<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 22, 1999
SECURITIES ACT FILE NO. 333-69325
INVESTMENT COMPANY ACT FILE NO. 811-09163
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF
1933 [X]
PRE-EFFECTIVE AMENDMENT NO. 1 [X]
POST-EFFECTIVE AMENDMENT NO. [ ]
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 [X]
AMENDMENT NO. 1 [X]
------------------------
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
<TABLE>
<S> <C> <C> <C> <C>
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF SECURITIES BEING AMOUNT BEING OFFERING PRICE AGGREGATE AMOUNT OF
REGISTERED REGISTERED(1) PER DECS(2) OFFERING PRICE(2) REGISTRATION FEE(3)(4)
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DECS representing shares of
beneficial interest......... 17,825,000 DECS $17.4375 $310,823,438 $86,409
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</TABLE>
(1) Includes a total of 2,325,000 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.
(4) Of which $83,400 was paid in connection with the initial filing of this
registration statement and $3,009 is being paid in connection with the
filing of this Amendment No. 1.
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.
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<PAGE> 2
DECS TRUST IV
CROSS-REFERENCE SHEET
PARTS A AND B OF PROSPECTUS*
<TABLE>
<CAPTION>
ITEM NO. CAPTION PROSPECTUS CAPTION
- -------- ------- ------------------
<C> <S> <C>
1. Outside Front Cover............................ Front Cover Page
2. Inside Front and Outside Back Cover Page....... Front Cover Page; Inside Front Cover
Page
3. Fee Table and Synopsis......................... Prospectus Summary; Fees and Expenses
4. Financial Highlights........................... Not Applicable
5. Plan of Distribution........................... Front Cover Page; Prospectus Summary;
Underwriting
6. Selling Shareholders........................... Not Applicable
7. Use of Proceeds................................ Use of Proceeds; Investment Objectives
and Policies
8. General Description of the Registrant.......... Front Cover Page; Prospectus Summary;
The Trust; Investment Restrictions;
Investment Objectives and Policies; Risk
Factors 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 Holders of Management and Administration of the
Securities................................... Trust
20. Investment Advisory and Other Services......... Management and Administration of the
Trust
21. Brokerage Allocation and Other Practices....... Investment Objectives and Policies
22. Tax Status..................................... Certain United States Federal Income Tax
Considerations
23. Financial Statements........................... Statement of Assets and Liabilities
</TABLE>
- ---------------
* 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> 3
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 NOT PERMITTED.
SUBJECT TO COMPLETION, DATED JANUARY 22, 1999
PROSPECTUS
15,500,000 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 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, or the cash equivalent, for each DECS you own
The last reported sale price of Maxtor common stock on January 19, 1999 was
$19.31 per share.
------
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 asset value will
decrease. The trust cannot predict whether the DECS will trade at, below or
above net asset value. The risk of purchasing investments in a closed-end
company that might trade at a discount is more pronounced for investors who wish
to sell their investments soon after completion of a public offering.
INVESTING IN THE DECS INVOLVES CERTAIN RISKS. SEE "RISK FACTORS FOR DECS"
BEGINNING ON PAGE 20. ------
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.
<TABLE>
<CAPTION>
PER DECS TOTAL
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<S> <C> <C>
Public Offering Price....................................... $ $
Sales Load.................................................. $ $
Proceeds to the Trust before expenses....................... $ $
</TABLE>
The underwriters are offering the DECS subject to various conditions. The
underwriters expect to deliver the DECS to purchasers on ,
1999.
------
SALOMON SMITH BARNEY
HAMBRECHT & QUIST
LEHMAN BROTHERS
MERRILL LYNCH & CO.
NATIONSBANC MONTGOMERY SECURITIES LLC
, 1999
<PAGE> 4
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
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
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....................................... 20
Net Asset Value............................................. 22
Description of the DECS..................................... 23
Management and Administration of the Trust.................. 25
Certain United States Federal Income Tax Considerations..... 28
Underwriting................................................ 32
Legal Matters............................................... 34
Experts..................................................... 34
Where You Can Find More Information......................... 34
Report of Independent Accountants........................... 35
Statement of Assets, Liabilities and Capital................ 36
</TABLE>
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.
<PAGE> 5
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 2,325,000 additional DECS from
the trust to cover over-allotments and in connection with the formation of the
Trust.
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 proceeds of
liquidation of the U.S. Treasury securities then held by the trust.
