As filed with the Securities and Exchange Commission on
December 21, 1998
Securities Act File No. 333-
Investment Company Act File No. 811-
=================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
FORM N-2
Registration Statement Under The Securities Act of 1933 |X|
Pre-Effective Amendment No. ____ |_|
Post-Effective Amendment No. ____ |_|
Registration Statement Under The Investment
Company Act of 1940 |X|
Amendment No. ____ |_|
--------------------------
DECS TRUST IV
(Exact Name of Registrant as Specified in Charter)
c/o Salomon Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
(Address of Principal Executive Offices)
Registrant's Telephone Number,
including Area Code: (212) 816-6000
Alan M. Rifkin
Salomon Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
(Name and Address of Agent for Service)
With copies to:
Raymond B. Check, Esq.
David W. Hirsch, Esq.
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006-1470
(212) 225-2000
Approximate Date of Proposed Public Offering: As soon as
practicable after the effective date of this Registration
Statement. If any securities being registered on this form will
be offered on a delayed or continuous basis in reliance on Rule
415 under the Securities Act of 1933, as amended, other than
securities offered in connection with a dividend reinvestment
plan, check the following box. |_|
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
=================================================================
Proposed
Maximum Proposed
Title of Amount Offering Maximum Amount of
Securities being Price Aggregate Regis-
Being Regis- Per Offering tration
Registered tered(1) DECS(2) Price(2) Fee(3)
- -----------------------------------------------------------------
DECS
representing
shares of
beneficial
interest..... $ $300,000,000 $83,400
=================================================================
(1) Includes a total of [ ] DECS that may be issued in
connection with the exercise of an over-allotment option.
(2) Estimated solely for the purpose of calculating the
registration fee.
(3) Computed pursuant to Rule 457(o) based upon the maximum
aggregate offering price of the DECS.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON
SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE
DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH
SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL
THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A) MAY DETERMINE.
=================================================================
<PAGE>
DECS TRUST IV
Cross-Reference Sheet
Parts A and B of Prospectus*
Item
No. Caption Prospectus Caption
- ---- ------- ------------------
1. Outside Front Cover............... Front Cover Page
2. Inside Front and Outside Front Cover Page; Inside Front
Back Cover Page................. Cover Page
3. Fee Table and Synopsis............ Prospectus Summary; Fees and
Expenses
4. Financial Highlights.............. Not Applicable
5. Plan of Distribution.............. Front Cover Page; Prospectus
Summary; Underwriting
6. Selling Shareholders.............. Not Applicable
7. Use of Proceeds................... Use of Proceeds; Investment
Objectives and Policies
8. General Description Front Cover Page; Prospectus
of the Registrant............... Summary; The Trust; Investment
Restrictions; Investment
Objectives and Policies; Risk
Factors for DECS
9. Management........................ Management and Administration of
the Trust
10. Capital Stock, Long-Term Debt and
Other Securities; Federal
Income Tax Considerations....... Description of DECS
11. Defaults and Arrears on Senior
Securities...................... Not Applicable
12. Legal Proceedings................. Not Applicable
13. Table of Contents of the Statement
of Additional Information....... Not Applicable
14. Cover Page........................ Not Applicable
15. Table of Contents................. Not Applicable
16. General Information and History... The Trust
17. Investment Objective and Policies. Investment Objectives and
Policies; Investment Restrictions
18. Management........................ Management and Administration of
the Trust
19. Control Persons and Principal Management and Administration of
Holders of Securities........... the Trust
20. Investment Advisory and Other Management and Administration of
Services........................ the Trust
21. Brokerage Allocation and Other
Practices....................... Investment Objectives and Policies
22. Tax Status........................ Certain United States Federal
Income Tax Considerations
23. Financial Statements.............. Statement of Assets and Liabilities
- ----------------
* Pursuant to the General Instructions to Form N-2, all
information required to be set forth in Part B: Statement
of Additional Information has been included in Part A: The
Prospectus. Information required to be included in Part C
is set forth under the appropriate item, so numbered, in
Part C of the N-2 Registration Statement.
<PAGE>
*****************************************************************
The information in this prospectus is not complete and may be
changed. We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is
effective. This prospectus is not an offer to sell these
securities, and we are not soliciting an offer to buy these
securities in any state where the offer or sale is permitted.
*****************************************************************
SUBJECT TO COMPLETION, DATED DECEMBER 21, 1998
PROSPECTUS
[ ] DECS SM
DECS TRUST IV
(Subject to Exchange into Common Stock
of Maxtor Corporation)
DECS Trust IV is a recently created Delaware business
trust. The DECS are securities that represent all of the
beneficial interest in the trust. When the trust issues the DECS,
it will own U.S. Treasury securities and a prepaid forward
contract for the purchase of Maxtor common stock.
For each DECS that you buy, you will receive a cash
distribution of $ on each , ,
and starting on
, 1999 and ending when the trust terminates.
Those payments will be made from U.S. Treasury securities that
the trust holds when it issues the DECS.
The trust will hold a prepaid forward contract to receive
Maxtor common stock from Hyundai Electronics America. The trust
will terminate on or shortly after , 2002. When the trust
terminates, Hyundai Electronics America will deliver, at its
option, either cash or Maxtor stock to the trust. The trust will
then deliver this cash or Maxtor stock to you. The cash or number
of shares of Maxtor stock that Hyundai Electronics America will
deliver and you will receive will depend on the price of Maxtor
common stock shortly before the date the trust terminates. If the
price of Maxtor stock is:
- more than $ per share, you will receive 0.
shares of Maxtor common stock or the cash equivalent
for each DECS you own
- more than $ per share but less than or equal to
$ per share, you will receive shares of Maxtor
common stock worth $ or the cash equivalent for
each DECS you own
- $ per share or less, you will receive one share of
Maxtor common stock for each DECS you own
The last reported sale price of Maxtor common stock on
, 1999 was $ per share.
INVESTING IN THE DECS INVOLVES CERTAIN RISKS. SEE "RISK
FACTORS FOR DECS" BEGINNING ON PAGE __.
-----------------
The trust's securities have no history of public trading.
Typical closed-end fund shares frequently trade at a discount
from net asset value. This characteristic of investments in a
closed-end investment company is a risk separate and distinct
from the risk that the trust's net value will decrease. The
trust cannot predict whether the DECS will trade at, below or
above net asset value. The risk of purchasing investments in a
closed-end company that might trade at a discount is more
pronounced for investors who wish to sell their investments soon
after completion of a public offering.
-----------------
Neither the Securities and Exchange Commission nor any
state securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
Per DECS Total
-------- -----
Public Offering Price $ $
Sales Load $ $
Proceeds to the Trust before expenses $ $
The underwriters are offering the DECS subject to various
conditions. The underwriters expect to deliver the DECS to
purchasers on , 1999.
-----------------
[UNDERWRITERS]
, 1999
<PAGE>
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS. THE TRUST HAS NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION. THE
TRUST IS NOT MAKING AN OFFER OF THESE SECURITIES IN ANY STATE
WHERE THE OFFER IS NOT PERMITTED. YOU SHOULD NOT ASSUME THAT THE
INFORMATION CONTAINED IN OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE
FRONT OF THIS PROSPECTUS.
TABLE OF CONTENTS
Page
----
Prospectus Summary......................................... 3
Fees and Expenses.......................................... 7
The Trust.................................................. 8
Use of Proceeds............................................ 8
Investment Objectives and Policies......................... 8
Investment Restrictions.................................... 19
Risk Factors for DECS...................................... 19
Net Asset Value............................................ 22
Description of the DECS.................................... 22
Management and Administration of the Trust................. 24
Certain United States Federal Income Tax
Considerations............................................ 26
Underwriting............................................... 30
Legal Matters.............................................. 32
Experts.................................................... 32
Where You Can Find More Information........................ 32
Report of Independent Public Accountants................... 33
Statement of Assets, Liabilities and Capital............... 34
UNTIL ______, 1999, ALL DEALERS THAT EFFECT TRANSACTIONS IN
THESE SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS SECURITIES
OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTION.
----------------------------
"DECS" is a service mark of Salomon Smith Barney Inc.
2
<PAGE>
PROSPECTUS SUMMARY
This summary highlights certain information contained
elsewhere in this prospectus. This summary is not complete and
does not contain all of the information that you should consider
before investing in the DECS. You should read the entire
prospectus carefully, especially the risks of investing in the
DECS discussed under "Risk Factors for DECS."
The Trust
DECS Trust IV is a recently created Delaware business
trust. The trust will terminate on or shortly after , 2002,
which is referred to in this summary as the "exchange date"
because that is when the Maxtor shares or their value in cash are
expected to be delivered under a contract the trust has with
Hyundai Electronics America. In some limited circumstances, the
Maxtor shares may be delivered and the trust terminated sooner
than that date.
The DECS
The DECS are securities that represent all of the
beneficial interest in the trust. The underwriters named in this
prospectus are offering the DECS for sale at a price of $ per
DECS, which is the same as the closing bid price of a share of
Maxtor common stock on the NASDAQ National Market on , 1999. The
underwriters also may purchase up to additional DECS from the
trust to cover over-allotments.
Purpose of the Trust
The trust was created to issue the DECS and to carry out
the transactions described in this prospectus. The terms of the
DECS are designed to give you a higher yield than the current
dividend yield on Maxtor stock, while also giving you the chance
to share in the increased value of Maxtor stock if its price goes
up. Maxtor does not currently pay dividends on its stock and has
stated that it does not intend to do so, but in the future Maxtor
might pay dividends that are higher than the distributions that
you will receive from the trust. Also, you will receive less than
you paid for your DECS if the price of Maxtor stock goes down,
but you will receive only part of the increased value if the
price goes up, and then only if the price is above $ per
share shortly before the exchange date.
Quarterly Distributions
For each DECS that you buy, you will receive a cash
distribution of $ on each , , and
, starting on , 1999 and ending when the trust
terminates. Those payments will be made from U.S. Treasury
securities that the trust holds when it issues the DECS.
Distributions on the Exchange Date
On the exchange date, you will receive between 0. and 1.0
shares of Maxtor stock for each DECS you own. Those amounts will
be adjusted if Maxtor splits its stock, pays a stock dividend,
issues warrants or distributes certain types of assets or if
certain other events occur that are described in detail later in
this prospectus. Under its contract with the trust, Hyundai
Electronics America has the option to deliver cash to the trust
instead of shares of Maxtor stock. If Hyundai Electronics America
decides to deliver cash, you will receive the cash value of the
Maxtor shares you would have received instead of the shares
themselves. If Maxtor merges into another company or liquidates,
you may receive shares of the other company or cash instead of
Maxtor stock on the exchange date. And if Hyundai Electronics
America defaults under its contract with the trust, the
obligations of Hyundai Electronics America under the contract
will be accelerated, and the trust will immediately distribute to
you the Maxtor stock or cash received by the trust under the
contract, plus the U.S. Treasury securities then held by the
trust.
3
<PAGE>
Voting Rights
You will not have the right to vote any Maxtor shares
unless and until they are delivered to the trust by Hyundai
Electronics America and distributed to you by the trust. You will
have the right to vote on matters that affect the trust.
Assets of the Trust; Investment Objectives and Policies
The trust will own the following assets:
- zero-coupon U.S. Treasury securities that will mature
every quarter during the term of the trust, and which
will provide cash to pay the quarterly distributions
on the DECS
- a prepaid forward purchase contract with Hyundai
Electronics America under which Hyundai Electronics
America has the right to deliver Maxtor stock or cash
to the trust on the delivery date, which the trust
will then distribute to you
The U.S. Treasury securities initially will represent
approximately % of the trust's assets and the prepaid forward
purchase contract initially will represent approximately %.
The trust's investment objective is to provide you with (1)
a quarterly distribution of $ per DECS over the term of the
trust and (2) Maxtor common stock on the exchange date in an
amount equal to:
- 0. shares of Maxtor stock per DECS if the
average price of Maxtor stock shortly before the
exchange date is more than $
- shares of Maxtor stock worth $ per DECS (the issue
price of the DECS) if the average price of Maxtor
stock shortly before the exchange date is more than $
per share but less than or equal to $ per share
- one share of Maxtor stock per DECS if the average
price of Maxtor stock shortly before the exchange date
is $ or less per share
The trust will not deliver fractions of a share of Maxtor stock.
If you would receive a fraction of a share of Maxtor stock under
this formula (based on all DECS owned), you will receive cash
instead.
At the closing of the sale of the DECS, the trust and
Hyundai Electronics America will enter into the prepaid forward
purchase contract, which will require Hyundai Electronics America
to deliver to the trust up to a total of shares of Maxtor
stock on the exchange date. The purchase price for the Maxtor
stock under the contract will be $ per share or $ in total.
The trust will pay Hyundai Electronics America the purchase price
for the Maxtor shares on the date the DECS are issued.
Hyundai Electronics America will secure its obligation to
deliver Maxtor shares to the trust on the exchange date by
pledging the shares to the trust on the date the DECS are issued.
During the term of the DECS, Hyundai Electronics America will
have the right to substitute U.S. Treasury securities as
collateral for the pledged Maxtor shares.
Certain U.S. Federal Income Tax Consequences
For U.S. federal income tax purposes, the trust and owners
of DECS agree to treat the owners of DECS as owning all of the
beneficial interests in the U.S. Treasury securities and the
forward purchase contract held by the trust. In addition, Hyundai
Electronics America, the trust and owners of DECS agree to treat
a portion of the amount invested by you as a cash deposit that
will be used to satisfy your obligation to make payment under the
forward purchase contract for the purchase of Maxtor stock on the
exchange date. Under this treatment, if you are a U.S. individual
or taxable entity, you generally will be required to pay taxes on
only a relatively small portion of
4
<PAGE>
each quarterly cash distribution you receive from the trust,
which will be ordinary income. If you hold the DECS until they
mature, you will not be subject to tax on the receipt of Maxtor
stock. If you sell your DECS or receive cash on the exchange
date, you will have a capital gain or loss equal to the
difference between your tax basis in the DECS and the cash you
receive. You should refer to the section "Certain United States
Federal Income Tax Considerations" in this prospectus for more
information.
Maxtor
Maxtor is a leading provider of hard disk drive storage
products for desktop computer systems. Its customers are desktop
computer manufacturers, including Compaq, Dell and IBM;
distributors, including Bell Micro and Ingram; and retailers,
including Best Buy, CompUSA and Staples.
A prospectus that describes Maxtor and the Maxtor stock
that owners of DECS may receive is attached to this prospectus.
Maxtor is not affiliated with the trust, will not receive any of
the proceeds from the sale of the DECS by the trust and will not
have any obligation under the DECS or the forward purchase
contract between the trust and Hyundai Electronics America.
Hyundai Electronics America did not prepare, and is not
responsible for, the Maxtor prospectus.
THE MAXTOR PROSPECTUS IS ATTACHED TO THIS PROSPECTUS ONLY
FOR YOUR CONVENIENCE. THE MAXTOR PROSPECTUS IS NOT PART OF THIS
PROSPECTUS AND IS NOT INCORPORATED BY REFERENCE INTO THIS
PROSPECTUS.
