AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 1, 1999
SECURITIES ACT FILE NO. 333-70743
INVESTMENT COMPANY ACT FILE NO. 811-09197
================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM N-2
[X] REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[X] PRE-EFFECTIVE AMENDMENT NO. 1
[_] POST-EFFECTIVE AMENDMENT NO.
AND/OR
[X] REGISTRATION STATEMENT UNDER THE
[X] INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 1
------------------
TRUST-ISSUED REQUIRED
EQUITY EXCHANGE
SECURITIES TRUST
(Exact Name of Registrant as Specified in Charter)
C/O WARBURG DILLON READ LLC
299 PARK AVENUE
NEW YORK, NEW YORK 10171
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (212) 821-3000
THOMAS L. PIPER III
299 PARK AVENUE
NEW YORK, NEW YORK 10004
(Name and Address of Agent for Service)
COPIES TO:
Stuart Leichenko, Esq.
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
------------------
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, other than securities offered in connection with a dividend reinvestment
plan, check the following box. [_]
It is proposed that this filing will become effective when declared
effective pursuant to section 8(c).
If appropriate, check the following box:
[_] This amendment designates a new effective date for a previously
filed registration statement.
[_] This form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act and the Securities Act
registration statement number of the earlier effective registration statement
for the same offering is 333-________.
------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE>
TRUST-ISSUED REQUIRED EQUITY EXCHANGE SECURITIES TRUST
CROSS-REFERENCE SHEET
PART A & B OF PROSPECTUS*
<TABLE>
<CAPTION>
ITEM
NUMBER CAPTION LOCATION IN PROSPECTUS
- ------ ------- ----------------------
<S> <C> <C>
1. Outside Front Cover......................................... Front Cover Page
2. Cover Pages; Other Offering Information..................... Front Cover Page; Underwriting
3. Fee Table and Synopsis...................................... Prospectus Summary
4. Financial Highlights........................................ Not Applicable
5. Plan of Distribution........................................ Front Cover Page; Prospectus Summary;
Underwriting
6. Selling Shareholders........................................ Not Applicable
7. Use of Proceeds............................................. Prospectus Summary--The Trust's Investment
Policies; Use of Proceeds; Investment Objective
and Policies
8. General Description of the Registrant....................... Front Cover Page; Prospectus Summary;
The Trust; Investment Objective and Policies;
Risk Factors
9. Management.................................................. The Trust
10. Capital Stock, Long-Term Debt, and Other
Securities................................................. Investment Objective and Policies; Description of
the Securities; Certain Federal Income Tax
Considerations
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 Objective and Policies
18. Management.................................................. The Trust
19. Control Persons and Principal Holders of
Securities................................................. The Trust
20. Investment Advisory and Other Services...................... The Trust
21. Brokerage Allocation and Other Practices.................... Investment Objective and Policies
22. Tax Status.................................................. Certain Federal Income Tax Considerations
23. Financial Statements........................................ Statement of Assets and Liabilities
- ---------------------------
<FN>
* 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
this Registration Statement.
</FN>
</TABLE>
<PAGE>
RED HERRING INFORMATION
The information in this Prospectus is not complete and may be changed. A
registration statement relating to the Securities has been filed with the
Securities and Exchange Commission. We may not sell these securities until this
registration statement is effective. This Prospectus is not an offer to sell
these securities and it is not soliciting an offer to buy these securities in
any state where the offer, solicitation or sale is not permitted.
<PAGE>
SUBJECT TO COMPLETION, DATED MARCH 1, 1999
_______ SECURITIES
TRUST-ISSUED REQURIED EQUITY
EXCHANGE SECURITIES TRUST
$____ TRUST-ISSUED REQUIRED EQUITY EXCHANGE
SECURITIES (T-REX SECURITIES)
(SUBJECT TO EXCHANGE INTO SHARES OF COMMON STOCK OF [COMPANY])
---------------------------
The Trust is a recently created Delaware business trust. The Securities
represent all of the beneficial interest in the Trust. When the Trust issues the
Securities, it will own U.S. Treasury securities and a prepaid forward contract
for the purchase of [Company] common stock.
For each Security that you buy, you will receive a quarterly cash
distribution of $[________] on each [March ____, June ____, September ____ and
December ____,] starting [June] __, 1999 and ending when the Trust terminates.
Those cash distributions will be made from payments on the U.S. Treasury
securities that the Trust holds when it issues the Securities.
The Trust will hold a prepaid forward contract to receive [Company]
common stock from [Seller]. The Trust will terminate on or shortly after [March]
_______, 2002. When the Trust terminates, [Seller] will deliver, at its option,
either cash or [Company] common stock to the Trust. The Trust will then deliver
this cash or stock to you. The cash or number of shares of [Company] common
stock that [Seller] will deliver and you will receive will depend on the price
of [Company] common stock during the twenty business days before the date the
Trust terminates. If the average price of [Company] common stock over this
period is:
o more than $_______ per share, you will receive 0.__ shares of common
stock, or the cash equivalent, for each Security you own.
o more than $_______ per share but less than $______ per share, you
will receive common stock worth $_______, or the cash equivalent,
for each Security you own.
o $_______ or less, you will receive one share of common stock, or the
cash equivalent, for each Security you own.
The last reported sale price of [Company] common stock on [March ____,
1999] was $[___] per share. The Trust will apply to list the Securities on the
__________________ under the symbol "____".
The Trust's securities have no history of public trading. Typically,
shares of closed-end funds, such as the Trust, trade at a discount from net
asset value. This characteristic of shares of closed-end investment companies is
a risk separate from the risk that the Trust's net asset value will fall. The
Trust cannot predict whether the Securities will trade at, below or above net
asset value. The risk of purchasing investments in a closed-end company that
might trade at a discount is more pronounced for investors who wish to sell
their investments soon after completion of this offering.
---------------------------
This Prospectus sets forth concisely information about the Trust that
you should know before investing. You are advised to read this Prospectus and to
retain it for future reference. Additional information about the Trust has been
filed with the Securities and Exchange Commission and is available upon written
or oral request and without charge.
---------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 20 OF THIS PROSPECTUS FOR A
DISCUSSION OF SOME OF THE RISKS INVOLVED IN INVESTING IN THE SECURITIES.
----------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE SECURITIES OR DETERMINED WHETHER
THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------------------
Per Security Total
Price to Public.....................$________.....................$________
Sales Load..........................Not applicable................Not applicable
Proceeds to the Trust...............$________.....................$________
The Trust has granted to the Underwriters an option for 30 days to
purchase up to _______ additional Securities at the Price to Public per Security
to cover over-allotments. See "Underwriting".
---------------------------
WARBURG DILLON READ LLC
---------------------------
The date of this Prospectus is , 1999.
<PAGE>
PROSPECTUS SUMMARY
This summary is not a complete description of the Trust or the
Securities. It does not contain all the information that may be important to
you. To understand this offering fully, you must read this entire Prospectus
carefully, including the Risk Factors beginning on page 20.
A Glossary is included in this Prospectus, beginning on page 28. You
should refer to the Glossary if you wish to understand the terms used in this
Prospectus in detail.
THE TRUST
The Trust is a newly organized trust that exists only to offer the
Securities. The only activities of the Trust will be to issue the Securities and
to invest in the U.S. Treasury securities and stock purchase contracts described
in this Prospectus.