3
<PAGE> 6
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 exchange 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
17,825,000 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, you and the trust agree to treat your
investment in the DECS as a pro rata beneficial interest in the U.S. Treasury
securities and the forward purchase contract held by the trust. In addition,
you, Hyundai Electronics America and the trust 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 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
4
<PAGE> 7
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 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.
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 circumstances, 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.
- 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.
5
<PAGE> 8
- 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 "MXTRL." Maxtor common stock is traded on the
Nasdaq National Market under the symbol "MXTR." The last reported sale price of
Maxtor common stock on January 19, 1999 was $19.31 per share.
CONCURRENT SHARE OFFERING
Concurrently with this offering, Maxtor is offering for sale in a separate
offering 7,800,000 shares of Maxtor common stock (8,970,000 shares if the
underwriters' over-allotment option is exercised in full).
6
<PAGE> 9
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." Salomon Smith
Barney Inc. ("Salomon Smith Barney") 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 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.
<TABLE>
<S> <C>
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%
===
</TABLE>
- ---------------
* 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.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ -------
<S> <C> <C>
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....... $ $
</TABLE>
7
<PAGE> 10
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 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, on , 2002 (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 (the "NYSE") or banking
institutions or trust companies in The City of New York are authorized or
obligated by law or executive order to close.
The "Exchange Rate" is equal to, subject to certain adjustments,
(a) if the Exchange Price (as defined below) is greater than $
(the "Threshold Appreciation Price"), shares of Common Stock per
DECS;
(b) if the Exchange Price is less than 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
8
<PAGE> 11
certain dilution events, the Exchange Rate will be subject to adjustment and (2)
in the case of certain adjustment events, the consideration received by
investors at the Exchange Date will be cash or Reported Securities (as defined
herein) or a combination thereof, rather than (or in addition to) shares of
Common Stock. See "-- The Contract -- Dilution Adjustments" and "-- The
Contract -- 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 the 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" and "-- The Contract -- 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
9
<PAGE> 12
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:
<TABLE>
<CAPTION>
EXCHANGE PRICE OF NUMBER OF SHARES OF
COMMON STOCK COMMON STOCK AMOUNT OF CASH
- ----------------- ------------------- --------------
<S> <C> <C>
</TABLE>
As the foregoing chart illustrates, if at the Exchange Date, the Exchange
Price is greater than $ , the Trust will be obligated to deliver
0. 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>
ANNUAL
ANNUAL GROSS INCLUSION OF
ANNUAL GROSS DISTRIBUTIONS FROM ANNUAL RETURN OF ORIGINAL ISSUE
DISTRIBUTIONS FROM TREASURY SECURITIES CAPITAL PER DISCOUNT IN INCOME
YEAR TREASURY SECURITIES PER DECS DECS PER DECS
---- ------------------- ------------------- ---------------- ------------------
<S> <C> <C> <C> <C>
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> 13
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 closing sale prices of the Common Stock 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 January 19, 1999, there
were approximately 57 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 end is the last
Saturday in December, conforming to a 52/53-week/year methodology.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
Fiscal 1999 First Quarter (through year 1999)............... $19.31 $12.63
Fiscal 1998 Fourth Quarter.................................. 15.63 7.63
Fiscal 1998 Third Quarter (from July 31, 1998).............. 11.63 6.81
</TABLE>
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,
0. ;
(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> 14
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 its 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 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 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 this 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> 15
The denominator of this 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 the quotient of
(I) 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 will 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.
Adjustments 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" 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" 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 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
13
<PAGE> 16
(5) any liquidation, dissolution or winding up of Maxtor.
After the occurrence 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,
0. 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 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.
14
<PAGE> 17
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.
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, this notice
will only disclose the factor by
15
<PAGE> 18
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 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 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.
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.
16
<PAGE> 19
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).
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
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<PAGE> 20
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 this distribution,
the term of the Trust will expire. See "-- The Contract -- Collateral
Requirements of the Contract; Acceleration" above.
DELIVERY OF COMMON STOCK AND REPORTED SECURITIES; NO FRACTIONAL SHARES OF COMMON
STOCK OR REPORTED SECURITIES
Common Stock and Reported Securities delivered under the 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).
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<PAGE> 21
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
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.
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<PAGE> 22
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 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 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 in 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, Hyundai or
another person in the market sells a large number of Maxtor shares.
