.
The Trust Agreement provides that prior to the Offering, the
Trust will split the outstanding TEES to be effected on the date that the
price and underwriting discount of the TEES being offered to the public are
determined, but prior to the sale of the TEES to the Underwriters. The
outstanding TEES will be split into the smallest whole number of TEES that
would result in the per TEES amount recorded as capital, after effecting
the split, not exceeding the public offering price per TEES.
INDEX OF TERMS FOR PROSPECTUS
Set forth below is a list of defined terms appearing in the
Prospectus and the page numbers on which such terms are defined.
Acceleration Value..........................................................18
Act ..............................................................II-2
Administrator................................................................8
Aggregate Acceleration Value................................................18
AMEX .................................................................3
Business Day................................................................11
Cap Price .................................................................3
Closing Price...............................................................11
Code ................................................................29
Collateral Agent............................................................17
Collateral Event of Default.................................................18
Commission .................................................................5
Company .................................................................3
Company Common Stock.........................................................3
Company Successor...........................................................16
contract .................................................................3
Contracting Stockholder......................................................3
Custodian .................................................................8
Custodian Agreement.........................................................27
Delivery Obligations........................................................18
Early Settlement Date.......................................................17
Exchange Act.................................................................5
Exchange Amount.......................................................3, 6, 11
Exchange Amount Formula...................................................3, 6
Exchange Date.............................................................3, 5
Exchange Price........................................................3, 6, 11
Exchange Value............................................................3, 6
Extraordinary Cash Dividend.................................................16
Global Securities...........................................................25
Holders .................................................................3
Independent Dealer..........................................................18
Initial Share Ratio.......................................................3, 6
Insufficiency Determination.................................................18
Investment Company Act.......................................................5
IRS ................................................................29
Marketable Securities.......................................................17
Maximum Appreciation Value...................................................3
NASDAQ ................................................................11
New Regulations.............................................................33
Non-U.S. Holder.............................................................29
Offering .................................................................5
OID .................................................................8
participants................................................................25
Paying Agent.................................................................8
Paying Agent Agreement......................................................28
ReOrganization Event........................................................17
Securities Act...............................................................7
Share Acquisition Price......................................................3
short-term U.S. Treasury Security...........................................30
Stated Amount............................................................3, 28
TEES .................................................................3
Trading Day ................................................................11
Transaction Value...........................................................17
Trust ..............................................................3, 5
Trust Agreement.............................................................10
Trust Assets.............................................................6, 12
U.S. Holder ................................................................29
U.S. Treasury Securities.....................................................3
Underwriters................................................................34
Underwriting Agreement.....................................................34
Withholding Agent...........................................................33
====================================
NO DEALER, SALESPERSON OR UNTIL , 1998 (25 DAYS AFTER
OTHER INDIVIDUAL HAS BEEN THE COMMENCEMENT OF THE OFFERING), ALL
AUTHORIZED TO GIVE ANY INFORMATION DEALERS EFFECTING TRANSACTIONS IN THE
OR TO MAKE ANY REPRESENTATIONS TEES, WHETHER OR NOT PARTICIPATING IN
OTHER THAN THOSE CONTAINED IN THIS THIS DISTRIBUTION, MAY BE REQUIRED TO
PROSPECTUS IN CONNECTION WITH THE DELIVER A PROSPECTUS. THIS DELIVERY
OFFERING DESCRIBED HEREIN AND, IF REQUIREMENT IS IN ADDITION TO THE
GIVEN OR MADE, SUCH INFORMATION OR OBLIGATION OF DEALERS TO DELIVER A
REPRESENTATIONS MUST NOT BE RELIED PROSPECTUS WHEN ACTING AS UNDERWRITERS
UPON AS HAVING BEEN AUTHORIZED BY AND WITH RESPECT TO THEIR UNSOLD
THE TRUST OR THE UNDERWRITERS. THIS ALLOTMENTS OR SUBSCRIPTIONS.