Management and Administration of the Trust
The internal operations of the trust will be managed by
three trustees; the trust will not have an investment advisor.
The Bank of New York (or its successor) will act as trust
administrator to carry out the day-to-day administration of the
trust, and will also be the custodian for the trust's assets, its
paying agent, registrar and transfer agent for the DECS and the
collateral agent for Hyundai Electronics America's pledge of
Maxtor stock to the trust. The Bank of New York will not have any
other affiliation with the trust.
Term of the Trust
The trust will terminate automatically on or shortly after
the date on which the trust distributes to you the Maxtor shares
or cash that the trust receives on the exchange date under its
contract with Hyundai Electronics America. Under most circum-
stances, this will be on or shortly after , 2002.
Risk Factors
- The trust will not dispose of its forward purchase
contract for Maxtor stock during the term of the trust
even if the value of Maxtor stock declines or Maxtor's
financial condition changes for the worse.
- During the term of the trust, Maxtor could start
paying dividends that would provide investors in its
stock with a higher yield than you will receive on the
DECS.
- You will bear the entire risk of declines in the value
of Maxtor stock between the closing date and the
exchange date. The number of Maxtor shares or the
amount of cash that you will receive on the exchange
date is not fixed, but is based on the market price of
Maxtor stock shortly before the exchange date. If the
market price of Maxtor stock declines, the stock or
cash that you receive will be less than what you paid
for your DECS and you will lose money. If Maxtor
becomes bankrupt or insolvent, you could lose
everything you paid for your DECS.
- You will have less opportunity for gains if the value
of Maxtor stock increases than you would have if you
purchased Maxtor stock directly. You will realize a
gain only if the value of Maxtor stock increases by
approximately % between the closing date and the
exchange date, and then you will only receive % of the
increase in the Maxtor stock price above that level.
Because the trust will determine the value of the
Maxtor stock based on its average price for 20 trading
days before the exchange date, the actual value of the
stock or cash that you receive on the exchange date
may be more or less than the price of the stock on the
exchange date.
5
<PAGE>
- Because the trust will own only U.S. Treasury
securities and its forward purchase contract, an
investment in the DECS may be riskier than an
investment in an investment company with more
diversified assets.
- The trading price of Maxtor's common stock will
directly affect the trading price of the DECS in the
secondary market. The trading price of Maxtor's stock
will be influenced by Maxtor's operating results and
prospects, by economic, financial and other factors
and by general market conditions.
- You will not have any right to vote the Maxtor stock
underlying the DECS, to receive dividends on that
stock (if any are declared) or to act as an owner of
the stock in any other way unless and until Hyundai
Electronics America delivers the stock to the trust
under its forward purchase contract and the trust
distributes the stock to you.
- A bankruptcy of Hyundai Electronics America or one of
its subsidiaries could interfere with the timing of
the delivery of shares or cash under the DECS and
therefore could affect the amount you receive.
Listing
The trust has applied to have the DECS approved for
quotation on the Nasdaq National Market under the symbol " ."
Maxtor common stock is traded on the Nasdaq National Market under
the symbol "MXTR." The last reported sale price of the Maxtor
common stock on , 1999 was $ per share.
Concurrent Share Offering
Concurrently with this offering, Hyundai and Maxtor are
offering for sale in a separate offering shares of Maxtor
common stock ( shares if the underwriters' over-allotment
option is exercised in full).
6
<PAGE>
FEES AND EXPENSES
Because the trust will use proceeds from the sale of the
DECS to purchase the forward purchase contract from Hyundai
Electronics America, Hyundai Electronics America has agreed in
the underwriting agreement to pay to the underwriters as
compensation $ per DECS. See "Underwriting." will be paid by
Salomon Smith Barney Inc. ("Salomon Smith Barney") estimated
organization costs of the trust in the amount of $ and
estimated costs of the trust in connection with the initial
registration and public offering of the DECS in the amount of
$ at the closing of this offering. In addition, Salomon Smith
Barney will pay the Administrator, the Custodian, the Paying
Agent and each Trustee at the closing of this offering a
one-time, up-front amount in respect of its ongoing fees and, in
the case of the Administrator, anticipated expenses of the trust
(estimated to be $ in the aggregate) over the term of the
trust. Salomon Smith Barney has agreed to pay any on-going
expenses of the Trust in excess of these estimated amounts and to
reimburse the trust for any amounts it may be required to pay as
indemnification to any Trustee, the Administrator, the Custodian
or the Paying Agent. Hyundai Electronics America will reimburse
Salomon Smith Barney for all expenses of the trust and
reimbursements of indemnifications paid by it. See "Management
and Administration of the Trust--Estimated Expenses."
Regulations of the Securities and Exchange Commission
require the presentation of trust expenses in the following
format in order to assist investors in understanding the costs
and expenses that an investor will bear directly or indirectly.
Because the trust will not bear any ongoing fees or expenses,
investors will not bear any direct expenses. The only expenses
that an investor might be considered to bear indirectly are
(a) the underwriters' compensation payable by Hyundai Electronics
America with respect to such investor's DECS and (b) the ongoing
expenses of the Trust (including fees of the Administrator,
Custodian, Paying Agent and Trustees), estimated at $ per year
in the aggregate, which Salomon Smith Barney will pay at the
closing of the offering.
Investor transaction expenses
Sales Load (as a percentage of offering price).......... %
===
Annual Expenses
Management Fees......................................... 0%
Other Expenses (after reimbursement by Hyundai
Electronics America)*................................. 0%
---
Total Annual Expenses*................................ 0%
===
- ----------------------
* Without this reimbursement, the trust's "total annual
expenses" would be equal to approximately % of the trust's
average net assets.
SEC regulations also require that closed-end investment
companies present an illustration of cumulative expenses (both
direct and indirect) that an investor would bear. The regulations
require the illustration to factor in the applicable sales load
and to assume, in addition to a 5% annual return, the
reinvestment of all distributions at net asset value. Investors
should note that the assumption of a 5% annual return does not
accurately reflect the financial terms of the trust. See
"Investment Objectives and Policies--Trust Assets." Additionally,
the trust does not permit the reinvestment of distributions.
1 Year 3 Years
------ -------
You would pay the following expenses
(i.e., the applicable sales
load and allocable portion of
ongoing expenses paid by Salomon
Smith Barney and Hyundai Electronics
America) on a $1,000 investment,
assuming a 5% annual return $ $
7
<PAGE>
THE TRUST
DECS Trust IV (the "Trust") is a newly organized Delaware
business trust that is registered as a closed-end management
investment company under the Investment Company Act. The Trust
was formed on December 18, 1998, pursuant to a Declaration of
Trust, dated as of December 17, 1998 (the "Declaration of
Trust"). The term of the Trust will expire on or shortly after
, 2002, except that the Trust may be dissolved prior to such
date under certain limited circumstances. The address of the Trust
is c/o Salomon Smith Barney Inc., 388 Greenwich Street, New York,
New York 10013 (telephone number: (212) 816-6000).
USE OF PROCEEDS
On or shortly after the date on which it sells the DECS,
the Trust will use the net proceeds of this offering to purchase
a fixed portfolio comprised of a series of zero-coupon U.S.
Treasury securities (the "Treasury Securities") maturing
quarterly during the term of the Trust and to pay the purchase
price under the prepaid forward purchase contract (the
"Contract") to Hyundai Electronics America ("Hyundai").
INVESTMENT OBJECTIVES AND POLICIES
Trust Assets
The Trust's investment objectives are to provide investors
with a quarterly distribution of $ per DECS on each
distribution date during the term of the Trust (representing the
pro rata portion of the quarterly distributions in respect of the
maturing Treasury Securities held by the Trust) and to provide
investors, at the conclusion of the term of the Trust (the
"Exchange Date"), a number of shares of Maxtor common stock (the
"Common Stock") at the Exchange Rate (as defined below) or, to
the extent that Hyundai elects the Cash Delivery Option (as
defined below), an amount in cash equal to the Exchange Price (as
defined below) thereof. On or prior to the 25th Business Day
prior to the Exchange Date, Hyundai will notify the Trust
concerning its exercise of the Cash Delivery Option, and the
Trust in turn will notify The Depository Trust Company and
publish a notice in a daily newspaper of national circulation
stating whether investors will receive shares of Common Stock or
cash. See "--The Contract--General" below. "Business Day" means
any day that is not a Saturday, a Sunday or a day on which the
New York Stock Exchange or banking institutions or trust
companies in The City of New York are authorized or obligated by
law or executive order to close.
The "Exchange Rate" is equal to, subject to certain
adjustments,
(a) if the Exchange Price (as defined below) is greater
than or equal to $ (the "Threshold Appreciation
Price"), shares of Common Stock per DECS;
(b) if the Exchange Price is less than or equal to the
Threshold Appreciation Price but is greater than
$ (the "Initial Price"), a fraction, equal to the
Initial Price divided by the Exchange Price, of one
share of Common Stock per DECS; and
(c) if the Exchange Price is less than or equal to the
Initial Price, one share of Common Stock per DECS.
Accordingly, the value of the Common Stock to be received
by investors (or, as discussed below, the cash equivalent to be
received in lieu of such Common Stock) at the Exchange Date will
not necessarily equal the Initial Price. The numbers of shares of
Common Stock per DECS specified in clauses (a), (b) and (c) of
the Exchange Rate are hereinafter referred to as the "Share
Components." Any shares of Common Stock delivered by the Trust to
investors that are not affiliated with Maxtor will be free of any
transfer restrictions and the investors will be responsible for
the payment of all brokerage costs upon the subsequent sale of
such shares. Investors otherwise entitled to receive fractional
shares in respect of their aggregate holdings of DECS will
receive cash in lieu thereof. See "--Delivery of Common Stock and
Reported Securities; No Fractional Shares of Common Stock or
Reported Securities" below. Notwithstanding the foregoing, (1) in
the case of certain dilution events, the Exchange Rate will
8
<PAGE>
be subject to adjustment and (2) in the case of certain
adjustment events, the consideration received by investors at the
Exchange will be cash or Reported Securities (as defined herein)
or a combination thereof, rather than (or in addition to) shares
of Common Stock. See "--The Contract--Dilution Adjustments;
Adjustment Events" below.
The Trust has adopted a fundamental policy to invest at
least 65% 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 Trust may
not dispose of the Contract during the term of the Trust and that
the Trust may not dispose of Treasury Securities held by the
Trust prior to the earlier of their respective maturities and the
termination of the Trust except for the partial liquidation of
Treasury Securities following acceleration of the Contract as
described below under "--The Treasury Securities." These
fundamental policies of the Trust may not be changed without the
vote of a "majority in interest" of the owners of the DECS. A
"majority in interest" means the lesser of (a) 67% of the DECS
represented at a meeting at which more than 50% of the
outstanding DECS are represented and (b) more than 50% of the
outstanding DECS.
The "Exchange Price" means the average Closing Price (as
defined below) per share of Common Stock on the 20 Trading Days
immediately prior to (but not including) the Exchange Date;
provided, however, that if there are not 20 Trading Days (as
defined below) for the Common Stock occurring later than the 60th
calendar day immediately prior to, but not including, the
Exchange Date, the Exchange Price will be the market value per
share of Common Stock as of the Exchange Date as determined by a
nationally recognized independent investment banking firm that
the Administrator retains for this purpose. The "Closing Price"
of any security on any date of determination means:
(1) the closing sale price (or, if no closing price is
reported, the last reported sale price) of such
security (regular way) on the NYSE on such date,
(2) if such security is not listed for trading on the NYSE
on any such date, as reported in the composite
transactions for the principal United States
securities exchange on which such security is so
listed,
(3) if such security is not so listed on a United States
national or regional securities exchange, as reported
by The Nasdaq Stock Market,
(4) 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
(5) if such security is not so quoted, the average of the
mid-point of the last bid and ask prices for such
security from at least three nationally recognized
investment banking firms that the Administrator
selects for such purpose.
A "Trading Day" is defined as a day on which the security the
Closing Price of which is being determined (A) is not suspended
from trading on any national or regional securities exchange or
association or over-the-counter market at the close of business
and (B) has traded at least once on the national or regional
securities exchange or association or over-the-counter market
that is the primary market for the trading of such security.
For illustrative purposes only, the following chart shows
the number of shares of Common Stock or the amount of cash that
an investor would receive for each DECS at various Exchange
Prices. The chart assumes that there will be no adjustments to
the Exchange Rate due to any of the events described under "--The
Contract-- Dilution Adjustments; Adjustment Events" below and
that the Contract will not be accelerated. There can be no
assurance that the Exchange Price will be within the range set
forth below. Given the Initial Price of $ per DECS and the
Threshold Appreciation Price of $ , an investor would receive at
the Exchange Date the following number of shares of Common Stock
or amount of cash (if Hyundai exercises the Cash Delivery Option)
per DECS:
9
<PAGE>
Exchange Price of Number of Shares of
Common Stock Common Stock Amount of Cash
----------------- ------------------- --------------
As the foregoing chart illustrates, if at the Exchange
Date, the Exchange Price is greater than $ , the Trust will be
obligated to deliver shares of Common Stock per DECS, resulting
in an investor receiving only percent of the appreciation in
market value above $ . If at the Exchange Date, the Exchange
Price is greater than $ and less than or equal to $ , the Trust
will be obligated to deliver only a fraction of a share of Common
Stock having a value at the Exchange Price equal to $ , resulting
in an investor receiving none of the appreciation in market
value. If at the Exchange Date, the Exchange Price is less than
or equal to $ , the Trust will be obligated to deliver one share
of Common Stock per DECS, regardless of the market price of such
share, resulting in an investor realizing the entire loss on the
decline in market value of the Common Stock.
The following table sets forth information regarding the
distributions to be received on the Treasury Securities held by
the Trust, the portion of each year's distributions that will
constitute a return of capital for U.S. federal income tax
purposes and the amount of original issue discount accruing on
the Treasury Securities with respect to an investor who acquires
its DECS at the Initial Price from the underwriters in the
original offering. See "Certain United States Federal Income Tax
Considerations."
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Annual Gross Annual
Annual Gross Distributions from Inclusion of Original Issue
Distributions from Treasury Securities Annual Return of Discount in Income
Year Treasury Securities per DECS Capital per DECS per DECS
- ---- ------------------- ------------------- ---------------- ---------------------------
1999 $ $ $ $
2000
2001
2002
</TABLE>
The Trust will pay the annual distribution of $ per DECS
quarterly on each , , and (or, if any such date is not a
Business Day, on the next succeeding Business Day), commencing
, 1999. Quarterly distributions on the DECS will
consist solely of the cash received from the Treasury Securities.
The Trust will not be entitled to any dividends that may be
declared on the Common Stock.