Concurrently with this offering, Maxtor is offering for sale in a separate
offering 7,800,000 shares of Maxtor common stock (8,970,000 shares if the
underwriters' over-allotment option is exercised in full). As of the date of
this prospectus, Hyundai owned a total of 44,029,850 Maxtor shares, of which
Hyundai may deliver up to 15,500,000 Maxtor shares (17,825,000 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.
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<PAGE> 23
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 15% 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.
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
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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 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 United States 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 6 to 20 of the attached
prospectus.
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 prepaid
forward 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 prepaid forward 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 prepaid forward
contract, or otherwise subject the prepaid forward 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 prepaid forward 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
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<PAGE> 25
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 non-assessable. 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 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
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<PAGE> 26
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 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 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.
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<PAGE> 27
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.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME, AGE AND ADDRESS TITLE DURING PAST FIVE YEARS
--------------------- ----- ----------------------
<S> <C> <C>
Donald J. Puglisi, 53............................. Managing Trustee Professor of Finance
Department of Finance University of Delaware
University of Delaware
Newark, DE 19716
William R. Latham, III, 54........................ Trustee Professor of Economics
Department of Economics University of Delaware
University of Delaware
Newark, DE 19716
James B. O'Neill, 59.............................. Trustee Professor of Economics
Center for Economic University of Delaware
Education and
Entrepreneurship
University of Delaware
Newark, DE 19716
</TABLE>
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.
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<PAGE> 28
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).
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 Agreement, 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 distributions 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
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<PAGE> 29
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.
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.
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<PAGE> 30
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
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 the Exchange Date (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 the Exchange Date 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.
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<PAGE> 31
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.
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 given 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
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<PAGE> 32
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 takes effect. 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 as capital loss to the extent of loss in excess of
such inclusions. The Internal Revenue Service could also 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 includible 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 includible 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
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<PAGE> 33
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.
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.
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<PAGE> 34
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.
<TABLE>
<CAPTION>
NAME NUMBER OF DECS
---- --------------
<S> <C>
Salomon Smith Barney Inc....................................
Hambrecht & Quist LLC.......................................
Lehman Brothers Inc.........................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................................
NationsBanc Montgomery Securities LLC.......................
----------
Total....................................................... 15,500,000
==========
</TABLE>
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 Salomon Smith Barney Inc. 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 representative. The
sales load of $ per DECS is equal to % of the initial public offering
price.
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 Inc. purchased DECS in connection with
the organization of the Trust.
Maxtor, its executive officers and directors (comprised of fourteen
individuals) and Hyundai have agreed that, for a period of 90 days from the date
of this prospectus, they will not, without the prior written consent of Salomon
Smith Barney Inc., 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,
except that each such officer and director of Maxtor may sell, during the 90 day
period, up to 10,000 shares of common stock of Maxtor, subject to an aggregate
maximum of 100,000 shares for all such officers and directors during this
period. Salomon Smith Barney Inc. 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 "MXTRL." 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
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<PAGE> 35
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 offering of the DECS and Maxtor's concurrent
offering of Common Stock, Salomon Smith Barney Inc., on behalf of the
underwriters, may over-allot, or engage in syndicate covering transactions,
stabilizing transactions and penalty bids. Over-allotment involves syndicate
sales of DECS or 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 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 Salomon Smith Barney Inc., 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 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 purchases 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 has entered into a separate underwriting agreement for the offer and
sale of 7,800,000 shares of common stock, plus up to an additional 1,170,000
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.
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<PAGE> 36
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 PricewaterhouseCoopers LLP, independent
accountants, 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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<PAGE> 37
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustee of DECS Trust IV
We have audited the accompanying statement of assets, liabilities and
capital of DECS Trust IV (a Delaware trust) as of January 21, 1999. This
financial statement is the responsibility of the Trustee 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 January 21, 1999, in conformity with generally accepted
accounting principles.
/s/ PricewaterhouseCoopers LLP
New York, New York
January 22, 1999
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<PAGE> 38
DECS TRUST IV
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
JANUARY 21, 1999
<TABLE>
<S> <C>
ASSETS
Cash........................................................ $ 100
Total Assets................................................ 100
LIABILITIES
Total Liabilities........................................... --
NET ASSETS.................................................. 100
CAPITAL
DECS, 1 DECS issued and outstanding......................... $ 100
</TABLE>
The accompanying notes are an integral part of this financial statement.
36
<PAGE> 39
DECS TRUST IV
NOTES TO STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
JANUARY 21, 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 17,825,000 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 "Exchange Date"), certain shares of common stock of
Maxtor Corporation (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 a forward purchase contract 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 January 21, 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 Inc.