PROSPECTUS DOES NOT CONSTITUTE AN ======================================
OFFER TO SELL, OR A SOLICITATION OF
AN OFFER TO BUY, ANY SECURITIES
OTHER THAN THOSE SPECIFICALLY
OFFERED HEREBY, OR OF ANY
SECURITIES OFFERED HEREBY, IN ANY
JURISDICTION TO ANY PERSON TO WHOM
IT IS UNLAWFUL TO MAKE AN OFFER OR
SOLICITATION IN SUCH JURISDICTION.
NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE FACTS SET FORTH IN
THIS PROSPECTUS OR IN THE AFFAIRS
OF THE TRUST SINCE THE DATE HEREOF
OR SINCE THE DATES AS OF WHICH
INFORMATION IS SET FORTH HEREIN. IN
THE EVENT THAT ANY SUCH CHANGE
SHALL OCCUR DURING THE PERIOD IN
WHICH APPLICABLE LAW REQUIRES
DELIVERY OF THIS PROSPECTUS, THIS
PROSPECTUS WILL BE AMENDED OR
SUPPLEMENTED ACCORDINGLY.
---------------
TABLE OF CONTENTS
PAGE
PROSPECTUS SUMMARY........................5
FEE TABLE.................................9
THE TRUST................................10
USE OF PROCEEDS..........................10
INVESTMENT OBJECTIVE AND POLICIES........10
INVESTMENT RESTRICTIONS..................21
RISK FACTORS.............................22
DESCRIPTION OF THE TEES..................25
TRUSTEES.................................26
MANAGEMENT ARRANGEMENTS..................27
DISTRIBUTIONS............................28
NET ASSET VALUE..........................29
CERTAIN UNITED STATES FEDERAL INCOME
TAX CONSEQUENCES.........................29
UNDERWRITING.............................34
LEGAL MATTERS............................35
EXPERTS..................................35
ADDITIONAL INFORMATION...................35
INDEPENDENT AUDITORS' REPORT.............36
STATEMENT OF ASSETS, LIABILITIES
AND CAPITAL.............................37
INDEX OF TERMS FOR PROSPECTUS............38
---------------
THE 1998-1
TEES TRUST
400,000 TEES(SM)
EXCHANGEABLE FOR
SHARES OF COMMON STOCK OF
( )
---------------
PROSPECTUS
---------------
SUTRO & CO. INCORPORATED
, 1998
(SM) SERVICE MARK OF SUTRO & CO.
INCORPORATED
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
**Part A - Report of Independent Accountants. Statement of Assets and
Liabilities.
Part B - None.
(b) Exhibits:
*2.a.(i) Trust Agreement
*2.a.(ii) Certificate of Trust
**2.a.(iii) Form of Amended and Restated Trust Agreement
**2.d Form of Specimen Certificate of Trust Equity Enhanced
Security (included in Exhibit 2.a.(iii))
**2.h Form of Underwriting Agreement
**2.j Form of Custodian Agreement
**2.k.(i) Form of Administration Agreement
**2.k.(ii) Form of Paying Agent Agreement
**2.k.(iii) Form of Forward Purchase Contract
**2.k.(iv) Form of Collateral Agreement
**2.k.(v) Form of Fund Expense Agreement
**2.k.(vi) Form of Fund Indemnity Agreement
**2.l Opinion and Consent of Counsel to the Trust
**2.n.(i) Tax Opinion of Counsel to the Trust (Consent contained in
Exhibit 2.n.(i))
**2.n.(iii) Consent of Independent Public Accountants
**2.p Form of Subscription Agreement
- -----------------
* Filed herewith
** To be filed by Amendment
Item 25. Marketing Arrangements
See the form of Underwriting Agreement to be filed as Exhibit 2.h to
this Registration Statement.