THE TRUST'S INVESTMENT OBJECTIVE
The Trust's investment objective is to give the holder of each Security
a quarterly cash distribution of $____ and, on [March] __, 2002 (the "Exchange
Date"), between 0.____ and 1 shares of Common Stock (or cash equal to the value
of some or all of those shares). The number of shares, or amount of cash, that a
holder will receive in exchange for a single Security will vary, depending on
the average market price of the Common Stock over the twenty business days
before the Exchange Date.
o If the average market price is more than $_______ per share, you
will receive 0.__ shares of common stock, or the cash equivalent,
for each Security you own.
o If the average market price is more than $_______ per share but
less than $______ per share, you will receive [Company] common
stock worth $______, or the cash equivalent, for each Security
you own.
o If the average market price is $_______ or less, you will receive
one share of common stock, or the cash equivalent, for each
Security you own.
This formula will be adjusted if the Company takes steps that combine, split or
dilute the value of the Common Stock. If this formula would require the Trust to
deliver a fraction of a share of Common Stock to any holder, the Trust will
instead deliver cash equal to the same fraction of the value of a share of
Common Stock.
Because of this formula, the holders of the Securities will receive
part of any increase in the value of the Common Stock above $_____. However, the
holders of the Securities will not receive any increase in the value of the
Common Stock unless that value rises higher than $____. The holders will bear
the entire amount of any fall in the value of the Common Stock.
For more detail, please see "Investment Objective and
Policies--General".
THE TRUST'S INVESTMENT POLICIES
To achieve its investment objective, the Trust will invest all the
proceeds of the Securities in:
o "Stripped" U.S. Treasury securities that will mature during each
quarter over the term of the Trust. The Trust will use the
payments it receives as these U.S. Treasury securities mature to
pay the quarterly distributions on the Securities.
o Stock purchase contracts (the "Contracts") with one or more
stockholders of the Company (each of which is referred to as a
"Seller"). Each Seller will be required to deliver shares of
Common Stock to the Trust on the Exchange Date. Alternatively,
the Sellers may choose to deliver the equivalent amount of cash.
If the Sellers perform their obligations, these Contracts will
provide the Trust with the shares of Common Stock or cash that
the Trust must deliver in exchange for the Securities on the
Exchange Date.
Each Seller will pledge collateral to the Trust to secure that Seller's
obligations under its Contract. The collateral will initially be the shares of
Common
2
<PAGE>
Stock that the Seller must deliver under the Contract. However, if a Seller
complies with its obligations under the Contract and its pledge, the Seller may
deliver U.S. Treasury securities as substitute collateral.
The Trust will not change its investments, even if the value of the
Contracts or the Common Stock falls significantly or the financial condition of
the Company suffers. Furthermore, because the Trust is a grantor trust for
purposes of the U.S. federal tax laws, the trustees of the Trust will not have
the power to change the Trust's investments.
For more detail, please see "Investment Objective and
Policies--General" and "--Investment Restrictions".
THE OFFERING
The Trust is offering _________ Securities to the public at a purchase
price of $____ per Security. This price is equal to the last reported sale price
of the Common Stock on the date of this Prospectus. The Securities are being
offered through Warburg Dillon Read LLC [and _____________] (the
"Underwriters").
In addition, the Trust has granted the Underwriters an option to
purchase up to _______ additional Securities. These Securities may only be used
to cover over-allotments. For more detail, please see "Underwriting".
THE SECURITIES
GENERAL. The Trust will pass through to the holders of the Securities
all payments that it receives on the U.S. Treasury securities that it purchases
with the proceeds of the Securities. Similarly, the Trust will deliver to the
holders of the Securities all shares of Common Stock, or cash, that it receives
from the Sellers under the Contracts.
DISTRIBUTIONS. The holder of each Security will receive a distribution
of $____ each quarter. The Trust will pay these distributions on each [March __,
June __, September __ and December __]. However, if the Trust would be required
to make a distribution on a Saturday, Sunday or legal holiday, that distribution
will instead be paid on the next business day. Each payment will be made to the
holder of the Security whose name appears in the books of the Trust on the
Business Day before the applicable payment date. The first distribution will be
payable on [June __], 1999 to holders of record on the previous Business Day.
The only source of cash for the quarterly distributions on the
Securities will be the cash received from the U.S. Treasury securities purchased
by the Trust with the proceeds of the Securities. Part of each year's
distributions on the Securities should be treated as a return of capital under
the U.S. federal income tax laws. For more detail, please see "Description of
the Securities--Tax Treatment of Distributions".
EXCHANGE FOR COMMON STOCK. On the Exchange Date, each Security will be
exchanged automatically for between 0.__ shares and one share of Common Stock.
However, if the Sellers deliver cash instead of Common Stock under the
Contracts, the holders of the Securities will receive cash instead of Common
Stock on the Exchange Date. The amount of cash will be based on the average
market price of the Common Stock during the twenty business days before the
Exchange Date. The number of shares of Common Stock or amount of cash that will
be delivered in exchange for the Securities will be adjusted if the Company
takes certain actions that have the effect of combining, splitting or diluting
the value of the Common Stock.
Holders of Securities may receive cash or other common equity
securities listed on a U.S. National securities exchange or reported by the
NASDAQ National Market ("Marketable Securities"), rather than shares of Common
Stock, if the Company merges with another entity, the Company is liquidated, or
certain similar events occur.
In addition, if a Seller defaults under its Contract or its collateral
arrangements, that Seller's Contract would be accelerated. The holder of each
Security would then receive an early distribution of shares of Common Stock (or
Marketable Securities), cash, or a combination of Common Stock and cash, instead
of a portion of the Common Stock or cash that would otherwise be delivered on
the Exchange Date.
For more detail, please see "Investment Objective and Policies--The
Contracts".
VOTING RIGHTS. Holders will have the right to vote on changes to the
terms of the Securities, on the replacement of the trustees and the custodian,
paying agent, transfer agent, registrar and other agents of the Trust, and on
other matters affecting
3
<PAGE>
the Trust, as described below under the caption "Description of the Securities".
However, holders of the Securities will not have any voting rights with respect
to the Common Stock until they actually receive shares of Common Stock in
exchange for the Securities. For more detail, please see "Description of the
Securities--Voting".
LISTING. The Trust will apply to list the Securities on the
____________________ (the "_______") under the symbol ___.
THE COMPANY
[Insert Description of the Company.]
The Company has prepared a prospectus that describes the Company and
the Common Stock. This Company prospectus is attached as Annex A to this
Prospectus. The Company is not affiliated with the Trust and will not receive
any of the proceeds from the sale of the Securities.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The Trust will be treated as a grantor trust under the U.S. federal
income tax laws. This means that under these tax laws, each holder will be
treated as if it owned directly its proportionate share of the assets held by
the Trust. Similarly, income and original issue discount received by the Trust
will generally be treated as income of the holders.
Under the U.S. federal income tax laws, the U.S. Treasury securities
held by the Trust will be treated as having "original issue discount" that will
accrue over the term of the U.S. Treasury securities. However, when the Trust
actually receives cash on these U.S. Treasury securities, these cash payments
will not be included in the Trust's income. Instead, these payments should
reduce the aggregate tax basis of the Securities. A holder will have taxable
gain or loss if the Trust receives cash instead of Common Stock.