Enhanced Yield; Less Potential for Equity Appreciation than
Common Stock; No Depreciation Protection
The yield on the DECS is higher than the current dividend
yield on the Common Stock, which currently does not pay
dividends. However, there is no assurance that the yield on the
DECS will be higher than the dividend yield on the Common Stock
over the term of the Trust. In addition, the opportunity for
equity appreciation afforded by an investment in the DECS is less
than the opportunity for equity appreciation afforded by a direct
investment in the Common Stock because the value of the Common
Stock to be received by owners of the DECS at the Exchange Date
(the "Amount Receivable at the Exchange Date") will generally
exceed the Initial Price only if the Exchange Price exceeds the
Threshold Appreciation Price (which represents an appreciation of
% over the Initial Price) and because investors will be
entitled to receive at the Exchange Date only % (the percentage
equal to the Initial Price divided by the Threshold Appreciation
Price) of any appreciation of the value of the Common Stock in
excess of the Threshold Appreciation Price. Moreover, DECS
investors will bear the entire decline in value if the Exchange
Price on the Exchange Date is less than the Initial Price.
Additionally, because the Exchange Price is generally determined
based on a 20 Trading Day average, the value of a share of Common
Stock distributed on the
10
<PAGE>
Exchange Date may be more or less than the Exchange Price used to
determine the Amount Receivable at the Exchange Date.
Maxtor
Maxtor Corporation is a leading provider of hard disk
drives for desktop computers. Its customers are desktop computer
manufacturers, including Compaq, Dell and IBM; distributors,
including Bell Micro and Ingram; and retailers, including Best
Buy, CompUSA and Staples.
Owners of DECS will not be entitled to any rights with
respect to the Common Stock (including, without limitation,
voting rights and rights to receive dividends or other
distributions in respect thereof) unless and until such time, if
any, as Hyundai delivers shares of Common Stock to the Trust
pursuant to the Contract and the Trust has distributed such
shares to the owners of the DECS.
A prospectus that describes Maxtor and the Common Stock
that owners of DECS may receive is attached to this prospectus.
The Common Stock has been quoted on The Nasdaq National
Market under the symbol "MXTR" since July 31, 1998. The following
table sets forth, for the indicated periods, the high and low
sales prices of the Common Stock, as reported on The Nasdaq
National Market. Maxtor has never paid cash dividends on its
stock and has stated that it does not anticipate paying cash
dividends on its stock, including the Common Stock, in the near
future. As of 1999, there were record holders of the
Common Stock, [including The Depository Trust Company, which
holds shares of Common Stock on behalf of an indeterminate number
of beneficial owners]. Maxtor's fiscal year ends on the last
Saturday in December.
High Low
---- ---
Fiscal 1999 First Quarter
(through , 1999) ................. $ $
Fiscal 1998 Fourth Quarter .....................
Fiscal 1998 Third Quarter
(from July 31, 1998) .......................
Maxtor is not affiliated with the Trust, will not receive any of
the proceeds from the sale of the DECS by the Trust and will have
no obligations with respect to the DECS or the Contract. This
prospectus relates only to the DECS offered hereby and does not
relate to Maxtor or the Common Stock. Maxtor has filed a
registration statement with the SEC with respect to the shares of
Common Stock that may be delivered to the Trust by Hyundai, and
by the Trust to the owners of DECS, at the Exchange Date or upon
earlier acceleration of the Contract. The prospectus of Maxtor
constituting a part of such registration statement includes
information relating to Maxtor and the Common Stock, including
certain risk factors relevant to an investment in the Common
Stock. The prospectus of Maxtor is being attached hereto and
delivered to prospective purchasers of DECS together with this
prospectus for convenience of reference only. The Maxtor
prospectus is not part of this prospectus, and is not
incorporated by reference into this prospectus. Hyundai did not
prepare, and is not responsible for, the Maxtor prospectus.
The Contract
General. The Trust will enter into the Contract with
Hyundai obligating Hyundai to deliver to the Trust at the
Exchange Date a number of shares of Common Stock equal to the
initial number of shares of Common Stock subject to the Contract
multiplied by the Exchange Rate. The Exchange Rate is equal to,
subject to adjustment as described in "--Dilution Adjustments;
Adjustment Events" below,
(1) if the Exchange Price is greater than the Threshold
Appreciation Price, ;
(2) if the Exchange Price is less than or equal to the
Threshold Appreciation Price but greater than the
Initial Price, the Initial Price divided by the
Exchange Price; and
(3) if the Exchange Price is less than or equal to the
Initial Price, one.
11
<PAGE>
The purchase price under the Contract is equal to $ per share
of Common Stock and $ in total and is payable to Hyundai by
the Trust on the closing of this offering. The purchase price of
the Contract was arrived at by arm's length negotiations between
the Trust and Hyundai taking into consideration factors including
the price, expected dividend level and volatility of the Common
Stock, current interest rates, the term of the Contract, current
market volatility generally, the collateral pledged by Hyundai to
secure its obligations under the Contract, the value of other
similar instruments and the costs and anticipated proceeds of the
offering of the DECS. All matters relating to the administration
of the Contract will be the responsibility of either the Trust's
Administrator or Custodian.
Although Hyundai currently intends to deliver
shares of Common Stock at the Exchange Date, Hyundai may, at its
option, deliver cash in lieu of delivering all, but not less than
all, of the shares of Common Stock otherwise deliverable by it on
the Exchange Date (the "Cash Delivery Option"), except where such
delivery would violate applicable state law. The amount of cash
deliverable by Hyundai upon the exercise of the Cash Delivery
Option will be equal to the product of the number of shares of
Common Stock otherwise deliverable by Hyundai on the Exchange
Date multiplied by the Exchange Price.
On or prior to the 25th Business Day prior to the Exchange
Date, Hyundai notify the Trust concerning its exercise of the
Cash Delivery Option, and the Trust in turn will notify The
Depository Trust Company and publish a notice in a daily
newspaper of national circulation stating whether the owners of
DECS will receive shares of Common Stock or cash.
Dilution Adjustments. The Exchange Rate is subject to
adjustment if Maxtor
(1) pays a stock dividend or makes a distribution, in
either case, with respect to Common Stock in shares of
such stock,
(2) subdivides or splits its outstanding shares of Common
Stock into a greater number of shares,
(3) combines its outstanding shares of Common Stock into a
smaller number of shares,
(4) issues by reclassification (other than a
reclassification pursuant to clause (2), (3), (4) or
(5) of the definition of Adjustment Event below) of
its shares of Common Stock any other equity securities
of Maxtor, or
(5) issues rights or warrants (other than rights to
purchase Common Stock pursuant to a plan for the
reinvestment of dividends or interest) to all holders
of Common Stock entitling them to subscribe for or
purchase shares of Common Stock at a price per share
less than the Market Price (as defined below) of the
Common Stock on the Business Day next following the
record date for the determination of holders of Common
Stock entitled to receive such rights or warrants.
In the case of the events referred to in clauses (1), (2),
(3) and (4) above, the Exchange Rate will be adjusted by
adjusting each of the Share Components of the Exchange Rate in
effect immediately prior to such event so that the Trust will be
entitled under the Contract to receive at the Exchange Date the
number of shares of Common Stock (or, in the case of a
reclassification referred to in clause (4) above, the number of
other equity securities of Maxtor issued pursuant thereto) which
it would have owned or been entitled to receive immediately
following such event had the Exchange Date occurred immediately
prior to such event or any record date with respect thereto.
In the case of the event referred to in clause (5) above,
the Exchange Rate will be adjusted by multiplying each of the
Share Components of the Exchange Rate in effect on the record
date for the issuance of the rights or warrants referred to in
clause (5) above, by a fraction -- the numerator of the fraction
is
(A) the number of shares of Common Stock outstanding on
the record date for the issuance of such rights or
warrants, plus
(B) the number of additional shares of Common Stock
offered for subscription or purchase pursuant to such
rights or warrants.
12
<PAGE>
The denominator of the fraction is
(x) the number of shares of Common Stock outstanding on
the record date for the issuance of such rights or
warrants plus
(y) the number specified in clause (B) above multiplied by
(I) the quotient of the exercise price of such rights
or warrants divided by
(II) the Market Price of the Common Stock on the
Business Day next following the record date for
the determination of holders of Common Stock
entitled to receive such rights or warrants.
If such rights or warrants expire prior to the Exchange
Date and shares of Common Stock are not delivered pursuant to
such rights or warrants prior to such expiration, the Exchange
Rate will be readjusted to the Exchange Rate which would then be
in effect had such adjustments for the issuance of such rights or
warrants been made upon the basis of delivery of only the number
of shares of Common Stock actually delivered pursuant to such
rights or warrants. For purposes of this paragraph, dividends
will be deemed to be paid as of the record date for such
dividend.
"Market Price" means, as of any date of determination, the
average Closing Price per share of Common Stock on the 20 Trading
Days immediately prior to (but not including) the date of
determination; provided, however, that if there are not 20
Trading Days for the Common Stock occurring later than the 60th
calendar day immediately prior to, but not including, such date,
the Market Price will be determined as the market value per share
of Common Stock as of such date as determined by a nationally
recognized investment banking firm that the Administrator retains
for such purpose.
All adjustments to the Exchange Rate will be calculated to
the nearest 1/10,000th of a share of Common Stock (or, if there
is not a nearest 1/10,000th of a share, to the next higher
1/10,000th of a share). No adjustment in the Exchange Rate will
be made unless such adjustment would require an increase or
decrease of at least one percent therein; provided, however, that
any adjustments which by reason of the foregoing are not required
to be made shall be carried forward and taken into account in any
subsequent adjustment. If an adjustment is made to the Exchange
Rate pursuant to clauses (1), (2), (3), (4) or (5) above, an
adjustment will also be made to the Exchange Price as such term
is used throughout the definition of Exchange Rate. The required
adjustment to the Exchange Price will be made at the Exchange
Date by multiplying the Exchange Price by the cumulative number
or fraction determined pursuant to the Exchange Rate adjustment
procedure described above. In the case of the reclassification of
any shares of Common Stock into any equity securities of Maxtor
other than the Common Stock, such equity securities will be
deemed shares of Common Stock for all purposes. Each such
adjustment to the Exchange Rate and the Exchange Price will be
made successively.
Adjustment Events. Each of the following events are called
"Adjustment Events":
(1) any dividend or distribution by Maxtor to all holders
of Common Stock of evidences of its indebtedness or
other assets (excluding any dividends or distributions
referred to in clause (1) of the first paragraph under
the caption "--Dilution Adjustments; Adjustment
Events" above, any equity securities issued pursuant
to a reclassification referred to in clause (4) of
such paragraph and any Ordinary Cash Dividends (as
defined below)) or any issuance by Maxtor to all
holders of Common Stock of rights or warrants to
subscribe for or purchase any of its securities (other
than rights or warrants referred to in clause (5) of
the first paragraph under the caption "--Dilution
Adjustments; Adjustment Events" above),
(2) any consolidation or merger of Maxtor with or into
another entity (other than a merger or consolidation
in which Maxtor is the continuing corporation and in
which the Common Stock
13
<PAGE>
outstanding immediately prior to the merger or
consolidation is not exchanged for cash, securities or
other property of Maxtor or another corporation),
(3) any sale, transfer, lease or conveyance to another
corporation of the property of Maxtor as an entirety
or substantially as an entirety,
(4) any statutory exchange of securities of Maxtor with
another corporation (other than in connection with a
merger or acquisition), and
(5) any liquidation, dissolution or winding up of Maxtor.
After the occurence of any Adjustment Event, Hyundai will
deliver at the Exchange Date, in lieu of or (in the case of an
Adjustment Event described in clause (1) above) in addition to,
shares of Common Stock as described above, cash in an amount
equal to
(A) if the Exchange Price is greater than the Threshold
Appreciation Price, multiplied by the Transaction
Value (as defined below);
(B) if the Exchange Price is less than or equal to the
Threshold Appreciation Price but greater than the
Initial Price, the product of (x) the Initial Price
divided by the Exchange Price multiplied by (y) the
Transaction Value; and
(C) if the Exchange Price is less than or equal to the
Initial Price, the Transaction Value.
Following an Adjustment Event, the Exchange Price, as such
term is used in the formula in the preceding paragraph and
throughout the definition of Exchange Rate, will be deemed to
equal (A) if shares of Common Stock are outstanding at the
Exchange Date, the Exchange Price of the Common Stock, as
adjusted pursuant to the method described above under "Dilution
Adjustments," otherwise zero, plus (B) the Transaction Value.
Notwithstanding the foregoing, with respect to any
securities received by holders of Common Stock in an Adjustment
Event that
(1) are
(a) listed on a United States national securities
exchange,
(b) reported on a United States national securities
system subject to last sale reporting,
(c) traded in the over-the-counter market and
reported on the National Quotation Bureau or
similar organization, or
(d) for which bid and ask prices are available from
at least three nationally recognized investment
banking firms; and
(2) are either (x) perpetual equity securities or (y)
non-perpetual equity or debt securities with a stated
maturity after the Exchange Date of the DECS
("Reported Securities"),
Hyundai will, in lieu of delivering cash in respect of such
Reported Securities received in an Adjustment Event, deliver a
number of such Reported Securities with a value equal to all cash
amounts that would otherwise be deliverable in respect of
Reported Securities received in such Adjustment Event, as
determined in accordance with clause (2) of the definition of
Transaction Value, unless Hyundai has made an election to
exercise the Cash Delivery Option or such Reported Securities
have not yet been delivered to the holders entitled thereto
following such Adjustment Event or any record date with respect
thereto. If Hyundai delivers any Reported Securities, upon
distribution thereof by the Trust to owners of DECS, each owner
of a DECS will be responsible for the payment of
14
<PAGE>
any and all brokerage and other transaction costs upon the sale
of such Reported Securities. If, following any Adjustment Event,
any Reported Security ceases to qualify as a Reported Security,
then (x) Hyundai will not deliver such Reported Security but
instead will deliver an equivalent amount of cash and (y)
notwithstanding clause (2) of the definition of Transaction
Value, the Transaction Value of such Reported Security will mean
the fair market value of such Reported Security on the date such
security ceases to qualify as a Reported Security, as determined
by a nationally recognized investment banking firm that the
Administrator retains for this purpose.
Because each DECS represents the right of the owner of the
DECS to receive a pro rata portion of the Common Stock or other
assets delivered by Hyundai pursuant to the Contract, the amount
of cash and/or the kind and number of securities which the owners
of DECS are entitled to receive after an Adjustment Event will be
adjusted following the date of such Adjustment Event in the same
manner and upon the occurrence of the same type of events as
described under the captions "--Dilution Adjustments" and
"Adjustment Events" with respect to Common Stock and Maxtor.
For purposes of the foregoing, the term "Ordinary Cash
Dividend" means, with respect to any consecutive 365-day period,
any dividend with respect to Common Stock paid in cash to the
extent that the amount of such dividend, together with the total
amount of all other dividends on the Common Stock paid in cash
during such 365-day period, does not exceed on a per share basis
10% of the average of the Closing Prices of the Common Stock over
such 365-day period.