Item 26. Other Expenses of Issuance and Distribution
The following table sets forth the estimated expenses to be incurred
in connection with the offering described in this Registration Statement:
Registration fees........................................... $2,950
Exchange listing fee........................................ *
Printing (other than certificates).......................... *
Engraving and printing certificates......................... *
Fees and expenses of qualification under
state securities laws (excluding fees
of counsel)............................................... *
Accounting fees and expenses................................ *
Legal fees and expenses..................................... *
NASD fee.................................................... *
Miscellaneous............................................... *
Total................................................. $
- ----------
* To be furnished by amendment.
Item 27. Person Controlled by or under Common Control with Registrant
Prior to August 26, 1998 the Trust had no existence. As of the effective
date, the Trust will have entered into a Subscription Agreement for
TEES with and an Underwriting Agreement with
respect to 400,000 TEES with the Underwriters.
Item 28. Number of Holders of TEES
Number of
Title of class Record Holders
Trust Equity Enhanced Securities 0
Item 29. Indemnification
The Underwriting Agreement, filed as Exhibit 2.h to this Registration
Statement, provides for indemnification to the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Act").
Insofar as indemnification for liabilities arising under the Act may
be permitted to trustees, officers and controlling persons of the
Registrant, pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment
by the Registrant of expenses incurred or paid by a trustee, officer or
controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such trustee, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Item 30. Business and Other Connections of Investment Adviser
Not Applicable
Item 31. Location of Accounts and Records
The Trust's accounts, books and other documents are currently located
at the offices of the Registrant, c/o Puglisi & Associates, 850 Library
Avenue, Suite 204, Newark, Delaware 19715 and at the offices of , the
Registrant's Administrator, Custodian, Paying Agent, Transfer Agent and
Registrar.
Item 32. Management Services
Not Applicable
Item 33. Undertakings
(a) The Registrant hereby undertakes to suspend offering of its units
until it amends its prospectus if (1) subsequent to the effective date of
its Registration Statement, the net asset value declines more than 10
percent from its net asset value as of the effective date of the
Registration Statement or (2) the net asset value increases to an amount
greater than its net proceeds as stated in the prospectus.
(b) The Registrant hereby undertakes that (i) for the purpose of
determining any liability under the Act, the information omitted from the
form of prospectus filed as part of this registration statement in reliance
upon Rule 430A and contained in a form of prospectus filed by the
Registrant under Rule 497(h) under the Act shall be deemed to be part of
this registration statement as of the time it was declared effective; (ii)
for the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of the securities at that time shall be deemed to
be the initial bona fide offering thereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, and State of New York, on the 18th of
September, 1998.
THE 1998-1 TEES TRUST
By: /s/Donald J. Puglisi
______________________________
Donald J. Puglisi as Trustee
By: /s/William R. Latham III
_______________________________
William R. Latham III as Trustee
By: /s/James B. O'Neill
______________________________
James B. O'Neill as Trustee
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the date indicated.
Name Title Date
/s/Donald J. Puglisi President, Vice September 18, 1998
_______________________ President/Secretary,
Donald J. Puglisi and Treasurer
EXHIBIT INDEX
Sequential
Exhibit Page
Number Description Number
*2.a.(i) Trust Agreement
*2.a.(ii) Certificate of Trust
**2.a.(iii) Form of Amended and
Restated Trust Agreement
**2.d Form of Specimen
Certificate of Trust
Equity Enhanced Security
(included in Exhibit
2.a.(iii))
**2.h Form of Underwriting
Agreement
**2.j Form of Custodian
Agreement
**2.k.(i) Form of Administration
Agreement
**2.k.(ii) Form of Paying Agent
Agreement
**2.k.(iii) Form of Forward Purchase Contract
**2.k.(iv) Form of Collateral Agreement
**2.k.(v) Form of Fund Expense Agreement
**2.k.(vi) Form of Fund Indemnity Agreement
**2.l Opinion and Consent
of Counsel to the Trust
**2.n.(i) Tax Opinion of Counsel
to the Trust (Consent contained
in Exhibit 2.n.i)
**2.n.(iii) Consent of Independent
Public Accountants
**2.p Form of Subscription Agreement
- -----------------
* Filed herewith
** To be filed by Amendment
TRUST AGREEMENT OF THE 1998-1 TEES TRUST
TRUST AGREEMENT, dated as of August 26, 1998 among Sutro & Co.