Distributions on the Securities are payments of non-taxable principal
and taxable interest on U.S. Treasury securities, not taxable dividends, and
they are likewise not eligible for the dividend received deduction.
Holders should be aware that the assets of the Trust could be
characterized differently under the federal income tax laws. Other
characterizations could require holders to include more interest in income than
they would under the analysis outlined above. For more detail, please see
"Certain Federal Income Tax Considerations".
RISK FACTORS
An investment in the Securities involves risk. Some of the risks of an
investment in the Securities are described under "Risk Factors", beginning on
page 20. These risks include the following:
o The Trust will not dispose of the Contracts even if the price of
the Common Stock falls significantly or the financial condition
of the Company suffers. The holders will bear the entire amount
of any fall in the value of the Common Stock.
o Similarly, the U.S. Treasury securities held by the Trust will
not be disposed of before their respective maturities or the
termination of the Trust, whichever comes first, even if the
price of those U.S. Treasury securities falls significantly.
o If the price of Common Stock rises, a holder of a Security will
not receive all of this increase in value. Holders will not
receive any of this increase if the average market price of the
Common Stock at the Exchange Date is below $______. Holders will
receive only ____% of any increase in the value of the Common
Stock over $____. On the other hand, holders of Securities will
suffer any fall in the value of the Common Stock.
o The distributions on the Securities will be higher than the
annual dividends paid on the Common Stock in the past year.
However, the dividend on the Common Stock may be raised to a
level higher than the distributions on the Securities, which will
not increase.
o The number of shares of Common Stock or amount of cash that
holders may receive on the Exchange Date will be adjusted if the
Company
4
<PAGE>
takes certain actions that have the effect of combining,
splitting or diluting the value of the Common Stock. The number
of shares to be received by holders may not be adjusted for other
events that may adversely affect the price of the Common Stock.
o The only assets held by the Trust will be the U.S. Treasury
securities and the Contracts. An investment in the Trust will be
riskier than an investment in an investment company with
diversified investments.
o The trading prices of the Securities in the secondary market will
be directly affected by the trading prices of the Common Stock in
the secondary market. The trading prices of the Common Stock will
be influenced by the Company's operating results and prospects
and by economic, financial and other factors and market
conditions. The trading prices of the Securities will also be
affected by fluctuations in interest rates and other factors that
are difficult to predict and beyond the Trust's control.
o There can be no assurance that a secondary market will develop
for the Securities or that, if a secondary market does develop,
that it will provide the holders with liquidity of investment or
that it will continue for the life of the Securities.
o Holders of the Securities will not be entitled to any rights with
respect to the Common Stock unless and until they actually
receive Common Stock in exchange for the Securities. For example,
holders of Securities will not be entitled to vote the shares of
Common Stock or receive dividends.
FEES AND EXPENSES
UNDERWRITERS' COMPENSATION. The Sellers will compensate the
Underwriters for the offering of the Securities because a significant portion of
the proceeds of the sale of the Securities will be used by the Trust to purchase
the Contracts from the Sellers. The Underwriting Agreement requires the Sellers
to pay the Underwriters $____ for each Security sold in the offering.
ORGANIZATIONAL AND OFFERING COSTS. The organizational costs of the
Trust will be approximately $10,000. The costs of the Trust in connection with
the offering of the Securities will be approximately $_______. The Sellers will
pay these organizational and offering costs.
COSTS OF OTHER SERVICE PROVIDERS. At the closing of the offering of the
Securities, the Sellers will make a one-time, up-front payment to the
Administrator, the Custodian, the Paying Agent and each Trustee as compensation
for its services to the Trust. The Sellers will also pay the Administrator
$_____ to cover the anticipated expenses of the Trust over the term of the
Trust. The Sellers will also pay any on-going expenses of the Trust above these
estimated amounts and reimburse the Trust for any amounts it may pay as
indemnification to any Trustee, the Administrator, the Custodian or the Paying
Agent.
DISCLOSURE REQUIRED BY THE SECURITIES AND EXCHANGE COMMISSION. The
Securities and Exchange Commission (the "SEC") requires the Trust to present its
expenses in the following format. The SEC intends that this requirement assist
investors in understanding the various costs and expenses that an investor in
the Securities will bear directly or indirectly.
Because the Trust will not bear any fees or expenses, investors will
not bear any expenses directly. The only expenses that an investor might be
considered to be bearing indirectly are (i) the compensation that each Seller
will pay to the Underwriters for selling that investor's Securities and (ii) the
ongoing expenses of the Trust that the Sellers will pay at the closing of the
offering.
5
<PAGE>
INVESTOR TRANSACTION EXPENSES
Sales Load (as a percentage of offering price).........................___%
Dividend Reinvestment and Cash Purchase Plan Fees...................... N/A
ANNUAL EXPENSES (AS A PERCENTAGE OF NET ASSETS)
Management Fees..........................................................0%
Other Expenses.........................................................___%
Total Annual Expenses.............................................___%
The SEC also requires that closed-end investment companies present an
illustration of cumulative expenses (both direct and indirect) that an investor
would bear. The example must 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. YOU SHOULD NOTE THAT THE ASSUMPTION OF A 5% ANNUAL RETURN DOES NOT
ACCURATELY REFLECT THE FINANCIAL TERMS OF THE TRUST. SEE "INVESTMENT OBJECTIVE
AND POLICIES--GENERAL". ADDITIONALLY, THE TRUST DOES NOT PERMIT THE REINVESTMENT
OF DISTRIBUTIONS.
EXAMPLE 1 YEAR 3 YEARS
------- ------ -------
You would bear the following expenses (i.e.,
the applicable sales load and allocable portion of
annual expenses paid by the Sellers) on a $1,000
investment, assuming a 5% annual return.............. $ $
6
<PAGE>
THE TRUST
CREATION AND FORM OF THE TRUST
The Trust is a newly organized New York trust. It is a registered,
non-diversified, closed-end management investment company under the Investment
Company Act of 1940. The Trust was formed on January 19, 1999 under a trust
agreement, which was amended and restated as of [March] __, 1999 to reflect the
terms of this offering. The address of the Trust is 299 Park Avenue, New York,
New York 10171 (telephone no. (212) 821-3000).
TRUST TERMINATION
The Trust will terminate automatically on or shortly after the Exchange
Date. Alternatively, if all Contracts are accelerated because of a
Reorganization Event or a Collateral Event of Default, then any U.S. Treasury
securities then held in the Trust will be liquidated by the Administrator and
the proceeds distributed pro rata to the holders, together with the shares or
cash distributed upon acceleration, and the Trust will be terminated. See
"Investment Objective and Policies--The Contracts--Collateral Arrangements;
Acceleration".
THE TRUSTEES
The Trust will be internally managed by three Trustees. One of the
Trustees will be designated as the "Managing Trustee" of the Trust. The Trustees
will be responsible for the general management and operations of the Trust.
However, the Trustees will not have the power to vary the investments held by
the Trust.