The term "Transaction Value" means
(1) for any cash received in any Adjustment Event, the
amount of cash received per share of Common Stock,
(2) for any Reported Securities received in any Adjustment
Event, an amount equal to (x) the average Closing
Price per security of such Reported Securities on the
20 Trading Days immediately prior to (but not
including) the Exchange Date multiplied by (y) the
number of such Reported Securities (as adjusted
pursuant to the methods described above under
"Dilution Adjustments" and "Adjustment Events")
received per share of Common Stock, and
(3) for any property received in any Adjustment Event
other than cash or such Reported Securities, an amount
equal to the fair market value of the property
received per share of Common Stock on the date such
property is received, as determined by a nationally
recognized investment banking firm that the
Administrator retains for this purpose;
provided, however, that in the case of clause (2),
(x) with respect to securities that are Reported
Securities by virtue of only clause (d) of the
definition of Reported Securities above, Transaction
Value with respect to any such Reported Security means
the average of the mid-point of the last bid and ask
prices for such Reported Security as of the Exchange
Date from each of at least three nationally recognized
investment banking firms that the Administrator
retains for such purpose multiplied by the number of
such Reported Securities (as adjusted pursuant to the
methods described above under "Dilution Adjustments"
and "Adjustment Events") received per share of Common
Stock, and
(y) with respect to all other Reported Securities, if
there are not 20 Trading Days for any particular
Reported Security occurring after the 60th calendar
day immediately prior to, but not including, the
Exchange Date, Transaction Value with respect to such
Reported Security means the market value per security
of such Reported Security as of the Exchange Date as
determined by a nationally recognized investment
banking firm that the Administrator retains for such
purpose multiplied by the number of such Reported
Securities (as adjusted pursuant to the methods
described above under "Dilution Adjustments" and
"Adjustment Events") received per share of Common
Stock.
15
<PAGE>
For purposes of calculating the Transaction Value, any cash,
Reported Securities or other property receivable in an Adjustment
Event will be deemed to have been received immediately prior to
the close of business on the record date for such Adjustment
Event or, if there is no record date for such Adjustment Event,
immediately prior to the close of business on the effective date
of such Adjustment Event.
No adjustments will be made for certain other events, such
as offerings of Common Stock by Maxtor for cash or in connection
with acquisitions. Likewise, no adjustments will be made for any
sales of Common Stock by Hyundai.
Hyundai is required under the Contract to notify the Trust
promptly upon becoming aware that an event requiring an
adjustment to the Exchange Rate or which is an Adjustment Event
is pending or has occurred. The Trust will, within ten Business
Days following the occurrence of an event that requires an
adjustment to the Exchange Rate or the occurrence of an
Adjustment Event (or, in either case, if the Trust is not aware
of such occurrence, as soon as practicable after becoming so
aware), notify each owner of DECS in writing of the occurrence of
such event including a statement in reasonable detail setting
forth the method by which the adjustment to the Exchange Rate or
change in the consideration to be received by owners of DECS
following the Adjustment Event was determined and setting forth
the revised Exchange Rate or consideration, as the case may be.
However, for any adjustment to the Exchange Price, the notice
will only disclose the factor by which the Exchange Price is to
be multiplied in order to determine which clause of the Exchange
Rate definition will apply at the Exchange Date.
Collateral Requirements of the Contract; Acceleration.
Hyundai's obligations under the Contract will be secured by a
pledge of one share of Common Stock for each share of Common
Stock subject to the Contract (subject to adjustment in
accordance with the dilution provisions of the Contract),
pursuant to a Collateral Agreement among Hyundai, the Trust and
The Bank of New York, as collateral agent (the "Collateral
Agent"). Unless Hyundai is in default in its obligations under
the Collateral Agreement, Hyundai will be permitted to substitute
for the pledged shares of Common Stock collateral consisting of
short-term, direct obligations of the U.S. Government. Any U.S.
Government obligations pledged as substitute collateral for
shares of Common Stock must 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 (as defined below) that shall not be
cured by the close of business on the next Business Day
thereafter, as described below, 200%) of the product of the
market price of the Common Stock at the time of each valuation
times the number of shares of Common Stock for which such
obligations are being substituted. The Collateral Agreement
provides that, after an Adjustment Event, Hyundai will pledge as
alternative collateral any Reported Securities, plus cash in an
amount at least equal to the Transaction Value of any
consideration other than Reported Securities, received by it in
respect of the maximum number of shares of Common Stock subject
to the Contract at the time of the Adjustment Event. The number
of Reported Securities required to be pledged will be adjusted if
any event requiring a dilution adjustment under the Contract
occurs. Hyundai will be permitted to substitute U.S. Government
obligations for Reported Securities or cash pledged after any
Adjustment Event. Any U.S. Government obligations so substituted
must have an aggregate market value at the time of substitution
and at daily mark-to-market valuations thereafter of:
(A) in the case of obligations substituted for pledged
Reported Securities, not less than 150% (or, from and
after any Insufficiency Determination that is not
cured by the close of business on the next business
day thereafter, as described below, 200%) of the
product of the market price per security of Reported
Securities at the time of each valuation times the
number of Reported Securities for which such
obligations are being substituted; and
(B) in the case of obligations substituted for pledged
cash, not less than 105% of the amount of cash for
which such obligations are being substituted.
The Collateral Agent will promptly pay over to Hyundai any
dividends, interest, principal or other payments received by the
Collateral Agent in respect of any collateral, including any
substitute collateral, unless Hyundai is in default of its
obligations under the Collateral Agreement, or unless the payment
of such amount to Hyundai would cause the collateral to become
insufficient under the Collateral Agreement.
16
<PAGE>
If the Collateral Agent determines (an "Insufficiency
Determination") that U.S. Government obligations pledged by
Hyundai as substitute collateral fail to meet the foregoing
requirements at any valuation, or that Hyundai has failed to
pledge additional collateral required as a result of a dilution
adjustment increasing the maximum number of shares of Common
Stock or Reported Securities subject to the Contract, and such
failure is not cured by the close of business on the next
business day after such determination, then, unless a Collateral
Event of Default (as defined below) under the Collateral
Agreement has occurred and is continuing, the Collateral Agent
will commence (1) sales of the collateral consisting of U.S.
Government obligations and (2) purchases, using the proceeds of
such sales, of shares of Common Stock or Reported Securities, in
an amount sufficient to cause the collateral to meet the
requirements under the Collateral Agreement.
The Collateral Agent will discontinue such sales and
purchases if at any time a Collateral Event of Default under the
Collateral Agreement has occurred and is continuing.
The occurrence of a Collateral Event of Default (as defined
below) under the Collateral Agreement, or the bankruptcy or
insolvency of Hyundai (or of any entity or individual which,
directly or indirectly, is controlled by Hyundai (each such
entity or individual, a "Subsidiary")), will cause an automatic
acceleration of Hyundai's obligations under the Contract. A
"Collateral Event of Default" under the Collateral Agreement
means, at any time,
(A) if no U.S. Government obligations are pledged as
substitute collateral at such time, failure of the
collateral to consist of at least the maximum number
of shares of Common Stock subject to the Contract at
such time (or, if an Adjustment Event has occurred at
or prior to such time, failure of the collateral to
include the amount of cash and the maximum number of
any Reported Securities required to be pledged as
described above);
(B) if any U.S. Government obligations are pledged as
substitute collateral for shares of Common Stock (or
Reported Securities) at such time, failure of such
U.S. Government obligations to have a market value at
such time of at least 105% of the market price of the
Common Stock (or the then-current market price per
security of Reported Securities, as the case may be)
times the difference between
(x) the maximum number of shares of Common Stock (or
Reported Securities) subject to the Contract at
such time, and
(y) the number of shares of Common Stock (or Reported
Securities) pledged as collateral at such time;
and
(C) if any U.S. Government obligations are pledged as
substitute collateral for any cash at such time,
failure of such U.S. Government obligations to have a
market value at such time of at least 105% of such
cash, if such failure is not cured within one Business
Day after notice thereof is delivered to Hyundai.
Except as described below, upon acceleration of the
Contract, the Collateral Agent will to the extent permitted by
law distribute to the Trust for distribution pro rata to
investors the maximum number of shares of Common Stock subject to
the Contract, in the form of the shares of Common Stock then
pledged by Hyundai, or cash generated from the liquidation of
U.S. Government obligations then pledged by Hyundai, or a
combination thereof (or, after an Adjustment Event, in the form
of Reported Securities then pledged, cash then pledged, cash
generated from the liquidation of U.S. Government obligations
then pledged, or a combination thereof). In addition, if by the
Exchange Date any substitute collateral has not been replaced by
shares of Common Stock (or, after an Adjustment Event, cash or
Reported Securities) sufficient to meet the obligations under the
Contract, the Collateral Agent will distribute to the Trust for
distribution pro rata to investors the market value of the shares
of Common Stock required to be delivered thereunder, in the form
of any shares of Common Stock then pledged by Hyundai plus cash
generated from the liquidation of U.S. Government obligations
then pledged by Hyundai (or, after an Adjustment Event, the
market value of the alternative consideration required to be
delivered thereunder, in the form of any Reported Securities then
pledged, plus any cash then pledged, plus cash generated from the
liquidation of U.S. Government obligations then pledged).
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If upon acceleration of the Contract, Hyundai or a
Subsidiary is subject to a bankruptcy or similar proceeding, the
Collateral Agent will to the extent permitted by law distribute
to the Trust for distribution pro rata to the investors a number
of shares of Common Stock, in the form of the shares of Common
Stock then pledged by Hyundai, or cash generated from the
liquidation of U.S. Government obligations then pledged by
Hyundai, or a combination thereof (or, after an Adjustment Event,
in the form of Reported Securities then pledged, cash then
pledged, cash generated from the liquidation of U.S. Government
obligations then pledged, or a combination thereof), with an
aggregate value equal to the "Acceleration Value." The
Administrator will determine the Acceleration Value on the basis
of quotations from independent dealers. Each quotation will be
for an amount that would be paid to the relevant dealer in
consideration of an agreement that would have the effect of
preserving the Trust's rights to receive the number of shares of
Common Stock (or, after an Adjustment Event, Reported Securities,
cash or a combination thereof) subject to the Contract on the
Exchange Date. The Administrator will request quotations from
four nationally recognized independent dealers on or as soon as
reasonably practicable following the date of acceleration. If
four quotations are provided, the Acceleration Value will be the
arithmetic mean of the two quotations remaining after
disregarding the highest and lowest quotations. If two or three
quotations are provided, the Acceleration Value will be the
arithmetic mean of such quotations. If one quotation is provided,
the Acceleration Value will be such quotation. If no quotations
are provided, the Acceleration Value will be the aggregate value
of the number of shares of Common Stock (or, after an Adjustment
Event, Reported Securities, cash or a combination thereof) that
would be required to be delivered under the Contract on the date
of acceleration if the Exchange Date were redefined to be the
date of acceleration.
Description of Hyundai. Specific information on the
holdings of Hyundai, as required by the Securities Act of 1933,
as amended (the "Securities Act"), is included in the prospectus
of Maxtor attached hereto.
The Treasury Securities
The Trust will purchase and hold a series of zero-coupon
("stripped") U.S. Treasury securities with such face amounts and
maturities as will provide investors with a quarterly
distribution of $ per DECS on each distribution date during
the term of the Trust. The Trust may invest up to 35% of its
total assets in these Treasury Securities. If the Contract is
accelerated, the Administrator will liquidate the Treasury
Securities then held in the Trust and will distribute the
proceeds thereof pro rata to investors, together with proceeds
from the acceleration of the Contract. See "--The Contract--
Collateral Requirements of the Contract; Acceleration" above and
"--Trust Termination" below.
Temporary Investments
For cash management purposes, the Trust may invest the
proceeds of the Treasury Securities held by the Trust and any
other cash held by the Trust in short-term obligations of the
U.S. Government maturing no later than the Business Day preceding
the next distribution date.
Trust Termination
The Trust will terminate automatically on or shortly after
the Exchange Date or following the distribution of all Trust
assets to investors, if earlier.
If the Contract is accelerated, the Administrator will
liquidate any Treasury Securities then held by the Trust and will
distribute the proceeds thereof pro rata to the investors,
together with all shares of Common Stock subject to the Contract
that are pledged by Hyundai, or cash generated from the
liquidation of U.S. Government obligations then pledged by
Hyundai, or a combination thereof (or, after an Adjustment Event,
in the form of Reported Securities then pledged, cash then
pledged, cash generated from the liquidation of U.S. Government
obligations then pledged, or a combination thereof) or in certain
cases, the Acceleration Value of the Contract. After the
distribution, the term of the Trust will expire. See "--The
Contract--Collateral Requirements of the Contract; Acceleration"
above.
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Delivery of Common Stock and Reported Securities; No Fractional
Shares of Common Stock or Reported Securities
Common Stock and Reported Securities delivered under the
Contract at the Exchange Date are expected to be distributed by
the Trust to the investors pro rata shortly after the Exchange
Date, except that no fractional shares of Common Stock or
Reported Securities will be distributed. If more than one DECS is
surrendered at one time by the same investor, the number of full
shares of Common Stock or Reported Securities to be delivered
upon termination of the Trust, in whole or in part, as the case
may be, will be computed on the basis of the total number of DECS
so surrendered at the Exchange Date. Instead of delivering any
fractional share or security, the Trust will sell a number of
shares or securities equal to the total of all fractional shares
or securities that would otherwise be delivered to investors of
all DECS, and each such investor will be entitled to receive an
amount in cash equal to the pro rata portion of the proceeds of
such sale (which may be at a price lower than the Exchange
Price).
INVESTMENT RESTRICTIONS
The Trust has adopted a fundamental policy that the Trust
may not purchase any securities or instruments other than the
Treasury Securities, the Contract and the Common Stock or other
assets received pursuant to the Contract and, for cash management
purposes, short-term obligations of the U.S. Government; issue
any securities or instruments except for the DECS; make short
sales or purchase securities on margin; write put or call
options; borrow money; underwrite securities; purchase or sell
real estate, commodities or commodities contracts; or make loans.
The Trust has also adopted a fundamental policy that the Trust
may not dispose of the Contract during the term of the Trust and
(except for a partial liquidation of Treasury Securities
following acceleration of the Contract as described above under
"Investment Objectives and Policies--The Treasury Securities")
the Trust may not dispose of the Treasury Securities prior to the
earlier of their respective maturities and the termination of the
Trust.
RISK FACTORS FOR DECS
The DECS may trade at widely different prices before
maturity depending upon factors such as changes in the market
price of the Maxtor shares and other events that the trust cannot
predict and are beyond the trust's control. The trust describes
this in more detail below.
Internal Management; No Portfolio Management
The internal operations of the trust will be managed by its
trustees; the trust will not have any separate investment
advisor. The trust has adopted a fundamental policy that the
trust may not dispose of the prepaid forward contract during the
term of the trust and the trust may not dispose of the treasury
securities held by the trust prior to the earlier of their
maturities and the termination of the trust, except for a partial
liquidation of treasury securities following acceleration of the
prepaid forward contract. As a result, the trust will continue to
hold the prepaid forward contract even if there is a significant
decline in the market price of the Maxtor shares or adverse
changes in the financial condition of Maxtor (or, after an
Adjustment Event, comparable developments affecting any Reported
Securities or the issuer of such securities). The trust will not
be managed like a typical closed-end investment company.