Incorporated, as Sponsor, and Donald J. Puglisi, William R. Latham III and
James B. O'Neill, as Trustees. The Sponsor and the Trustees hereby agree
as follows:
1. The trust created hereby shall be known as "The 1998-1 TEES
Trust", in which name the Trustees may conduct the business of the Trust,
make and execute contracts, and sue and be sued.
2. The Sponsor hereby assigns, transfers, conveys and sets over to
the Trustees the sum of $1. The Trustees hereby acknowledge receipt of
such amount in trust from the Sponsor, which amount shall constitute the
initial trust estate. The Trustees hereby declare that they will hold the
trust estate in trust for the Sponsor. It is the intention of the parties
hereto that the Trust being created hereby constitute a business trust under
Chapter 38 of Title 12 of the Delaware Code, 12 Del. C. section 3801, et
seq. and that this document constitute the governing instrument of the
Trust. The Trustees are hereby authorized and directed to execute and file
a certificate of Trust with the Delaware Secretary of State in the form
attached hereto.
3. The Sponsor and the Trustees will enter into an amended and
restated Trust Agreement, satisfactory to each such party, to provide for
the contemplated operation of the Trust created hereby. Prior to the
execution and delivery of such amended and restated Trust Agreement, the
Trustees shall not have any duty or obligation hereunder or with respect to
the trust estate, except as otherwise required by applicable law or as may
be necessary to obtain prior to such execution and delivery any licenses,
consents or approvals required by applicable law or otherwise.
4. This Trust Agreement may be executed in one or more counterparts.
5. The Trustees may resign upon thirty days prior notice to the
Sponsor.
IN WITNESS WHEREOF, the parties hereto have caused this Trust
Agreement to be duly executed by their respective officers hereunto duly
authorized, as of the day and year first above written.
SPONSOR
SUTRO & CO. INCORPORATED,
As Sponsor
By: /s/ Thomas R. Weinberger
---------------------------------
Name: Thomas R. Weinberger
Title: Executive Vice President
Director Investment Banking
TRUSTEE
/s/ Donald J. Puglisi
------------------------------------
Donald J. Puglisi,
As Trustee
TRUSTEE
/s/ William R. Latham, III
------------------------------------
William R. Latham III,
As Trustee
TRUSTEE
/s/ James B. O'Neill
------------------------------------
James B. O'Neill,
As Trustee
CERTIFICATE OF TRUST OF THE 1998-1 TEES TRUST
This Certificate of Trust of The 1998-1 TEES TRUST (the "Trust"),
dated August 26, 1998, is being duly executed and filed by Donald J.
Puglisi, William R. Latham III and James B. O'Neill, as trustees, to form a
business trust under the Delaware Business Trust Act (12 Del. C. section
3801, et seq.)
1. Name. The name of the business trust formed hereby is THE
1998-1 TEES TRUST.
2. Registered Office; Registered Agent. The business address
of the registered office of the Trust in the State of Delaware is Puglisi &
Associates, 850 Library Avenue, Suite 204, Newark, Delaware, 19715. The
name of the Trust's registered agent at such address is Donald J. Puglisi.
3. Effective Date. This Certificate of Trust shall be
effective upon the date and time of filing.
IN WITNESS WHEREOF, the undersigned, being the trustees of the
Trust, have executed this Certificate of Trust as of the date first above-
written.
/s/ Donald J. Puglisi
-------------------------------------
Donald J. Puglisi
Trustee
/s/ William R. Latham III
-------------------------------------
William R. Latham III
Trustee
/s/ James B. O'Neill
-------------------------------------
James B. O'Neill
Trustee