The individuals who have been elected by Warburg Dillon Read LLC, as
the sponsor of the Trust, to serve as the Trustees are set forth below. The
Sellers will pay each Trustee, on behalf of the Trust, a one-time, up-front fee
to cover the Trustee's annual fee and anticipated out-of-pocket expenses. The
Managing Trustee will also receive an additional up-front fee for serving in
that capacity. The names, ages, addresses and titles of the Trustees, their
principal occupations during the past five years, and their compensation are as
follows:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
DURING
NAME, AGE AND ADDRESS TITLE PAST FIVE YEARS COMPENSATION
- --------------------- ----- ----------------- ------------
<S> <C> <C> <C>
Managing Trustee $
Trustee $
Trustee $
</TABLE>
None of the Trustees is an "interested person" of the Trust as defined
in the Investment Company Act. None of the Trustees is a director, officer or
employee of the Underwriters or of the Administrator, or of any affiliate of the
Underwriters or the Administrator. Each of the Trustees serves as a trustee of
other similar trusts, but none of the Trustees receives any compensation for
serving as a trustee or director of any other affiliated investment company.
OTHER SERVICE PROVIDERS
ADMINISTRATOR. The day-to-day affairs of the Trust will be managed by
____________________, as Trust Administrator under an Administration Agreement.
Under the Administration Agreement, the Trustees have delegated most of their
operational duties to the Trust Administrator, including the duties to:
o receive invoices for expenses incurred by the Trust;
o with the approval of the Trustees, engage legal and other
professional advisors (other than the independent public
accountants for the Trust);
o instruct the Trust's Paying Agent to pay the distributions on the
Securities;
o prepare and mail, file or publish all notices, proxies, reports,
tax returns and other
7
<PAGE>
communications and documents for the Trust and keep all the
Trust's books and records;
o at the direction of the Trustees, institute and prosecute legal
and other appropriate proceedings to enforce the rights and
remedies of the Trust; and
o make all necessary arrangements for meetings of the Trustees and
any meetings of holders.
The Administrator will not select the independent public accountants
for the Trust. The Administrator also will not sell any of the Trust's assets,
except (1) when the Contracts require a delivery by the Trust, (2) when the
collateral agreements securing the Contracts require the Trust to liquidate
collateral posted by a Seller, and (3) when the Trust terminates.
Either the Trust or the Administrator may terminate the Administration
Agreement by giving 60 days' written notice. However, no termination will become
effective until a replacement Administrator has accepted the duties of the
Administrator.
The address of the Administrator is __________________________________.
CUSTODIAN. The assets of the Trust will be held by ____________________
as the Trust's Custodian under a Custodian Agreement. If the Custodian Agreement
is terminated by the Trust or the Custodian resigns, the Trust must engage a new
Custodian to hold the Trust assets. Under the Custodian Agreement, the Custodian
must invest all cash received by the Trust and not paid to cover Trust expenses
in short-term U.S. Treasury securities maturing on or shortly before the next
quarterly distribution date.
COLLATERAL AGENT. The Custodian will also act as Collateral Agent under
the Collateral Agreements with the Sellers. The Collateral Agent will hold a
perfected security interest in the Common Stock and U.S. Government obligations
or other assets pledged by the Sellers under the Contracts.
PAYING AGENT. ____________________ will serve as the transfer agent,
registrar and paying agent (the "Paying Agent") for the Securities under a
Paying Agent Agreement. If the Paying Agent Agreement is terminated by the Trust
or the Paying Agent resigns, the Trust will use its best efforts to engage a new
Paying Agent.
Except for its roles as Administrator, Custodian, Collateral Agent and
Paying Agent, ____________________ has no other affiliation with, and is not
engaged in any other transactions with, the Trust.
INDEMNIFICATION
The Trust will indemnify each Trustee, the Administrator, the
Custodian, the Collateral Agent and the Paying Agent against any liabilities or
costs (including the costs of defending against any liability) that it may incur
in acting in that capacity, except for willful misfeasance, bad faith, gross
negligence or reckless disregard of their respective duties or where applicable
law prohibits that indemnification. The Sellers have agreed to reimburse the
Trust for any amounts it may be required to pay under these indemnifications.
ESTIMATED EXPENSES OF THE TRUST
In addition to the Trustees' compensation described above, at the
closing of this offering the Sellers will pay to the Administrator, the
Custodian and the Paying Agent a one-time, up-front amount totaling $_______ to
cover their fees. The Sellers will also pay the Administrator a one-time
up-front amount totaling $________ to cover 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:
o expenses for legal and independent accountants' services;
o costs of printing proxies, Securities certificates and holder
reports;
o expenses of the Trustees;
o fidelity bond coverage; and
o any expenses of qualifying the Securities for sale in the various
states.
In addition, the Sellers will pay, on behalf of the Trust, 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 Securities
in the amount of $_______.
8
<PAGE>
The amount payable to the Administrator to cover ongoing expenses of
the Trust was determined based on estimates made in good faith on the basis of
information currently available to the Trust, including estimates furnished by
the Trust's agents. There cannot, however, be any assurance that actual
operating expenses of the Trust will not be substantially more than this amount.
The Sellers have agreed to pay any excess expenses beyond this amount. If the
Sellers do not pay those excess expenses, the Trust will have to pay them, which
will reduce the amount available to distribute to holders.
VALUATION OF TRUST ASSETS
In calculating the net asset value of the Trust as required by the
Investment Company Act, the Amended and Restated Trust Agreement provides that
(i) the U.S. Treasury securities 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, (ii) 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 receivable and (iii) the Contracts will be valued on the
basis of the bid price received by the Trust for the Contracts, or any portion
of the Contracts covering not less than 1,000 shares, from an independent
broker-dealer firm unaffiliated with the Trust to be named by the Trustees who
is in the business of making bids on financial instruments similar to the
Contracts and with comparable terms, or if such a bid quotation is not
available, as determined in good faith by the Trustees.
USE OF PROCEEDS
The net proceeds of this offering will be used immediately upon the
closing of this offering to
o purchase a portfolio of stripped U.S. Treasury securities with
face amounts and maturities corresponding to the quarterly
distributions payable with respect to the Securities, and
o pay the purchase price to the Sellers under the Contracts.
9
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
GENERAL
The Trust's investment objective is to give the holder of each Security
a quarterly cash distribution of $____ and, on the Exchange Date, between 0.____
and 1 shares of Common Stock (or cash equal to the value of some or all of those
shares). The number of shares, or amount of cash, that a holder will receive in
exchange for a single Security will vary, depending on the average market price
of the Common Stock over the twenty business days before the Exchange Date. To
achieve this objective, the Trust will use the proceeds of the Securities to buy
and hold:
o a portfolio of stripped U.S. Treasury securities maturing on a
quarterly basis through [March] __, 2002; and
o the Contracts relating to the Common Stock.
The number of shares of Common Stock that will be delivered in exchange
for each Security is the "Exchange Rate". The Exchange Rate will vary in
accordance with a formula, depending on the "Average Market Price" of the Common
Stock on the Exchange Date:
o if the Average Market Price is more than the Appreciation
Threshold Price, the Exchange Rate will be 0.__ shares of Common
Stock;
o if the Average Market Price is more than the Initial Price but
less than the Appreciation Threshold Price, the Exchange Rate
will be the number of shares of Common Stock having a value
(determined at the Average Market Price) equal to the Initial
Price; and
o if the Average Market Price is the Initial Price or less, the
Exchange Rate will be one share of Common Stock.