Comparison to Other Securities; Relationship to Maxtor Shares
The DECS are different from ordinary securities because the
value of the Maxtor shares, cash or other securities you will
receive on termination of the trust may be more or less than the
initial price of the DECS. If the value of a Maxtor share shortly
before the exchange date is less than the amount you paid for
your DECS, you will suffer a loss on your investment in the DECS.
If Maxtor is insolvent or bankrupt when the DECS mature, you
might lose your entire investment. You take all the risk of a
fall in the value of Maxtor shares before the exchange date.
In addition, you have less opportunity to make money from
an increase in the price of a Maxtor share by investing in the
DECS than by investing directly in Maxtor shares. The value of
what you receive when the trust is terminated will be greater
than the initial price of the DECS only if the value of a Maxtor
share exceeds $ . This
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is an increase of about % over the price of Maxtor shares when
the DECS were first offered for sale. In addition, you will
receive only about % of any increase in the value of a Maxtor
share above $ .
In return, you will receive annual distributions on the
DECS at a rate of %, which is more than the historical annual
dividend on a Maxtor share, which currently pay no dividends.
However, Maxtor could pay dividends in the future that are higher
than the distributions that you receive from the trust.
The trust cannot predict whether the price of a Maxtor
share will rise or fall. However, the following factors may
affect the trading price of Maxtor shares:
- whether Maxtor makes a profit and what its future
prospects are;
- trading on the capital markets generally;
- trading on NASDAQ where the Maxtor shares are traded;
- the health of the hard disk drive industry; and
- whether Maxtor issues securities like the DECS, or Maxtor
or another person in the market transfers a large number
of Maxtor shares.
Concurrently with this offering, Hyundai and Maxtor are
offering for sale in a separate offering shares of Maxtor common
stock ( shares if the underwriters' over-allotment option is
exercised in full). As of the date of this prospectus, Hyundai
owned a total of Maxtor shares, of which Hyundai may deliver up
to Maxtor shares ( shares if the underwriters' over-allotment
option is exercised in full) to the trust at the exchange date.
Please refer to the attached prospectus for information
about Maxtor and the Maxtor shares.
Impact of the DECS on the Market for the Maxtor Shares
The trust cannot predict accurately how or whether investors
will resell the DECS and how easy it will be to resell them. Any
market that develops for the DECS is likely to influence and be
influenced by the market for Maxtor shares. For example,
investors' anticipation that Hyundai may deliver Maxtor shares
that represent approximately % of the currently outstanding
Maxtor shares when the DECS mature could cause the price of a
Maxtor share to be unstable or fall. The following factors could
also affect the price of Maxtor shares:
- sales of Maxtor shares by investors who prefer to invest
in Maxtor by investing in the DECS;
- hedging of investments in the DECS by selling Maxtor
shares (called "selling short"); and
- arbitrage trading activity between the DECS and Maxtor
shares.
Dilution of Maxtor Shares; Lack of Stockholder Rights
The terms of the DECS include some protections so you will
receive equivalent value when the DECS mature even if Maxtor
splits or combines its shares, pays stock dividends or does other
similar things that change the number of Maxtor shares currently
outstanding. However, these terms will not protect you against
all events. For example, the amount you receive when the DECS
mature may not change if Maxtor offers shares for cash or in an
acquisition, even if the price of a Maxtor share falls and this
causes the price of the DECS to fall. The trust has no control
over whether Maxtor will offer shares or do something similar in
the future or the amount of any offering.
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<PAGE>
In addition, unless and until Hyundai decides to deliver
Maxtor shares to the trust when the DECS mature and until the
trust distributes the Maxtor shares to you, you will have no
dividend rights or other similar rights associated with Maxtor
shares.
Maxtor not Responsible for the DECS
Maxtor has no obligation to make any payments on the DECS.
Maxtor also does not have to take the trust's needs or your needs
into consideration for any reason. Maxtor will not receive any
money from the sale of the DECS and did not decide to issue the
DECS. Maxtor did not determine when the trust will issue the
DECS, how much the trust will sell them for or how many the trust
will sell. Maxtor is not involved in managing or trading the DECS
or determining or calculating the amount you will receive when
the DECS mature.
DECS May be Difficult to Resell
The DECS are new and innovative securities, and there is
currently no market in which to resell them. The underwriters
currently intend, but are not obligated, to buy and sell the
DECS. A resale market might not develop or, if it does, might not
give you the opportunity to resell your DECS and may not continue
until the DECS mature.
The trust has applied to have the DECS approved for
quotation on the NASDAQ National Market. Nonetheless, the NASDAQ
might not approve the application or if approved, could revoke
the listing after approval or stop trading of the DECS at any
time. If NASDAQ will no longer quote the DECS or stops trading
them, the trust will ask another national securities exchange to
list the DECS or another trading market to quote them. If the
DECS are no longer listed or traded on any securities exchange or
trading market, or if a securities exchange or trading market
stops trading of the DECS, you may have difficulty getting price
information and it may be more difficult to resell the DECS.
Net Asset Value of the Trust
The trust is a newly organized closed-end investment
company with no previous operating history. Shares of closed-end
investment companies frequently trade at a discount from their
net asset value, which is a risk separate and distinct from the
risk that the trust's net asset value will decrease. The trust
cannot predict whether the DECS will trade at, below or above
their net asset value. For investors who wish to sell the DECS in
a relatively short period of time after the DECS offering, the
risk of the DECS trading at a discount is more pronounced because
the gain or loss that such investors realize on their investment
is likely to be depend more on whether the DECS are trading at a
discount or premium than upon the value of the trust's assets.
The trust will not redeem any DECS prior to the exchange date of
the Maxtor shares or the earlier termination of the trust.
Non-Diversified Status
The trust is considered non-diversified under the
Investment Company Act of 1940, which means that the trust is not
limited in the proportion of its assets that may be invested in
one security. Because the trust will only own the treasury
securities, the prepaid forward contract or other assets subject
to the prepaid forward contract, the DECS may be a riskier
investment than would be the case for an investment company with
more diversified investments.
Tax Treatment of DECS Uncertain
No statutory, judicial or administrative authority directly
addresses the characterization of the DECS or instruments similar
to the DECS for U.S. federal income tax purposes. As a result,
significant aspects of the U.S. federal income tax consequences
of an investment in the DECS are not certain. There is no ruling
from the Internal Revenue Service with respect to the DECS and
the Internal Revenue Service might not agree with the conclusions
expressed under the section "Certain Federal Income Tax
Considerations" in this prospectus.
Risk Factors for Maxtor
You should carefully consider the information in the
attached prospectus of Maxtor, including the risk factors for
Maxtor on pages to of the attached prospectus.
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Risk Relating to Bankruptcy of Hyundai
It is possible that Hyundai Electronics America would be
the subject of proceedings under the U.S. Bankruptcy Code. The
trust believes that the Contract constitutes a "securities
contract" for purposes of the U.S. Bankruptcy Code, liquidation
of which would not be subject to the automatic stay provisions of
the U.S. Bankruptcy Code in the event of the bankruptcy of
Hyundai Electronics America. It is, however, possible that the
Contract could be determined not to qualify as a "securities
contract" for this purpose.
Proceedings under the U.S. Bankruptcy Code in respect of
Hyundai Electronics America may thus cause a delay in settlement
of the Contract, or otherwise subject the Contract to such
proceedings. In turn, this could adversely affect the timing of
settlement and could impair the trust's ability to distribute the
Maxtor stock or other assets subject to the Contract and the
related Collateral Agreement to you on a timely basis and, as a
result, could adversely affect the amount received by you in
respect of the DECS and/or the timing of such receipt.
NET ASSET VALUE
The Administrator will calculate the net asset value of the
portfolio at least quarterly by dividing the value of the net
assets of the Trust (the value of its assets less its
liabilities) by the total number of DECS outstanding. The Trust's
net asset value will be published semi-annually as part of the
Trust's semi-annual report to investors and at such other times
as the Trustees may determine. The Treasury Securities held by
the Trust will be valued at the mean between the last current bid
and asked prices or, if quotations are not available, as
determined in good faith by the Trustees. Short-term investments
having a maturity of 60 days or less will be valued at cost with
accrued interest or discount earned included in interest to be
received. The Contract will be valued at the mean of the bid
prices the Trust receives from at least three independent
broker-dealer firms unaffiliated with the Trust who are in the
business of making bids on financial instruments similar to the
Contract and with terms comparable thereto. If the Trust (acting
through the Administrator) is unable to obtain valuations from
three independent broker-dealer firms, as required by the
preceding sentence, on a timely basis or without unreasonable
effort or expense, the Contract will be valued at the median of
bid prices received from two such broker-dealer firms. If the
Trust (acting through the Administrator) is unable to obtain a
valuation for the Contract that it believes to be reasonable
through the above method, the value of the Contract will be
established at a level deemed to be fair and reflective of the
market value for the Contract based on all appropriate factors
relevant to the value of the Contract as set forth in pricing
guidelines adopted by the Trustees.
DESCRIPTION OF THE DECS
Each DECS represents an equal proportional interest in the
Trust. Upon liquidation of the Trust, investors are entitled to
share pro rata in the net assets of the Trust available for
distribution. DECS have no preemptive, redemption or conversion
rights. The DECS, when issued and outstanding, will be fully paid
and nonassessable. The only securities that the Trust is
authorized to issue are the DECS offered hereby and those sold to
the initial investor referred to below. See "Underwriting."
Owners of DECS are entitled to one vote for each DECS held
on all matters to be voted on by investors and are not able to
cumulate their votes in the election of Trustees. The Trustees of
the Trust have been selected initially by Salomon Smith Barney as
the initial investor in the Trust. The Trust intends to hold
annual meetings as required by the rules of Nasdaq. The Trustees
may call special meetings of investors for action by investor
vote as may be required by either the Investment Company Act or
the Declaration of Trust. Investors have the right, upon the
declaration in writing or vote of more than two-thirds of the
outstanding DECS, to remove a Trustee. The Trustees will call a
meeting of investors to vote on the removal of a Trustee upon the
written request of the record owners of 10% of the DECS or to
vote on other matters upon the written request of the record
owners of 51% of the DECS (unless substantially the same matter
was voted on during the preceding 12 months). The Trustees shall
establish, and notify the investors in writing of, the record
date for each such meeting, which shall be not less than 10 nor
more than 50 days before the meeting date. Owners at the close of
business on the record date will
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be entitled to vote at the meeting. The Trust will also assist in
communications with other owners as required by the Investment
Company Act.
Book-Entry System
The DECS will be issued in the form of one or more global
securities (the "Global Security") deposited with The Depository
Trust Company (the "Depositary") and registered in the name of a
nominee of the Depositary.
The Depositary has advised the Trust and the 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 Securities
Exchange Act of 1934, as amended. The Depositary was created to
hold securities of persons who have accounts with the Depositary
("participants") and to facilitate the clearance and settlement
of securities transactions among its participants in such
securities through electronic book-entry changes in accounts of
the participants, thereby eliminating the need for physical
movement of certificates. Such participants include securities
brokers and dealers, banks, trust companies and clearing
corporations. Indirect access to the Depositary's book-entry
system is also available to others, such as banks, brokers,
dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or
indirectly.
Upon the issuance of a Global Security, the Depositary or
its nominee will credit the respective DECS represented by such
Global Security to the accounts of participants. The accounts to
be credited will be designated by the underwriters. Ownership of
beneficial interests in such Global Security will be limited to
participants or persons that may hold interests through
participants. Ownership of beneficial interests by participants
in such Global Security 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
Security. Ownership of beneficial interests in such Global
Security by persons that hold through participants will be shown
on, and the transfer of that ownership interest within such
participant will be effected only through, records maintained by
such participant. The laws of some jurisdictions require that
certain purchasers of securities take physical delivery of such
securities in definitive form. Such limits and such laws may
impair the ability to transfer beneficial interests in a Global
Security.
So long as the Depositary for a Global Security, or its
nominee, is the registered owner of such Global Security, such
Depositary or such nominee, as the case may be, will be
considered the sole owner or holder of the DECS. Except as set
forth below, owners of beneficial interests in such Global
Security will not be entitled to have the DECS registered in
their names and will not receive or be entitled to receive
physical delivery of the DECS in definitive form and will not be
considered the owners or holders thereof.
Shares of Common Stock or other assets deliverable in
respect of, and any quarterly distributions on, DECS registered
in the name of or held by the Depositary or its nominee will be
made to the Depositary or its nominee, as the case may be, as the
registered owner or the holder of the Global Security. None of
the Trust, any Trustee, the Paying Agent, the Administrator or
the Custodian for the DECS will have any responsibility or
liability for any aspect of the records relating to, or payments
made on account of, beneficial ownership interests in a Global
Security or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests.
The Trust expects that the Depositary, upon receipt of any
payment in respect of a permanent Global Security, will credit
immediately participants' accounts with payments in amounts
proportionate to their respective beneficial interests in the
principal amount of such Global Security as shown on the records
of the Depositary. The Trust also expects that payments by
participants to owners of beneficial interests in such Global
Security held through such participants will be governed by
standing instructions and customary practices, as is now the case
with securities held for the accounts of customers in bearer form
or registered in "street name," and will be the responsibility of
such participants.
A Global Security may not be transferred except as a whole
by the Depositary to a nominee or a successor of the Depositary.
If the Depositary is at any time unwilling or unable to continue
as depositary and a successor depositary is not appointed by the
Trust within 90 days, the Trust will issue DECS in definitive
registered form in
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exchange for the Global Security representing such DECS. In that
event, an owner of a beneficial interest in a Global Security
will be entitled to physical delivery in definitive form of DECS
represented by such Global Security equal in number to that
represented by such beneficial interest and to have such DECS
registered in its name.
MANAGEMENT AND ADMINISTRATION OF THE TRUST
Trustees
The internal operations of the Trust will be managed by
three Trustees, none of whom is an "interested person" of the
Trust as defined in the Investment Company Act; the Trust will
not have an investment adviser. Under the provisions of the
Internal Revenue Code of 1986, as amended (the "Code"),
applicable to grantor trusts, the Trustees will not have the
power to vary the investments held by the Trust.
The names of the persons who will be elected by Salomon
Smith Barney, the [sponsor/initial investor] of the Trust, to
serve as the Trustees are set forth below. The positions and the
principal occupations of the individual Trustees during the past
five years are also set forth below.