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.
37
<PAGE> 40
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
15,500,000 DECS(SM)
DECS TRUST IV
(SUBJECT TO EXCHANGE INTO COMMON STOCK OF MAXTOR CORPORATION)
------------------------
PROSPECTUS
, 1999
------------------------
SALOMON SMITH BARNEY
HAMBRECHT & QUIST
LEHMAN BROTHERS
MERRILL LYNCH & CO.
NATIONSBANC MONTGOMERY SECURITIES LLC
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 41
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
<TABLE>
<S> <C> <C>
(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 Accountants
(n)(3) -- Consents to being named as Trustee/*/
(o) -- Not applicable
(p) -- Form of Subscription Agreement
(q) -- Not applicable
(r) -- Financial Data Schedule/*/
</TABLE>
- ---------------
/*/ To be filed by amendment.
ITEM 25. MARKETING ARRANGEMENTS
See Exhibit 2(h) to this Registration Statement.
C-1
<PAGE> 42
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:
<TABLE>
<S> <C>
Registration fees........................................... $95,688
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............................................. $ *
</TABLE>
- ---------------
* 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:
<TABLE>
<CAPTION>
NUMBER OF
TITLE OF CLASS RECORD HOLDERS
-------------- --------------
<S> <C>
DECS representing shares of beneficial interest............. 1
</TABLE>
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 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
C-2
<PAGE> 43
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> 44
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Amendment
No. 1 to the 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 22nd day of January, 1999.
DECS TRUST IV
By: /s/ TYLER DICKSON
------------------------------------
Tyler Dickson, Trustee
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed below by the following
person, in the capacities and on the date indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <C> <S>
/s/ TYLER DICKSON Principal Executive Officer, January 22, 1999
- ----------------------------------------------------- Principal Financial Officer,
Tyler Dickson Principal Accounting Officer
and Trustee
</TABLE>
C-4
<PAGE> 45
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NAME OF EXHIBIT
------- ---------------
<S> <C>
(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 Accountants
(n)(3) Consents to being named as Trustee/*/
(o) Not applicable
(p) Form of Subscription Agreement
(q) Not applicable
(r) Financial Data Schedule/*/
</TABLE>
- ---------------
/*/ To be filed by amendment.
<PAGE> 1
EXHIBIT (n)(2)
Consent of Independent Accountants
We consent to the inclusion in the Registration Statement of DECS Trust IV on
Form N-2 filed with the Securities and Exchange Commission on or about January
22, 1999 of our report dated January 21, 1999 on our audit of the Statement of
Assets, Liabilities and Capital of DECS Trust IV as of January 21, 1999. We also
consent to the reference to our firm under the caption "Experts."
New York, New York
January 21, 1999
<PAGE> 1
EXHIBIT P
EXECUTION COPY
SUBSCRIPTION AGREEMENT
This SUBSCRIPTION AGREEMENT dated as of January 21, 1999, is entered into
between DECS Trust IV, a statutory business trust organized under the Business
Trust Act of the State of Delaware (such trust and the trustees thereof acting
in their capacity as such being referred to herein as the "Trust"), and Salomon
Smith Barney Inc. (the "Purchaser").
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Purchase and Sale of the DECS.
1.1 Sale and Issuance of DECS. Subject to the terms and conditions of
this Agreement, the Trust agrees to sell to the Purchaser, and the Purchaser
agrees to purchase from the Trust, one DECS (the "Subscription DECS"),
representing an undivided beneficial interest in the Trust, at a purchase price
of $100.00.
1.2. Closing. The purchase and sale of the Subscription DECS shall take
place at the offices of Cleary, Gottlieb, Steen & Hamilton, One Liberty Plaza,
New York, New York 10006 at 10:00 a.m., on January 20, 1999, or at such other
time ("Closing Date") and place as the Trust and the Purchaser mutually agree
upon. At or after the Closing Date, the Trust shall deliver to the Purchaser a
certificate representing the Subscription DECS, registered in the name of the
Purchaser or its nominee. Payment for the Subscription DECS shall be made on
the Closing Date by the Purchaser by bank wire transfer or by delivery of a
certified or official bank check, in either case in immediately available
funds, of an amount equal to the purchase price of the Subscription DECS.