This formula will be adjusted if the Company takes steps that combine,
split or dilute the value of the Common Stock. See "--The Contracts--Dilution
Adjustments". The Exchange Rate will be rounded upward or downward to the
nearest 1/10,000 (or if there is not a nearest 1/10,000, to the next lower
1/10,000). Holders who would otherwise receive fractional shares on the Exchange
Date will instead receive cash.
The "Average Market Price" per share of Common Stock on any date means
the average Closing Price of a share of Common Stock on the 20 Trading Days
immediately prior to but not including that date.
The "Closing Price" of the Common Stock on any date of determination
means the daily closing sale price (or, if no closing sale price is reported,
the last reported sale price) of the Common Stock as reported on the NYSE
Consolidated Tape on that date of determination or, if the Common Stock 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 the
Common Stock is so listed, or if the Common Stock is not so listed on a United
States national or regional securities exchange, as reported by the NASDAQ
National Market or, if the Common Stock is not so reported, the last quoted bid
price for the Common Stock in the over-the-counter market as reported by the
National Quotation Bureau or similar organization, provided that if any event
that results in an adjustment to the number of shares of Common Stock
deliverable under the Contracts as described under "--The Contracts--Dilution
Adjustments" occurs before the Exchange Date, the Closing Price as determined
pursuant to the foregoing will be appropriately adjusted to reflect the
occurrence of that event.
A "Trading Day" means a day on which the Common Stock (A) is not
suspended from trading on any national or regional securities exchange or
association or over-the-counter market at the close of business and (B) has
traded at least once on the national or regional securities exchange or
association or over-the-counter market that is the primary market for the
trading of that security.
For illustrative purposes only, the following chart shows the number of
shares of Common Stock that a holder would receive for each Security at various
Average Market Prices. The chart assumes that there would be no dilution
adjustments as a result of any of the events described under "--The
Contracts--Dilution Adjustments". There can be no assurance that the Average
Market Price on the Exchange Date will be within the range set forth below.
Given the Initial Price of $____ per Security and the Appreciation Threshold
Price of $____, a holder would receive the following numbers of shares of Common
Stock per Security on the Exchange Date:
10
<PAGE>
AVERAGE MARKET PRICE NUMBER OF SHARES
OF COMMON STOCK OF COMMON STOCK
- ------------------------------- -------------------------------
Holders of Securities may receive cash or other Marketable Securities,
rather than shares of Common Stock, if the Company merges with another entity,
the Company is liquidated, or certain similar events occur. If one of these
events would require the Trust to deliver cash in exchange for the Securities,
this delivery would take place before [March] __, 2002. See "--The
Contracts--Reorganization Events".
In addition, if a Seller defaults under its Contract or its collateral
arrangements, that Seller's contract would be accelerated. The holder of each
Security would then receive an early distribution of shares of Common Stock (or
Marketable Securities), cash, or a combination of Common Stock and cash, instead
of a portion of the Common Stock or cash that would otherwise be delivered on
the Exchange Date. See "--The Contracts--Collateral Arrangements; Acceleration".
A fundamental policy of the Trust is to invest at least 70% of its
total assets in the Contracts. The Trust has also adopted a fundamental policy
that the Contracts may not be disposed of during the term of the Trust and that
the U.S. Treasury securities held by the Trust may not be disposed of before the
earlier of their respective maturities and the termination of the Trust. The
foregoing investment objective and policies are fundamental policies of the
Trust that may not be changed without the approval of a majority of the Trust's
outstanding Securities. A "majority of the Trust's outstanding Securities" means
the lesser of (i) 67% of the Securities represented at a meeting at which more
than 50% of the outstanding Securities are represented, and (ii) more than 50%
of the outstanding Securities.
The value of the Common Stock (or cash or Marketable Securities
received in lieu of Common Stock) that will be received by holders under the
Securities may be more or less than the amount paid for the Securities offered
hereby.
THE COMPANY
[Insert description of the Company.]
The shares of Common Stock are traded on the [New York Stock Exchange].
The following table sets forth, for the calendar quarters indicated, the
reported high and low sales prices of the shares of Common Stock on the [New
York Stock Exchange Composite Tape] and the cash dividends per share of Common
Stock. As of March __, 1999, there were ____ record holders of the Common
Stock, including The Depository Trust Company, which holds shares of Common
Stock on behalf of an indeterminate number of beneficial owners.
11
<PAGE>
DIVIDEND
HIGH LOW PER SHARE
------ ----- ---------
1997
1st Quarter..................................
2nd Quarter..................................
3rd Quarter..................................
4th Quarter .................................
1998
1st Quarter..................................
2nd Quarter..................................
3rd Quarter..................................
4th Quarter..................................
1999
1st Quarter (through March ___, 1999)......
------ ----- ---------
Holders will not be entitled to rights with respect to the Common Stock
(including, without limitation, voting rights and rights to receive dividends or
other distributions on the Common Stock) until receipt of shares of Common Stock
by the holders as a result of the exchange of the Securities for the Common
Stock on the Exchange Date.
Reference is made to the accompanying prospectus of the Company, dated
March __, 1999 (pages A-1 through A-_ hereto) which describes the Company and
the shares of Common Stock deliverable to the holders upon mandatory exchange of
the Securities on the Exchange Date. The Company is not affiliated with the
Trust and will not receive any of the proceeds from the sale of the Securities.
The Company prospectus relates to an aggregate of _________ shares of Common
Stock (plus an additional _______ shares that may be delivered upon exercise of
the Underwriters' over-allotment option).
THE CONTRACTS
GENERAL. The Trust will enter into a Contract with each Seller
obligating that Seller to deliver to the Trust on the Exchange Date a number of
shares of Common Stock equal to the product of the Exchange Rate times the
initial number of shares of Common Stock covered by that Contract. The aggregate
initial number of shares of Common Stock under the Contracts will equal the
aggregate number of Securities offered hereby (which will be increased if the
Underwriters exercise their over-allotment option).
The aggregate purchase price that the Trust will pay for all the
Contracts will be $______ (or $_____, if the Underwriters' over-allotment is
exercised in full). This price will be paid on the closing date of this offering
(or, for the portion of the Contracts relating to the Securities to be sold
under the Underwriters' over-allotment option, on the closing date for the
exercise of that option). The purchase price of the Contracts was arrived at by
arm's-length negotiation between the Trust and the Sellers taking into
consideration factors including the price, expected dividend level and
volatility of the Common Stock, current interest rates, the term of the
Contracts, current market volatility generally, the collateral security pledged
by the Sellers, the value of other similar instruments and the costs and
anticipated proceeds of the offering of the Securities. All matters relating to
the administration of the Contracts will be the responsibility of either the
Administrator or the Custodian.
DILUTION ADJUSTMENTS. The Exchange Rate will be adjusted if the Company
(i) pays a stock dividend or makes a distribution with respect to the Common
Stock in shares of that stock, (ii) subdivides or splits its outstanding shares
of Common Stock, (iii) combines its outstanding shares of Common Stock into a
smaller number of shares, or (iv) issues by reclassification of its shares of
Common Stock any shares of other common stock of the Company. In any such event,
the Exchange Rate will be adjusted as follows: for each share of Common Stock
that would have been deliverable upon exchange before the adjustment, the holder
will receive the number of shares of Common Stock (or, in the case of a
reclassification referred to in clause (iv) above, the number of shares of other
common stock of the Company issued pursuant to that reclassification), or
fraction of such shares, that a shareholder who held one share of Common Stock
immediately before that event would be entitled solely by reason of that event
to hold immediately after that event.