Principal Occupation
Name, Age and Address Title During Past Five Years
- --------------------- ----- ----------------------
Salomon Smith Barney will pay each Trustee who is not a
director, officer or employee of either the underwriters or the
Administrator, or of any affiliate thereof, in respect of his
annual fee and anticipated out-of-pocket expenses, a one-time,
up-front fee of $ . The Trust's Managing Trustee will also
receive an additional up-front fee of $ for serving in that
capacity. Hyundai will reimburse Salomon Smith Barney for these
payments. The Trustees will not receive, either directly or
indirectly, any compensation, including any pension or retirement
benefits, from the Trust. None of the Trustees receives any
compensation for serving as a trustee or director of any other
affiliated investment company.
Administrator
The day-to-day affairs of the Trust will be managed by The
Bank of New York, as Trust Administrator pursuant to an
administration agreement. Under the administration agreement, the
Trustees have delegated most of their operational duties to the
Administrator, including without limitation, the duties to:
(1) receive invoices for and pay, or cause to be paid, all
expenses incurred by the Trust;
(2) with the approval of the Trustees, engage legal and
other professional advisors (other than the
independent public accountants for the Trust);
(3) instruct the Paying Agent to pay distributions on DECS
as described herein;
(4) prepare and mail, file or publish all notices,
proxies, reports, tax returns and other communications
and documents, and keep all books and records, for the
Trust;
(5) at the direction of the Trustees, institute and
prosecute legal and other appropriate proceedings to
enforce the rights and remedies of the Trust; and
(6) make all necessary arrangements with respect to
meetings of Trustees and any meetings of holders of
DECS.
The Administrator will not, however, select the independent
public accountants for the Trust or sell or otherwise dispose of
the Trust's assets (except in connection with an acceleration of
the Contract, or the settlement of the Contract at the Exchange
Date, and upon termination of the Trust).
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Either the Trust or the Administrator may terminate the
Administration Agreement upon 60 days' prior written notice,
except that no termination shall become effective until a
successor Administrator has been chosen and has accepted the
duties of the Administrator.
Except for its roles as Administrator, custodian, paying
agent, registrar and transfer agent of the Trust, and except for
its role as Collateral Agent under the Collateral Agreements, The
Bank of New York has no other affiliation with, and is not
engaged in any other transactions with, the Trust.
The address of the Administrator is 101 Barclay Street, New
York, New York 10286.
Custodian
The Trust's custodian (the "Custodian") is The Bank of New
York pursuant to a custodian agreement. In the event of any
termination of the custodian agreement by the Trust or the
resignation of the Custodian, the Trust must engage a new
Custodian to carry out the duties of the Custodian as set forth
in the custodian agreement. Pursuant to the custodian agreement,
the Custodian will invest all net cash received by the Trust in
short-term U.S. Government securities maturing on or shortly
before the next quarterly distribution date. The Custodian will
also act as Collateral Agent under the Collateral Agreement and
will hold a perfected security interest in the Common Stock and
U.S. Government obligations or other assets consistent with the
terms of the Contract.
Paying Agent
The transfer agent, registrar and paying agent (the "Paying
Agent") for the DECS is The Bank of New York pursuant to a paying
agent agreement. In the event of any termination of the paying
agent agreement by the Trust or the resignation of the Paying
Agent, the Trust will use its best efforts to engage a new Paying
Agent to carry out the duties of the Paying Agent.
Indemnification
The Trust will indemnify each Trustee, the Administrator,
the Custodian and the Paying Agent with respect to any claim,
liability, loss or expense (including the costs and expenses of
the defense against any claim or liability) which it may incur in
acting as Trustee, Administrator, Custodian or Paying Agent, as
the case may be, except in the case of willful misfeasance, bad
faith, gross negligence or reckless disregard of their respective
duties or where applicable law prohibits such indemnification.
Salomon Smith Barney has agreed to reimburse the Trust for any
amounts it may be required to pay as indemnification to any
Trustee, the Administrator, the Custodian or the Paying Agent.
Hyundai in turn will reimburse Salomon Smith Barney for all such
reimbursements paid by it.
Distributions
The Trust intends to distribute to investors on a quarterly
basis the proceeds of the Treasury Securities held by the Trust.
The first distribution, reflecting the Trust's operations from
the date of this offering, will be made on , 1999 to owners
of record as of , 1999. Thereafter, the Trust will make distri-
butions on , , and or , if any such date is not
a Business Day, on the next succeeding Business Day, of each year
to owners of record as of each , , and ,
respectively. A portion of each such distribution should be
treated as a tax-free return of the investor's investment. See
"Investment Objective and Policies--Trust Assets" and "Certain
United States Federal Income Tax Considerations." If the Contract
is accelerated as described in "Investment Objectives and
Policies--The Contract--Collateral Requirements of the Contract;
Acceleration," each investor will receive its pro rata share of
the proceeds from the acceleration of the Contract and from the
liquidation of the Treasury Securities then held in the Trust.
Upon termination of the Trust as described in "Investment
Objectives and Policies--Trust Termination," each investor will
receive its pro rata share of any remaining net assets of the
Trust.
The Trust does not permit the reinvestment of
distributions.
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Estimated Expenses
At the closing of this offering, Salomon Smith Barney will
pay to each of the Administrator, the Custodian and the Paying
Agent, and to each Trustee, a one-time, up-front amount in
respect of such party's ongoing fees and, in the case of the
Administrator, anticipated expenses of the Trust over the term of
the Trust. The anticipated Trust expenses to be borne by the
Administrator include, among other things, expenses for legal and
independent accountants' services, costs of printing proxies,
DECS certificates and investor reports, expenses of the Trustees,
fidelity bond coverage, stock exchange listing fees and expenses
of qualifying the DECS for sale in the various states. The
one-time, up-front payments described above total $ . Salomon
Smith Barney also will pay estimated organization costs of the
Trust in the amount of $ and estimated costs of the Trust in
connection with the initial registration and public offering of
the DECS in the amount of $ at the closing of the offering.
Hyundai will reimburse Salomon Smith Barney for such payments.
The amount payable to the Administrator in respect of
ongoing expenses of the Trust was determined based on estimates
made in good faith on the basis of information currently
available to the Trust, including estimates furnished by the
Trust's agents. Actual operating expenses of the Trust may be
substantially more than this amount. Any additional expenses will
be paid by Salomon Smith Barney or, in the event of its failure
to pay such amounts, Hyundai, or, in the event of the failure of
either Salomon Smith Barney or Hyundai to pay such amounts, the
Trust. Hyundai will reimburse Salomon Smith Barney for all
expenses of the Trust paid by it.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the principal U.S. federal
income tax consequences that may be relevant to an owner of a
DECS that is a "U.S. Holder." A DECS owner will be treated as a
U.S. Holder for U.S. federal income tax purposes if the owner is:
- an individual who is a citizen or resident of the
United States,
- a U.S. domestic corporation, or
- any other person that is subject to U.S. federal
income taxation on a net income basis in respect of
its investment in DECS.
This summary is based on the U.S. federal income tax laws,
regulations, rulings and decisions now in effect, all of which
are subject to change, possibly on a retroactive basis. Except to
the extent discussed below under "Non-U.S. Holders," this summary
applies only to U.S. Holders that will hold DECS as capital
assets, and only if the investor purchased the DECS in their
initial offering. This summary does not address all aspects of
U.S. federal income taxation that may be relevant to an investor
in light of the investor's individual investment circumstances,
and does not address tax considerations applicable to investors
that may be subject to special tax rules, such as dealers in
securities or foreign currencies, traders in securities or
commodities electing to mark to market, financial institutions,
insurance companies, tax-exempt organizations, persons that will
hold DECS as a position in a "straddle" for tax purposes or as a
part of a "synthetic security" or a "conversion transaction" or
other integrated investment comprised of a DECS and one or more
other investments, or persons that have a functional currency
other than the U.S. dollar.
This summary does not include any description of the tax
laws of any state or local governments or of any foreign
government that may be applicable to the DECS or to the owners
thereof. It also does not discuss the tax consequences of the
ownership of the Common Stock or Reported Securities. Investors
should consult their own tax advisors in determining the tax
consequences to them of holding DECS, including the application
to their particular situation of the U.S. federal income tax
considerations discussed below, as well as the application of
state, local or other tax laws.
There are no regulations, published rulings or judicial
decisions addressing the characterization for federal income tax
purposes of securities with terms substantially the same as the
DECS. Pursuant to the terms of the
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Declaration of Trust, the Trust and every holder of the DECS
agree to treat a DECS for U.S. federal income tax purposes as a
beneficial interest in a trust that holds zero-coupon U.S.
Treasury securities and the Contract. The Trust intends to report
holders' income to the Internal Revenue Service in accordance
with this treatment. In addition, pursuant to the terms of the
Contract and the Declaration of Trust, Hyundai, the Trust and
every holder of a DECS will be obligated (in the absence of an
administrative determination or judicial ruling to the contrary)
to characterize the Contract for all tax purposes as a forward
purchase contract to purchase Common Stock at Maturity (including
as a result of acceleration or otherwise), under the terms of
which contract:
(a) at the time of issuance of the DECS the holder is
required to deposit irrevocably with Hyundai a fixed
amount of cash equal to the purchase price of the
DECS, less the purchase price of the Treasury
Securities, to assure the fulfillment of the
obligation described in clause (b) below, and
(b) at Maturity such cash deposit unconditionally and
irrevocably will be applied by Hyundai in full
satisfaction of the holder's payment obligation under
the forward purchase contract, and Hyundai will
deliver to the holder the number of shares of Common
Stock that the holder is entitled to receive at that
time pursuant to the terms of the DECS (subject to
Hyundai's right to deliver cash in lieu of the Common
Stock).
Under this approach, the tax consequences of holding a DECS
will be as described below. However, prospective investors in the
DECS should be aware that no ruling is being requested from the
Internal Revenue Service with regard to the DECS and that the
Internal Revenue Service might take a different view as to the
proper characterization of the DECS or of the Contract and of the
tax consequences to an investor.
Tax Status of the Trust
The Trust will be taxable as a grantor trust owned solely
by the present and future holders of DECS for federal income tax
purposes, and income received by the Trust will be treated as
income of the holders in the manner set forth below.
Tax Consequences to U.S. Holders
Tax Basis of the Treasury Securities and the Contract. Each
investor will be considered to be the owner of its pro rata
portion of the Treasury Securities and the Contract in the Trust.
The cost to the investor of the DECS will be allocated among the
investor's pro rata portion of the Treasury Securities and the
Contract (in proportion to the fair market values thereof on the
date on which the investor acquired the DECS) in order to
determine the investor's tax basis in its pro rata portion of the
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 Treasury Securities and as a payment
to Hyundai under the Contract, respectively.
Recognition of Original Issue Discount on the Treasury
Securities. The Treasury Securities in the Trust will consist of
zero-coupon U.S. Treasury securities. An investor will be
required to treat its pro rata portion of each Treasury Security
in the Trust as a bond that was originally issued on the date the
investor purchased its DECS and at an original issue discount
equal to the excess of the investor's pro rata portion of the
amounts payable on such Treasury Security over the investor's tax
basis for the Treasury Security as discussed above. The investor
(whether on the cash or accrual method of tax accounting) is
required to include original issue discount (other than original
issue discount on short-term Treasury Securities as described
below) in income for federal income tax purposes as it accrues,
in accordance with a constant yield method, prior to the receipt
of cash attributable to such income. Because it is expected that
more than 20% of the holders of DECS will be accrual basis
taxpayers, the investor will be required to include in income
original issue discount on any short-term Treasury Security
(i.e., any Treasury Security with a maturity of one year or less
from the date it is purchased) held by the Trust as that original
issue discount accrues. Unless an investor elects to accrue the
original issue discount on a short-term Treasury Security
according to a constant yield method based on daily compounding,
the original issue discount will be accrued on a straight-line
basis. The investor's tax basis in a Treasury Security will be
increased by the amount of any original issue discount included
in income by the investor with respect to such Treasury Security.
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Treatment of the Contract. Each investor will be treated as
having entered into a pro rata portion of the Contract and, at
the Exchange Date, as having received a pro rata portion of the
Common Stock (or cash, Reported Securities or combination
thereof) delivered to the Trust. Under existing law, an investor
will not recognize income, gain or loss upon entry into the
Contract. An investor should not be required under existing law
to include in income additional amounts over the term of the
Contract. See "--Possible Alternative Treatment," below, however.
Sale of the DECS. Upon a sale of all or some of an
investor's DECS, an investor will be treated as having sold its
pro rata portion of the Treasury Securities and Contract
underlying the DECS. The selling investor will recognize gain or
loss equal to the difference between the amount realized and the
investor's aggregate tax bases in its pro rata portion of the
Treasury Securities and the Contract. Any gain or loss will be
long-term capital gain or loss if the investor has held the DECS
for more than one year. The distinction between capital gain or
loss and ordinary income or loss is important for purposes of the
limitations on an investor's ability to offset capital losses
against ordinary income. In addition, individuals generally are
subject to taxation at a reduced rate on long-term capital gains.
Distribution of the Common Stock. The delivery of Common
Stock to the Trust pursuant to the Contract will not be taxable
to the investors. The distribution of Common Stock upon the
termination of the Trust will not be taxable to the investors. An
investor will have taxable gain or loss (which will be short-term
capital gain or loss) upon receipt of cash in lieu of fractional
shares of Common Stock distributed upon termination of the Trust,
in an amount equal to the difference between the cash received
and the portion of the basis of the Contract allocable to
fractional shares (based on the relative number of fractional
shares and full shares delivered to the investor). Each
investor's aggregate basis in its shares of Common Stock will be
equal to its basis in its pro rata portion of the Contract less
the portion of such basis allocable to any fractional shares of
Common Stock for which cash is received.
Distribution of Cash. If an investor receives cash upon
dissolution of the Trust or as a result of Hyundai's election to
deliver cash under the Cash Delivery Option, the investor will
recognize capital gain or loss equal to any difference between
the amount of cash received and its tax basis in the DECS at that
time. Such gain or loss generally will be long-term capital gain
or loss if the investor has held the DECS for more than one year
at the Exchange Date.
Distribution of Cash or Reported Securities as a Result of
an Adjustment Event. If as a result of an Adjustment Event, cash,
Reported Securities, or a combination of cash and Reported
Securities is delivered pursuant to the Contract, an investor
will have taxable gain or loss upon receipt equal to the
difference between the amount of cash received, including cash
received in lieu of fractional Reported Securities, and its basis
in its pro rata portion of the Contract allocable to any shares
of Common Stock for which such cash or fractional Reported
Securities were received. Any gain or loss will be capital gain
or loss, and if the investor has held the DECS for more than one
year, such gain or loss will be long-term capital gain or loss.
An investor's basis in any Reported Securities received will be
equal to its basis in its pro rata portion of the Contract less
the portion of such basis allocable to any shares of Common Stock
for which cash or fractional Reported Securities were received.
See "Investment Objectives and Policies--The Contract."