2. Representations, Warranties and Covenants of the Purchaser. The
Purchaser hereby represents and warrants to, and covenants for the benefit of,
the Trust that:
2.1. Purchase Entirely for Own Account. This Agreement is made by the
Trust with the Purchaser in reliance upon the Purchaser's representation to the
Trust, which by the Purchaser's execution of this Agreement the Purchaser
hereby confirms, that Purchaser is acquiring the Subscription DECS for
investment for the Purchaser's own account, and not as a nominee or agent and
not with a view to the resale or distribution by the Purchaser of such
Subscription DECS, and that the Purchaser has no present intention of selling,
granting any participation in, or otherwise distributing the Subscription DECS,
in either case in violation of any securities registration requirement under
applicable law, but subject nevertheless to any requirement of law that the
disposition of its property shall at all times be within its control. By
executing this Agreement, the Purchaser further represents that the Purchaser
does not have any contract, undertaking, agreement or arrangement with any
person to sell, transfer or grant participation to such person, or to any third
person, with respect to the Subscription DECS.
2.2 Investment Experience. The Purchaser acknowledges that it can bear
the economic risk of the investment for an indefinite period of time and has
such knowledge and experience in financial and business matters (and
particularly in the business in which the Trust operates) as to be capable of
evaluating the merits and risks of the investment in the Subscription
<PAGE> 2
DECS. The Purchaser is an "accredited investor" as defined in Rule 501(a)
of Regulation D under the Securities Act of 1933 (the "Act").
2.3. Restricted Securities. The Purchaser understands that the
Subscription DECS are characterized as "restricted securities" under the United
States securities laws inasmuch as they are being acquired from the Trust in a
transaction not involving a public offering and that under such laws and
applicable regulations such Subscription DECS may be resold without
registration under the Act only in certain circumstances. In this connection,
the Purchaser represents that it understands the resale limitations imposed by
the Act and is generally familiar with the existing resale limitations imposed
by Rule 144 under the Act.
2.4. Further Limitations on Disposition. The Purchaser further agrees
not to make any disposition directly or indirectly of all or any portion of the
Subscription DECS unless and until:
(a) There is then in effect a registration statement under the Act covering
such proposed disposition and such disposition is made in accordance
with such registration statement; or
(b) The Purchaser shall have furnished the Trust with an opinion of
counsel, reasonably satisfactory to the Trust, that such disposition
will not require registration of such Subscription DECS under the Act.
(c) Notwithstanding to provisions of subsections (a) and (b) above, no such
registration statement or opinion of counsel shall be necessary for a
transfer by the Purchaser to any affiliate of the Purchaser, if the
transferee agrees in writing to be subject to the terms hereof to the
same extent as if it were the original Purchaser hereunder.
2.5. Legends. It is understood that the certificate evidencing the
Subscription DECS may bear either or both of the following legends:
(a) "These securities have not been registered under the Securities Act of
1933. They may not be sold offered for sale, pledged or hypothecated
in the absence of a registration statement in effect with respect to
the securities under such Act or an opinion of counsel reasonably
satisfactory to the Trustee of DECS Trust IV that such registration is
not required."
(b) Any legend required by the laws of any other applicable jurisdiction.
The Purchaser and the Trust agree that the legend contained in paragraph
(a) above shall be removed at a holder's request when it is no longer necessary
to ensure compliance with federal securities laws.
2.6. Amendment to Declaration of Trust; Split of DECS. The Purchaser
consents to (a) the execution and delivery by the Trustees of the Trust and
Salomon Smith
2
<PAGE> 3
Barney Inc., as sponsor of the Trust, of an Amended and Restated Declaration of
Trust substantially in the form attached hereto and (b) the split of the
Subscription DECS subsequent to the determination of the public offering price
per DECS and related underwriting discount for the DECS to be sold to the
Underwriters (as defined in such Amended and Restated Declaration of Trust) but
prior to the sale of the DECS to the Underwriter into a greater number of DECS
so that immediately following such split the value of the Subscription DECS
will equal the aforesaid public offering price per DECS.
2.7 Counterparts. This Agreement may be executed in several
counterparts, each of which shall be an original and all of which shall
constitute but one and the same instrument.
2.8 Governing Law. This Agreement shall be governed by and
construed and interpreted in accordance with the law of the State of New York
applicable to agreements made and to be performed wholly within such state.
In WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
DECS TRUST IV
By /s/ TYLER DICKSON
--------------------------------------
Tyler Dickson, as Trustee
SALOMON SMITH BARNEY INC.
By /s/ STEVE BUJNO
--------------------------------------
Name: Steve Bujno
Title: Director
3