In addition, if the Company issues rights or warrants to all holders of
Common Stock entitling them to subscribe for or purchase shares of Common Stock
at a price per share less than the Then-Current Market Price of the Common Stock
(as defined below) (other than rights to purchase Common Stock pursuant to a
plan for the
12
<PAGE>
reinvestment of dividends or interest), then the Exchange Rate will
be adjusted pursuant to the following formula:
A = ER x OS + AS
-------
OS + PS
where
A = the Exchange Rate as adjusted
ER = the Exchange Rate before the adjustment;
OS = the number of shares of Common Stock outstanding immediately before the
time (determined as described below) the adjustment is calculated by
reason of the issuance of those rights or warrants;
AS = the number of additional shares offered for subscription or purchase
pursuant to those rights or warrants; and
PS = the number of additional shares that the aggregate offering price of
the shares so offered for subscription or purchase would purchase at
the Then-Current Market Price.
To the extent that, after expiration of those rights or warrants, the shares
offered by such rights or warrants are not actually delivered, the Exchange Rate
will be further adjusted to equal the Exchange Rate that would have been in
effect had the foregoing adjustment been made upon the basis of delivery of only
the number of shares of Common Stock actually delivered.
The "Then-Current Market Price" of the Common Stock means the average
Closing Price per share of Common Stock for a Calculation Period of five Trading
Days immediately before the time that adjustment is effected (or, in the case of
an adjustment effected at the opening of business on the business day after a
record date, as described below, immediately before the earlier of the time that
adjustment is effected and the related "ex-date" on which the shares of Common
Stock first trade regular way on their principal market without the right to
receive the relevant dividend, distribution or issuance); provided that if no
Closing Price for the Common Stock is determined for one or more (but not all)
of those Trading Days, that Trading Day will be disregarded in the calculation
of the Then-Current Market Price (but no additional Trading Days will be added
to the Calculation Period). If no Closing Price for the Common Stock is
determined for any of those Trading Days, the most recently available Closing
Price for the Common Stock before those five Trading Days will be the
Then-Current Market Price. "Calculation Period" means any period of Trading Days
for which an average security price must be determined pursuant to the
Contracts.
In addition, if the Company pays a dividend or makes a distribution to
all holders of Common Stock, in either case, of evidences of its indebtedness or
other non-cash assets (excluding any stock dividends or distributions in shares
of Common Stock) or issues to all holders of Common Stock rights or warrants to
subscribe for or purchase any of its securities (other than rights or warrants
referred to in the second paragraph of this subsection), then the Exchange Rate
will be adjusted pursuant to the following formula:
A = ER x T
-----
T - V
where
A = the Exchange Rate as adjusted
ER = the Exchange Rate before adjustment;
T = the Then-Current Market Price per share of Common Stock; and
V = the fair market value (as determined by a nationally recognized
independent investment banking firm retained for this purpose by the
Administrator), as of the time the adjustment is calculated, of the
portion of those evidences of indebtedness, non-cash assets or rights
or warrants payable in respect of one share of Common Stock.
In addition, if the Company distributes cash (other than an Excluded
Distribution), by dividend or otherwise, to all holders of Common Stock or makes
an Excess Purchase Payment, then the Exchange Rate will be adjusted pursuant to
the following formula:
A = ER x T
-----
T - D
where
A = the Exchange Rate as adjusted
ER = the Exchange Rate before adjustment;
T = the Then-Current Market Price on the record date for that distribution;
and
D = the amount of that distribution applicable to one share of Common Stock
that would not be a Permitted Dividend (or in
13
<PAGE>
the case of an Excess Purchase Payment, the aggregate amount of that
Excess Purchase Payment divided by the number of outstanding shares of
Common Stock on that record date).
For purposes of these adjustments,
(a) the term "Excluded Distribution" means any Permitted Dividend, any
cash distributed in consideration of fractional shares of Common Stock
and any cash distributed in a Reorganization Event;
(b) the term "Permitted Dividend" means any quarterly cash dividend on the
Common Stock, other than a quarterly cash dividend that exceeds the
immediately preceding quarterly cash dividend, and then only to the
extent that the per share amount of that dividend results in an
annualized dividend yield on the Common Stock above ______%; and
(c) the term "Excess Purchase Payment" means the excess, if any, of (i)
the cash and the value (as determined by a nationally recognized
independent investment banking firm retained for this purpose by the
Administrator, whose determination will be conclusive) of all other
consideration paid by the Company with respect to one share of Common
Stock acquired in a tender offer or exchange offer by the Company over
(ii) the Then-Current Market Price per share of Common Stock.
If any adjustment in the Exchange Rate must be calculated pursuant to
the formulas described above, corresponding adjustments to the Initial Price and
the Appreciation Threshold Price will be calculated.
Dilution adjustments will be effected: (i) in the case of any dividend,
distribution or issuance described above, at the opening of business on the
business day after the record date for determination of holders of Common Stock
entitled to receive that dividend, distribution or issuance or, if the
announcement of any such dividend, distribution or issuance is after that record
date, at the time that dividend, distribution or issuance is announced by the
Company; (ii) in the case of any subdivision, split, combination or
reclassification described above, on the effective date of that transaction;
(iii) in the case of any Excess Purchase Payment for which the Company
announces, at or before the time it commences the relevant share repurchase, the
repurchase price for those shares to be repurchased, on the date of that
announcement; and (iv) in the case of any other Excess Purchase Payment, on the
date that the holders of Common Stock become entitled to payment with respect to
that Excess Purchase Payment. There will be no adjustment under the Contracts
for any dividends, distributions, issuances or repurchases that may be declared
or announced after the Exchange Date. If any announcement or declaration of a
record date for a dividend, distribution, issuance or repurchase is subsequently
canceled by the Company, or that dividend, distribution, issuance or repurchase
fails to receive requisite approvals or fails to occur for any other reason,
then the Exchange Rate will be further adjusted to equal the Exchange Rate that
would have been in effect had the adjustment for that dividend, distribution,
issuance or repurchase not been made. If after an announcement of a share
repurchase, the Company reduces the repurchase price or repurchases fewer shares
than announced, upon completion of that share repurchase, the Exchange Rate will
be further adjusted to equal the Exchange Rate that would have been in effect
had the adjustment for that repurchase been based on the actual price and amount
repurchased. All adjustments will be rounded upward or downward to the nearest
1/10,000 (or if there is not a nearest 1/10,000, to the next lower 1/10,000). No
adjustment in the Exchange Rate will be required unless that adjustment would
require an increase or decrease of at least one percent in the Exchange Rate;
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.