Possible Alternative Treatment. The Internal Revenue
Service may contend that a DECS should be characterized for
federal income tax purposes in a manner different from the
approach described above. For example, the Internal Revenue
Service might assert that the Contract should be treated as a
contingent debt obligation of Hyundai that is subject to Treasury
regulations governing contingent payment debt instruments. If the
Internal Revenue Service were to prevail in making such an
assertion, original issue discount would accrue with respect to
the Contract at a "comparable yield" for Hyundai under the
Contract, determined at the time the Contract is entered into. An
investor's pro rata portion of original issue discount in respect
of the Contract and original issue discount in respect of the
Treasury Securities might exceed the aggregate amount of the
quarterly cash distributions to the investor. In addition, under
this treatment, the investor would be required to treat any gain
realized on the sale, exchange or redemption of the DECS as
ordinary income to the extent that such gain is allocable to the
Contract. Any loss realized on such sale, exchange or redemption
that is allocable to the Contract would be treated as an ordinary
loss to the extent of the investor's original issue discount
inclusions with respect to the Contract, and
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<PAGE>
as capital loss to the extent of loss in excess of such
inclusions. It is also possible that the Internal Revenue Service
could take the view that an investor should include in income the
amount of cash actually received each year in respect of the
DECS, or that the DECS as a whole constitute a contingent payment
debt instrument subject to the rules described above.
Fees and Expenses of the Trust. An investor's pro rata
portion of the expenses in connection with the organization of
the Trust, underwriting discounts and commissions and other
offering expenses should be includable in the cost to the owner
of the DECS. However, there can be no assurance that the Internal
Revenue Service will not take a contrary view. If the Internal
Revenue Service were to prevail in treating such expenses as
excludable from the investor's cost of the DECS, such expenses
would not be includable in the basis of the assets of the Trust
and should instead be amortizable and deductible over the term of
the Trust. If such expenses were treated as amortizable and
deductible, an individual investor who itemizes deductions would
be entitled to amortize and deduct (subject to any other
applicable limitations on itemized deductions) such expenses over
the term of the Trust only to the extent that such amortized
annual expenses together with the investor's other miscellaneous
deductions exceed 2% of such investor's adjusted gross income.
Proposed Legislation. A bill introduced in 1998 in Congress
by a member of the House of Representatives (H.R. 3170) would
have treated 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 have imposed an interest charge on such
short-term capital gain. The proposed legislation would have been
effective with respect to gain recognized after the date the
legislation was enacted into law, without regard to when the
constructive ownership transaction was entered into. In its
proposed form, the legislation would not have applied to the DECS
transaction (and, even if the legislation in its proposed form
were extended to cover the DECS transaction, would have had no
material effect on the DECS transaction). It is not possible to
predict whether legislation addressing constructive ownership
transactions will be enacted, or what form any such legislation
might take (including with respect to effective dates).
Non-U.S. Holders
In the case of an investor that is a non-resident alien
individual or foreign corporation (a "Non-U.S. Holder"), payments
made with respect to the DECS should not be subject to U.S.
withholding tax, provided that the investor complies with
applicable certification requirements (including in general the
furnishing of an Internal Revenue Service Form W-8 or a
substitute form). Any capital gain realized upon the sale or
other disposition of the DECS by a Non-U.S. Holder generally will
not be subject to U.S. federal income tax if (a) such gain is not
effectively connected with a U.S. trade or business and (b) in
the case of an individual, (i) the individual is not present in
the United States for 183 days or more in the taxable year of the
sale or other disposition, and (ii) the gain is not attributable
to a fixed place of business maintained by the individual in the
United States.
A Non-U.S. Holder of the DECS that is subject to U.S.
federal income taxation on net income basis with respect to the
DECS should see the discussion in "--Tax Consequences to U.S.
Holders."
Backup Withholding Tax and Information Reporting
An investor in a DECS may be subject to information
reporting and to backup withholding tax at a rate of 31 percent
of certain amounts paid to the investor unless the investor (a)
is a corporation or comes within certain other exempt categories
and, when required, provides proof of such exemption or (b)
provides a correct taxpayer identification number, certifies as
to no loss of exemption from backup withholding tax and otherwise
complies with applicable requirements of the backup withholding
tax rules. Information reporting and backup withholding tax will
not apply to payments made to an owner of a DECS that is a
Non-U.S. Holder if such owner (a) is the beneficial owner of the
DECS and certifies as to its non-U.S. status, (b) is not the
beneficial owner of the DECS, but the beneficial owner of the
DECS certifies as to its non-U.S. status, or (c) otherwise
establishes an exemption, provided that the Trust or its agent
does not have actual knowledge that the investor or the
beneficial owner is a U.S. person.
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Payment of the proceeds from the sale of a DECS to or
through a foreign office of a broker will not be subject to
information reporting or backup withholding tax, except that if
the broker is (1) a U.S. person for U.S. federal income tax
purposes, (2) a controlled foreign corporation for U.S. tax
purposes, (3) a foreign person 50 percent or more of whose gross
income from all sources for the three-year period ending with the
close of its taxable year preceding the payment was effectively
connected with a U.S. trade or business or (4) with respect to
payments made after December 31, 1999, a foreign partnership
that, at any time during its taxable year is 50% or more (by
income or capital interest) owned by U.S. persons or is engaged
in the conduct of U.S. trade or business, information reporting
may apply to such payments. Payment of the proceeds from a sale
of a DECS to or through the U.S. office of a broker is subject to
information reporting and backup withholding tax unless the
investor or beneficial owner certifies as to its non-U.S. status
or otherwise establishes an exemption from information reporting
and backup withholding.
Any amounts withheld under the backup withholding tax rules
are not an additional tax and may be credited against a U.S.
Holder's U.S. federal income tax liability, provided that the
required information is furnished to the Internal Revenue
Service.
Recently issued Treasury regulations may change the
certification procedures relating to withholding and backup
withholding on certain amounts paid to Non-U.S. Holders after
December 31, 1999. Prospective investors should consult their tax
advisors regarding the effect, if any, of such new Treasury
regulations on an investment in the DECS.
UNDERWRITING
Subject to the terms and conditions stated in the
underwriting agreement dated the date hereof, each underwriter
named below has severally agreed to purchase, and the Trust has
agreed to sell to such underwriter, the number of DECS set forth
opposite the name of such underwriter.
Name Number of DECS
---- --------------
----------
Total.............................. ==========
The underwriting agreement provides that the obligations of
the several underwriters to purchase the DECS included in this
offering are subject to approval of certain legal matters by
counsel and to certain other conditions. The underwriters are
obligated to purchase all the DECS (other than those covered by
the over-allotment option described below) if they purchase any
of the DECS.
The underwriters, for whom is
acting as representative, propose to offer some of the DECS
directly to the public at the public offering price set forth on
the cover page of this prospectus and some of the DECS to certain
dealers at the public offering price less a concession not in
excess of $ per DECS. The underwriters may allow, and such
dealers may reallow, a concession not in excess of $ per DECS on
sales to certain other dealers. After the initial offering of the
DECS to the public, the public offering price and such
concessions may be changed by the representatives. The sales load
of $ per DECS is equal to % of the initial public offering
price.
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Because proceeds from the sale of the DECS will be used by
the Trust to purchase the Contract from Hyundai, the underwriting
agreement provides that Hyundai will pay to the underwriters as
compensation $ per DECS.
The Trust has granted to the underwriters an option,
exercisable for 30 days from the date of this prospectus, to
purchase up to additional DECS at the same price per DECS as
the initial DECS purchased by the underwriters. The underwriters
may exercise such option solely for the purpose of covering
over-allotments, if any, in connection with this offering. To the
extent such option is exercised, each underwriter will be
obligated, subject to certain conditions, to purchase a number of
additional DECS approximately proportionate to such underwriter's
initial purchase commitment. In addition, Salomon Smith Barney
purchased DECS in connection with the organization of the
Trust.
Maxtor, its officers and directors and Hyundai have agreed
that, for a period of days from the date of this prospectus,
they will not, without the prior written consent of
, as representative of the underwriters, offer, sell,
contract to sell, or otherwise dispose of, any shares of common
stock of Maxtor or any securities convertible into, or
exercisable or exchangeable for, common stock. in
its sole discretion may release any of the securities subject to
these lock-up agreements at any time without notice. However,
this agreement will not restrict the ability of Maxtor and
Hyundai to take any of the actions listed above in connection
with the offering by the Trust of the DECS or any delivery of
shares of Maxtor common stock pursuant to the terms of the DECS.
The DECS will be a new issue of securities with no
established trading market. The Trust has applied to have the
DECS approved for quotation on the Nasdaq National Market under
the symbol " ". The underwriters intend to make a market in the
DECS, subject to applicable laws and regulations. However, the
underwriters are not obligated to do so and any such
market-making may be discontinued at any time at the sole
discretion of the underwriters without notice. Accordingly, no
assurance can be given as to the liquidity of such market.
In connection with the formation of the Trust, Salomon
Smith Barney Inc. subscribed for and purchased [ ] DECS for a
purchase price of $100. Under the Contract, Hyundai will be
obligated to deliver to the Trust Common Stock in respect of such
DECS on the same terms as the DECS offered hereby. Salomon Smith
Barney Inc. sponsored the formation of the Trust for purposes of
this offering, including selecting its initial Trustees.
Pursuant to the Contract, the Trust has agreed, subject to
the terms and conditions set forth therein, to purchase from
Hyundai a number of shares of Maxtor common stock equal to the
total number of DECS to be purchased by the underwriters from the
Trust pursuant to the underwriting agreement (including any DECS
to be purchased by the Underwriters upon exercise of the
over-allotment option [plus the number of DECS purchased by
Salomon Smith Barney in connection with the organization of the
Trust]). Pursuant to the terms of the Contract, Hyundai will
deliver to the Trust at the Exchange Date a number of shares of
Maxtor common stock (or, at Hyundai's option, the cash
equivalent) and/or such other consideration as permitted or
required by the terms of the Contract, that are expected to have
the same value as the shares of Maxtor common stock delivered
pursuant to the DECS. The closing of the offering of the DECS is
conditioned upon execution of the Contract by Hyundai and the
Trust.
In connection with the DECS Offering and the Stock
Offering, the underwriters, may over-allot, or engage in
syndicate covering transactions, stabilizing transactions and
penalty bids. Over-allotment involves syndicate sales of DECS or
Maxtor common stock in excess of the number of DECS to be
purchased by the underwriters in the offering, which creates a
syndicate short position. Syndicate covering transactions involve
purchases of the DECS or the Maxtor common stock in the open
market after the distribution has been completed in order to
cover syndicate short positions. Stabilizing transactions consist
of certain bids or purchases of DECS or common stock made for
the purpose of preventing or retarding a decline in the market
price of the DECS or common stock while the offering is in
progress. Penalty bids permit the underwriters to reclaim a
selling concession from a syndicate member when
, in covering syndicate short positions or making
stabilizing purchases, repurchases DECS or common stock
originally sold by the syndicate member. These activities may
cause the price of DECS or common stock to be higher than the
price that otherwise would exist in the open market in the
absence
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of such transactions. These transactions may be effected on the
Nasdaq National Market or in the over-the-counter market, or
otherwise and, if commenced, may be discontinued at any time.
In addition, in connection with this offering, certain of
the underwriters (and selling group members) may engage in
passive market making transactions in the DECS or common stock on
the Nasdaq National Market, prior to the pricing and completion
of the DECS offering. Passive market making consists of
displaying bids on the Nasdaq National Market no higher than the
bid prices of independent market makers and making purchases at
prices no higher than those independent bids and effected in
response to order flow. Net purchasers by a passive market on
each day are limited to a specified percentage of the passive
market maker's average daily trading volume in the common stock
during a specified period and must be discontinued when such
limit is reached. Passive market making may cause the price of
the common stock to be higher than the price that otherwise would
exist in the open market in the absence of such transactions. If
passive market making is commenced, it may be discontinued at any
time.
Maxtor and Hyundai have entered into a separate underwriting
agreement for the offer and sale of shares of common stock,
plus up to an additional shares of common stock solely to
cover over-allotments. The closings of the DECS Offering and the
Stock Offering are not conditioned upon each other.
The underwriters have performed certain investment banking
and advisory services for Maxtor from time to time for which they
have received customary fees and expenses. The underwriters may,
from time to time, engage in transactions with and perform
services for Maxtor in the ordinary course of its business.
Maxtor and Hyundai have agreed to indemnify the
underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, or to contribute to payments
the underwriters may be required to make in respect of any of
those liabilities.
LEGAL MATTERS
Certain legal matters will be passed upon for the Trust and
the underwriters by Cleary, Gottlieb, Steen & Hamilton, New York,
New York. Certain matters of Delaware law will be passed upon for
the Trust by Richards, Layton & Finger, Wilmington, Delaware.
Certain legal matters will be passed upon for Hyundai by Gray
Cary, Ware & Freidenrich, Palo Alto, California.
EXPERTS
The statement of assets, liabilities and capital included
in this Prospectus has been audited by [ ], independent auditors,
as stated in their report appearing herein, and is included in
reliance upon the report of such firm given upon their authority
as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
The Trust has filed a registration statement for the DECS
with the SEC. Information about the DECS and the trust may be
found in that registration statement. You may read and copy the
registration statement at the public reference facilities of the
SEC in Washington, D.C., Chicago, Illinois and New York, New
York. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms. The Registration
Statement is also available to the public from the SEC's web site
at http:\\www.sec.gov.
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of DECS Trust IV
We have audited the accompanying statement of assets,
liabilities and capital of DECS Trust IV (a Delaware trust) as of
_________, 1999. This financial statement is the responsibility
of the Trustees of the Trust. Our responsibility is to express an
opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally
accepted auditing standards. Those standards require that we plan
and perform the audit to obtain reasonable assurance about
whether the statement of assets, liabilities and capital is free
of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
statement of assets, liabilities and capital. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the statement of assets, liabilities and
capital referred to above presents fairly, in all material
respects, the financial position of DECS Trust IV as of
__________, 1999, in conformity with generally accepted
accounting principles.
New York, New York
, 1999
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DECS TRUST IV
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
, 1999
ASSETS
Cash............................................. $
Total Assets...................................... $
LIABILITIES
Total Liabilities................................ $
NET ASSETS........................................ $
CAPITAL
DECS, 1 DECS issued and outstanding............... $
The accompanying notes are an integral part of this
statement.
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DECS TRUST IV
NOTES TO STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
, 1999
I. Organization
------------
DECS Trust IV, organized as a Delaware business trust on
December 18, 1998, is a closed-end management investment
company registered under the Investment Company Act of
1940. The term of the Trust is anticipated to expire in the
year 2002; however, the exact date will be determined in
the future. The Trust may be dissolved prior to its planned
termination date under certain circumstances as outlined in
the registration statement.
The Trust has registered [ ] DECS representing shares of
beneficial interest in the Trust. The only securities that
the Trust is authorized to issue are the DECS. Each of the
DECS represents the right to receive (a) quarterly
distributions during the term of the Trust, and (b) upon
the conclusion of the term of the Trust (the "Delivery
Date"), certain shares of common stock (the "Common Stock")
or cash with an equivalent value (such amounts determined
as described in the registration statement). The DECS are
not subject to redemption prior to the Exchange Date or the
earlier termination of the Trust. The Trust will hold a
series of zero-coupon U.S. Treasury securities and one or
more forward purchase contracts relating to the Common
Stock. The business activities of the Trust are limited to
the matters discussed above. The Trust will be treated as a
grantor trust for U.S. federal income tax purposes.
On ____________, 1999, the Trust issued one DECS to
Salomon Smith Barney Inc. in consideration for a purchase
price of $100.
II. Organizational Costs, Fees and Expenses
---------------------------------------
Organizational costs and ongoing fees of the Trust will be
borne by Salomon Smith Barney.
III. Management and Administration of Trust
--------------------------------------
The internal operation of the Trust will be managed by its
trustees; the Trust will not have a separate investment
adviser. The Trust will be overseen by three trustees, and
its daily administration will be carried out by The Bank of
New York as the administrator. The Bank of New York will
also serve as the Trust's custodian, paying agent,
registrar and transfer agent with respect to the DECS.
35
<PAGE>
=================================================================
DECS SM
DECS TRUST IV
(Subject to Exchange into Common Stock of Maxtor Corporation)
------------
PROSPECTUS
, 1999
----------
[Underwriters]
=================================================================
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
1. Financial Statements
Part A -- (i) Report of Independent Accountants
(ii) Statement of Assets and Liabilities as
of , 1999
Part B -- none
2. Exhibits
(a)(1)(A) -- Declaration of Trust dated as of
December 17, 1998
(a)(1)(B) -- Amended and Restated Declaration of Trust
dated as of , 1999/*/
(a)(2)(A) -- Certificate of Trust dated December 17,
1998
(a)(2)(B) -- Restated Certificate of Trust
dated , 1999/*/
(b) -- Not applicable
(c) -- Not applicable
(d)(1) -- Form of specimen certificate of DECS
(included in Exhibit 2(a)(1)(B))/*/
(d)(2) -- Portions of the Amended and Restated
Declaration of Trust defining the rights
of Holders of DECS (included in Exhibit
2(a)(1)(B))/*/
(e) -- Not applicable
(f) -- Not applicable
(g) -- Not applicable
(h) -- Form of Underwriting Agreement/*/
(i) -- Not applicable
(j) -- Form of Custodian Agreement/*/
(k)(1) -- Form of Administration Agreement/*/
(k)(2) -- Form of Paying Agent Agreement/*/
(k)(3) -- Form of Purchase Contract/*/
(k)(4) -- Form of Collateral Agreement/*/
(k)(5) -- Form of Fund Expense Agreement/*/
(k)(6) -- Form of Fund Indemnity Agreement/*/
(l) -- Opinion and Consent of Counsel to the
Trust/*/
(m) -- Not applicable
(n)(1) -- Tax Opinion of Counsel to the Trust
(Consent contained in Exhibit 2(n)(1))/*/
(n)(2) -- Consent of Independent Public Account-
ants/*/
(n)(3) -- Consents to being named as Trustee/*/
(o) -- Not applicable
(p) -- Form of Subscription Agreement/*/
(q) -- Not applicable
(r) -- Financial Data Schedule/*/
- ---------------
/*/ To be filed by amendment.
C-1
<PAGE>
Item 25. Marketing Arrangements
See Exhibit 2(h) to this Registration Statement.
Item 26. Other Expenses of Issuance and Distribution
The following table sets forth the estimated expenses to be
incurred in connection with the DECS offering described in this
Registration Statement:
Registration fees $83,400
Nasdaq National Market application fee *
Printing (other than certificates) *
Engraving and printing certificates *
Fees and expenses of qualification under state
securities laws (including fees of counsel) *
Accounting fees and expenses *
Legal fees and expenses *
NASD fees *
Miscellaneous *
-------
Total $ *
- ---------------
/*/ To be furnished by amendment.
Item 27. Person Controlled by or under Common Control with
Registrant
The Trust will be internally managed and will not have an
investment adviser. The information in the Prospectus under the
caption "Management and Administration of the Trust" is
incorporated herein by reference.
Item 28. Number of Holders of Securities
As of the effective date of this Registration Statement:
Title of Class Number of Record Holders
-------------- ------------------------
DECS representing shares of
beneficial interest ............. 1
Item 29. Indemnification
The Underwriting Agreement (Exhibit 2(h) to this
Registration Statement) provides for indemnification.
The Amended and Restated Declaration of Trust filed as
Exhibit 2(a)(1)(B) to this Registration Statement provides for
indemnification to each Trustee against any claim or liability
incurred in acting as Trustee of the Trust, except in the case of
willful misfeasance, bad faith, gross negligence or reckless
disregard of the Trustee's duties. The Custodian Agreement,
Administration Agreement and Paying Agent Agreement filed as
Exhibits 2(j), 2(k)(1) and 2(k)(2) to this Registration Statement
provide for indemnification to the Custodian, Administrator and
Paying Agent against any loss or expense incurred in the
performance of their obligations under the respective agreements,
unless such loss or expense is due to willful misfeasance, bad
faith, gross negligence or reckless disregard of their
C-2
<PAGE>
obligations. The Fund Indemnity Agreement filed as Exhibit
2(k)(6) to this Registration Statement provides that Salomon
Smith Barney will indemnify the Trust for certain indemnification
expenses incurred under the Amended and Restated Declaration of
Trust, the Custodian Agreement, the Administration Agreement and
the Paying Agent Agreement.
Insofar as indemnification for liabilities arising under
the Securities Act may be permitted to directors, officers and
controlling persons of the Registrant, pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid
by a director, officer or controlling person of the Registrant in
the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Securities Act and will be governed by the final adjudication
of such issue.
Item 30. Business and other Connections of Investment Adviser
Not applicable.
Item 31. Location of Accounts and Records
The accounts, books and other documents required to be
maintained by Section 31(a) of the Investment Company Act of 1940
and the Rules thereunder are maintained as follows: journals,
ledgers, securities records and other original records are
maintained principally at the offices of the Registrant, c/o
Smith Barney Inc., 388 Greenwich Street, New York, New York 10013
and at the offices of The Bank of New York, the Registrant's
Administrator, Custodian, paying agent, transfer agent and
registrar. All other records so required to be maintained are
maintained at the offices of the Registrant, c/o Smith Barney
Inc., 388 Greenwich Street, New York, New York 10013.
Item 32. Management Services
Not applicable.
Item 33. Undertakings
(a) The Registrant hereby undertakes to suspend the
offering of the shares covered hereby until it amends its
prospectus contained herein if (1) subsequent to the effective
date of this Registration Statement, its net asset value per
share declines more than ten percent from its net asset value per
share as of the effective date of this Registration Statement or
(2) the net asset value per share increases to an amount greater
than its net proceeds as stated in its prospectus contained
herein.
(b) The Registrant hereby undertakes that (i) for the
purpose of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant under
Rule 497(h) under the Securities Act shall be deemed to be part
of this Registration Statement as of the time it was declared
effective; (ii) for the purpose of determining any liability
under the Securities Act, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered
therein, and the offering of the securities at that time shall be
deemed to be the initial bona fide offering thereof.
C-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933
and the Investment Company Act of 1940, the Registrant has duly
caused this Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of New
York, State of New York, on the 21st day of December, 1998.
DECS TRUST IV
By: /s/ Tyler Dickson
-----------------------
Tyler Dickson, Trustee
Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement has been signed below by the
following person, in the capacities and on the date indicated.
Name Title Date
---- ----- ----
/s/ Tyler Dickson Principal Executive December 21, 1998
- -------------------- Officer, Principal
Tyler Dickson Financial Officer,
Principal Accounting
Officer and Trustee
<PAGE>
Exhibit Index
Exhibit Name of Exhibit
------- ---------------
(a)(1)(A) Declaration of Trust dated as of
December 17, 1998
(a)(1)(B) Amended and Restated Declaration of Trust
dated as of , 1999/*/
(a)(2)(A) Certificate of Trust dated December 17,
1998
(a)(2)(B) Restated Certificate of Trust
dated , 1999/*/
(b) Not applicable
(c) Not applicable
(d)(1) Form of specimen certificate of DECS
(included in Exhibit 2(a)(1)(B))/*/
(d)(2) Portions of the Amended and Restated
Declaration of Trust defining the rights
of Holders of DECS (included in Exhibit
2(a)(1)(B))/*/
(e) Not applicable
(f) Not applicable
(g) Not applicable
(h) Form of Underwriting Agreement/*/
(i) Not applicable
(j) Form of Custodian Agreement/*/
(k)(1) Form of Administration Agreement/*/
(k)(2) Form of Paying Agent Agreement/*/
(k)(3) Form of Purchase Contract/*/
(k)(4) Form of Collateral Agreement/*/
(k)(5) Form of Fund Expense Agreement/*/
(k)(6) Form of Fund Indemnity Agreement/*/
(l) Opinion and Consent of Counsel to the
Trust/*/
(m) Not applicable
(n)(1) Tax Opinion of Counsel to the Trust
(Consent contained in Exhibit 2(n)(1))/*/
(n)(2) Consent of Independent Public Account-
ants/*/
(n)(3) Consents to being named as Trustee/*/
(o) Not applicable
(p) Form of Subscription Agreement/*/
(q) Not applicable
(r) Financial Data Schedule/*/
- ---------------
/*/ To be filed by amendment.
DECLARATION OF TRUST OF DECS TRUST IV
Declaration of Trust, dated as of December 17, 1998,
between Alan Rifkin, as sponsor (the "Sponsor"), and Tyler
Dickson, as trustee (the "Trustee"). The Sponsor and the Trustee
hereby agree as follows:
1. The trust created hereby shall be known as "DECS
Trust IV," in which name the Trustee, or the Sponsor to the
extent provided herein, may conduct the business of the Trust,
make and execute contracts, and sue and be sued.
2. The Sponsor hereby assigns, transfers, conveys and
sets over to the Trustee the sum of $1. The Trustee hereby
acknowledges receipt of such amount in trust from the Sponsor,
which amount shall constitute the initial trust estate. The
Trustee hereby declares that it will hold the trust estate in
trust for the Sponsor. It is the intention of the parties hereto
that the Trust created hereby constitute a business trust under
Chapter 38 of Title 12 of the Delaware Code, 12 Del. C. ss. 3801
et seq. and that this document constitute the governing
instrument of the Trust. The Trustee is hereby authorized and
directed to execute and file a certificate of trust with the
Delaware Secretary of State in the form attached hereto or in
such other form as the Trustee may approve.
3. The Sponsor and the Trustee will enter into an
amended and restated Declaration of Trust, satisfactory to each
such party, to provide for the contemplated operation of the
Trust created hereby. Prior to the execution and delivery of such
amended and restated Declaration of Trust, the Trustee shall not
have any duty or obligation hereunder or with respect to the
trust estate, except as otherwise required by applicable law or
as may be necessary to obtain prior to such execution and
delivery any licenses, consents or approvals required by
applicable law or otherwise.
4. This Declaration of Trust may be executed in one or
more counterparts.
5. The Trustee may resign upon thirty days prior notice
to the Sponsor.
IN WITNESS WHEREOF, the parties hereto have caused
this Declaration of Trust to be duly executed as of the date
first above written.
SPONSOR
/s/ Alan Rifkin
----------------------------
Alan Rifkin, as Sponsor
TRUSTEE
/s/ Tyler Dickson
----------------------------
Tyler Dickson, as Trustee
<PAGE>
THIS CERTIFICATE IS ISSUED UNDER AND IS SUBJECT TO THE
TERMS, PROVISIONS AND CONDITIONS OF THE TRUST AGREEMENT REFERRED
TO BELOW TO WHICH THE HOLDER OF THIS CERTIFICATE BY VIRTUE OF THE
ACCEPTANCE HEREOF ASSENTS AND IS BOUND.
NO. __ ______ DECS
DECS TRUST IV
CUSIP NO. ____________
THIS CERTIFIES THAT SALOMON SMITH BARNEY INC. IS THE
RECORD OWNER OF ___ DECS OF DECS TRUST IV CONSTITUTING FRACTIONAL
UNDIVIDED INTERESTS IN DECS TRUST IV, A TRUST CREATED UNDER THE
LAWS OF THE STATE OF DELAWARE PURSUANT TO AN AMENDED AND RESTATED
DECLARATION OF TRUST BETWEEN SALOMON SMITH BARNEY INC. AND THE
TRUSTEES NAMED THEREIN. THIS CERTIFICATE IS ISSUED UNDER AND IS
SUBJECT TO THE TERMS, PROVISIONS AND CONDITIONS OF THE TRUST
AGREEMENT TO WHICH THE HOLDER OF THIS CERTIFICATE BY VIRTUE OF
THE ACCEPTANCE HEREOF ASSENTS AND IS BOUND, A COPY OF WHICH TRUST
AGREEMENT IS AVAILABLE AT THE OFFICE OF THE TRUST'S ADMINISTRATOR
AND PAYING AGENT, ATTENTION: ___. THIS CERTIFICATE IS TRANSFERABLE
AND EXCHANGEABLE BY THE REGISTERED OWNER IN PERSON OR BY HIS DULY
AUTHORIZED ATTORNEY AT THE OFFICE OF THE PAYING AGENT UPON
SURRENDER OF THIS CERTIFICATE PROPERLY ENDORSED OR ACCOMPANIED BY
A WRITTEN INSTRUMENT OF TRANSFER AND ANY OTHER DOCUMENTS THAT THE
PAYING AGENT MAY REQUIRE FOR TRANSFER, IN FORM SATISFACTORY TO
THE PAYING AGENT AND PAYMENT OF THE FEES AND EXPENSES PROVIDED IN
THE TRUST AGREEMENT.
THIS CERTIFICATE IS NOT VALID UNLESS MANUALLY
COUNTERSIGNED BY THE PAYING AGENT.
WITNESS THE FACSIMILE SIGNATURE OF THE MANAGING
TRUSTEE.
DATED: DECS TRUST IV
By:_______________________________
Trustee
2
CERTIFICATE OF TRUST OF DECS TRUST IV
This Certificate of Trust of DECS Trust IV (the
"Trust"), dated December 17, 1998, is being duly executed and
filed by Tyler Dickson, as trustee, to form a business trust
under the Delaware Business Trust Act (12 Del. C. ss. 3801, et
seq.).
1. Name. The name of the business trust formed hereby
is DECS Trust IV.
2. Registered Office; Registered Agent. The business
address of the registered office of the Trust in the State of
Delaware is 1209 Orange Street, Wilmington, Delaware 19801. The
name of the Trust's registered agent at such address is The
Corporation Trust Company.
3. Effective Date. This Certificate of Trust shall be
effective upon the date and time of filing.
4. The Trust is to be registered under the Investment
Company Act of 1940, as amended, prior to the issuance of
beneficial interests in the Trust.
IN WITNESS WHEREOF, the undersigned, being the sole
trustee of the Trust, has executed this Certificate of Trust as
of the date first above written.
/s/ Tyler Dickson
-----------------------------------
Tyler Dickson, as Sole Trustee
<PAGE>