REORGANIZATION EVENTS. If a Reorganization Event occurs, the Exchange
Rate will be adjusted such that, on the Exchange Date, each holder will receive
for each Security cash in an amount equal to:
(i) if the Transaction Value (as defined below) is more than the
Appreciation Threshold Price, 0.__ multiplied by the Transaction Value,
(ii) if the Transaction Value is more than the Initial Price but less
than the Appreciation Threshold Price, the Initial Price,
(iii) if the Transaction Value is the Initial Price or less, the
Transaction Value;
provided, however, that if the consideration received by holders of Common Stock
in such Reorganization Event includes securities or other property (other than
Marketable Securities), then a majority in interest of the Sellers may, at their
option (by joint
14
<PAGE>
notice delivered to the Administrator not later than the date of consummation of
such Reorganization Event), elect to accelerate the Contracts by delivering to
the Trust (as promptly as practicable after receipt thereof by the Sellers) the
Applicable Portion of the total consideration received in such Reorganization
Event in respect of the maximum number of shares of Common Stock subject to the
Contracts. In such event the Custodian will liquidate the U.S. Treasury
securities acquired by the Trust at closing of the Offering and then held by the
Trust, and the proceeds of such liquidation, together with the total
consideration received by the Trust from the Sellers, will be distributed to the
Holders.
"Applicable Portion", as applied to each type of consideration received
in a Reorganization Event, means that portion of such type of consideration
determined by multiplying the total amount of such consideration by a fraction,
the numerator of which is the cash amount determined to be payable as a result
of such Reorganization Event pursuant to the first sentence of this paragraph,
and the denominator of which is the Transaction Value.
In addition, to the extent that any Marketable Securities (as defined
below) are received by holders of Common Stock in a Reorganization Event, then
in lieu of delivering cash as provided above, the Sellers shall deliver a
proportional amount of such Marketable Securities on the Exchange Date. If the
Sellers deliver Marketable Securities on the Exchange Date, holders will be
responsible for the payment of any and all brokerage and other transaction costs
upon the sale of those securities.
"Reorganization Event" means (A) any consolidation or merger of the
Company, or any surviving entity or subsequent surviving entity of the Company
(a "Company Successor"), with or into another entity (other than a merger or
consolidation in which the Company is the continuing corporation and in which
the Common Stock outstanding immediately before the merger or consolidation is
not exchanged for cash, securities or other property of the Company or another
corporation), (B) any sale, transfer, lease or conveyance to another corporation
of the property of the Company or any Company Successor as an entirety or
substantially as an entirety, (C) any statutory exchange of securities of the
Company or any Company Successor with another corporation (other than in
connection with a merger or acquisition) or (D) any liquidation, dissolution or
winding up of the Company or any Company Successor.
"Transaction Value" means (i) for any cash received in a Reorganization
Event, the amount of cash received per share of Common Stock, (ii) for any
property other than cash or Marketable Securities received in a Reorganization
Event, an amount equal to the market value on the date the Reorganization Event
is consummated of the property received per share of Common Stock as determined
by a nationally recognized independent investment banking firm retained for this
purpose by the Administrator and (iii) for any Marketable Securities received in
a Reorganization Event, an amount equal to the average Closing Price per share
of those securities on the 20 Trading Days immediately before the Exchange Date
multiplied by the number of those securities received for each share of Common
Stock; provided that if no Closing Price for those Marketable Securities is
determined for one or more (but not all) of those Trading Days, those Trading
Days will be disregarded in the calculation of the average Closing Price (but no
additional Trading Days will be added to the Calculation Period). If no Closing
Price for the Marketable Securities is determined for all those Trading Days,
the calculation in the preceding clause (iii) will be based on the most recently
available Closing Price for the Marketable Securities before those 20 Trading
Days. The number of shares of Marketable Securities included in the calculation
of Transaction Value for purposes of the preceding clause (iii) will be adjusted
if a dilution event of the type described above occurs with respect to the
issuer of the Marketable Securities between the time of the Reorganization Event
and the Exchange Date.
For purposes of determining Transaction Value, the terms "Trading Day"
and "Closing Price" will have the same meaning, as applied to the Marketable
Securities, as these terms have as applied to the Common Stock for purposes of
determining the Average Market Price.
"Marketable Securities" means any common equity securities (whether
voting or non-voting) listed on a U.S. national securities exchange or reported
by the NASDAQ National Market.
No dilution adjustments will be made for events, other than those
described above, such as offerings of Common Stock (other than through the
issuance of rights or warrants described above) for cash or in connection with
acquisitions.
COLLATERAL ARRANGEMENTS; ACCELERATION. Each Seller's obligations under
the Contract between that Seller and the Trust initially will be secured by a
security interest in the maximum number of shares of Common Stock covered by
that Contract (adjusted in accordance with the dilution adjustment provisions of
that Contract, described above), pursuant to a Collateral Agreement between that
Seller and the Collateral Agent. Unless a Seller is in default in its
obligations under its Collateral Agreement, the Seller will be permitted to
substitute
15
<PAGE>
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 will be required to have an aggregate market
value at the time of substitution and at daily mark-to-market valuations after
that time of 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, 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 those obligations are being substituted. The Collateral Agreements
will provide that, if a Reorganization Event occurs, each Seller will pledge as
alternative collateral any Marketable Securities received by it in exchange for
the maximum number of shares of Common Stock covered by its Contract at the time
of the Reorganization Event, plus cash in an amount equal to 100% of that
Seller's Cash Delivery Obligations (or U.S. Government obligations having an
aggregate market value when pledged and at daily mark-to-market valuations after
that time of not less than 105% of those Cash Delivery Obligations). The
Collateral Agent will be required, under the Collateral Agreements, to invest
any such cash in U.S. Treasury securities maturing on or before [March] __,
2002. A Seller's "Cash Delivery Obligations" will be the Transaction Value of
any consideration other than Marketable Securities received by that Seller in
exchange for the maximum number of shares covered by its Contract at the time of
the Reorganization Event. The number of shares of Marketable Securities required
to be pledged will be adjusted if any event requiring a dilution adjustment
under the Contracts occurs. The Sellers will be permitted to substitute U.S.
Government obligations for Marketable Securities pledged at the time of or after
any Reorganization Event. Any U.S. Government obligations so substituted will be
required to have an aggregate market value at the time of substitution and at
daily mark-to-market valuations after that time of 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, as described below, 200%) of the product of
the market price per share of Marketable Securities at the time of each
valuation times the number of shares of Marketable Securities for which those
obligations are being substituted. The Collateral Agent will promptly pay over
to each Seller any dividends, interest, principal or other payments received by
the Collateral Agent on any collateral pledged by that Seller, including any
substitute collateral, unless that Seller is in default of its obligations under
its Collateral Agreement, or unless the payment of that amount to that Seller
would cause the collateral to become insufficient under its Collateral
Agreement. Each Seller will have the right to vote any pledged shares of
Marketable Securities for so long as those shares are owned by it and pledged
under its Collateral Agreement, including after an event of default under that
Seller's Contract or Collateral Agreement.
If the Collateral Agent determines (an "Insufficiency Determination")
that U.S. Government obligations pledged by any Seller as substitute collateral
fail to meet the foregoing requirements at any valuation, or that that Seller
has failed to pledge additional collateral required as a result of a dilution
adjustment increasing the maximum number of shares of Common Stock or shares of
Marketable Securities covered by that Contract, and that failure is not cured by
the close of business on the next business day after that determination, then,
unless a Collateral Event of Default (as defined below) under that Collateral
Agreement has occurred and is continuing, the Collateral Agent will commence (i)
sales of the collateral consisting of U.S. Government obligations and (ii)
purchases, using the proceeds of those sales, of shares of Common Stock or
shares of Marketable Securities, in an amount sufficient to cause the collateral
to meet the requirements under that Collateral Agreement. The Collateral Agent
will discontinue those sales and purchases if at any time a Collateral Event of
Default under the Collateral Agreement has occurred and is continuing. A
"Collateral Event of Default" under a Seller's Collateral Agreement means, at
any time, (A) if no U.S. Government obligations are pledged as substitute
collateral at that time, failure of the collateral to consist of at least the
maximum number of shares of Common Stock covered by the Seller's Contract at
that time (or, if a Reorganization Event has occurred at or before that time,
failure of the collateral to include the maximum number of shares of any
Marketable Securities required to be pledged as described above); (B) if any
U.S. Government obligations are pledged as substitute collateral for shares of
Common Stock (or shares of Marketable Securities) at that time, failure of those
U.S. Government obligations to have a market value at that time of at least 105%
of the market price per share of Common Stock (or the then-Average Market Price
per share of Marketable Securities, as the case may be) times the difference
between (x) the maximum number of shares of Common Stock (or shares of
Marketable Securities) covered by that Contract at that time and (y) the number
of shares of Common Stock (or shares of Marketable Securities) pledged as
collateral at that time; and (C) at any time after a Reorganization Event in
which consideration other than Marketable Securities has been delivered, failure
of any U.S. Government obligations pledged as collateral for Cash Delivery
Obligations to have a market value at that time of at least 105% of those Cash
Delivery Obligations, if that failure is not cured within one business day after
notice of that failure is delivered to that Seller.
16
<PAGE>
The occurrence of a Collateral Event of Default under a Collateral
Agreement, or the bankruptcy or insolvency of a Seller, will cause an automatic
acceleration of that Seller's obligations under its Contract. In any such event,
that Seller will become obligated to deliver the initial number of shares of
Common Stock (or, after a Reorganization Event, the Marketable Securities or
cash or a combination of Marketable Securities and cash deliverable instead of
those shares of Common Stock) covered by that Seller's Contract, or any U.S.
Government obligations then pledged as collateral for the Seller's obligations.
Upon any acceleration under a Collateral Agreement, (i) the Collateral
Agent will distribute to the Trust, for distribution pro rata to the holders,
the shares of Common Stock then pledged by the Defaulting Seller, or cash
generated from the liquidation of U.S. Government obligations then pledged by
the Defaulting Seller, or a combination of Common Stock and cash (or, after a
Reorganization Event, the Marketable Securities then pledged by the Defaulting
Seller, cash generated from the liquidation of U.S. Government obligations then
pledged by the Defaulting Seller, or a combination of Marketable Securities and
cash) and (ii) the Custodian will liquidate a proportionate amount of the U.S.
Treasury securities acquired by the Trust at closing and then held by the Trust
and distribute the proceeds pro rata to the holders. After any distributions
upon acceleration and liquidation in accordance with the foregoing sentence, the
number of shares of Common Stock or Marketable Securities, as applicable,
deliverable to holders on the Exchange Date will be proportionately reduced. In
addition, if, by the Exchange Date, any substitute collateral has not been
replaced by Common Stock (or, after a Reorganization Event, cash or Marketable
Securities) sufficient to meet the obligations under any Contract, the
Collateral Agent will distribute to the Trust for distribution pro rata to the
holders the market value of the Common Stock required to be delivered under that
Contract, in the form of any shares of Common Stock then pledged by the Sellers
plus cash generated from the liquidation of U.S. Government obligations then
pledged by the Sellers (or, after a Reorganization Event, the market value of
the alternative consideration required to be delivered under that Contract, in
the form of any Marketable Securities then pledged, plus any cash then pledged,
plus cash generated from the liquidation of U.S. Government obligations then
pledged).
DESCRIPTION OF THE SELLERS. The Sellers are _________________. Please
see the caption "Selling Stockholders" in the Company's prospectus for
information about the Sellers.
THE U.S. TREASURY SECURITIES
The Trust will purchase and hold a series of zero-coupon ("stripped")
U.S. Treasury securities with face amounts and maturities corresponding to the
distributions payable with respect to the Securities and the payment dates under
the Securities. Up to 30% of the Trust's total assets may be invested in these
U.S. Treasury securities. If any Contract is accelerated, then a proportionate
amount of those U.S. Treasury securities then held in the Trust will be
liquidated by the Administrator and the proceeds of that liquidation will be
distributed pro rata to the holders, together with the amounts distributed upon
acceleration. See "--Collateral Arrangements; Acceleration".
TEMPORARY INVESTMENTS
For cash management purposes, the Trust may invest the proceeds of the
U.S. Treasury securities and any other cash held by the Trust in short-term
obligations of the U.S. Government maturing no later than the business day
before the next distribution date. Not more than 5% of the Trust's total assets
will be invested in those short-term obligations or held in cash at any one
time.
INVESTMENT RESTRICTIONS
As a matter of fundamental policy, the Trust may not purchase any
securities or instruments other than the U.S. Treasury securities, the Contracts
and the Common Stock or other assets received pursuant to the Contracts and, for
cash management purposes, short-term obligations of the U.S. Government; issue
any securities or instruments except for the Securities; make short sales or
purchase securities on margin; write put or call options; borrow money;
underwrite securities; purchase or sell real estate, commodities or commodities
contracts including futures contracts; or make loans (other than the purchase of
stripped U.S. Treasury securities as described in this Prospectus). The Trust
also has adopted a fundamental policy that the Contracts may not be disposed of
during the term of the Trust and that the U.S. Treasury securities held by the
Trust may not be disposed of before the earlier of their respective maturities
and the termination of the Trust.
Because of the foregoing limitations, the Trust's investments will be
concentrated in the [________________] industry, which is the industry in which
the Company operates. The Trust is not permitted to purchase restricted
securities.
17
<PAGE>
DESCRIPTION OF THE SECURITIES
Each Security represents an equal proportional interest in the Trust,
and a total of _______ Securities will be issued (assuming no exercise of the
Underwriters' over-allotment option). Upon liquidation of the Trust, holders are
entitled to share pro rata in the net assets of the Trust available for
distribution. The Securities have no preemptive, redemption or conversion
rights. Securities are fully paid and nonassessable by the Trust. The only
securities that the Trust is authorized to issue are the Securities offered
hereby and those sold to the initial holder referred to below. See
"Underwriting".
DISTRIBUTIONS
The Trust intends to distribute to holders on a quarterly basis an
amount equal to $____ per Security (which amount equals the pro rata portion of
the fixed quarterly cash distributions from the proceeds of the maturing U.S.
Treasury securities held by the Trust). The first distribution, reflecting the
Trust's operations from the date of this offering, will be made on [June] __,
1999 to holders of record as of the preceding Business Day. Distributions will
then be made on [March __, June __, September __ and December__] of each year to
holders of record as of the preceding Business Day. Part of each distribution
should be treated as a tax-free return of the holder's investment. See
"Description of the Securities--Tax Treatment of Distributions" and "Certain
Federal Income Tax Considerations--Recognition of Interest on the U.S. Treasury
Securities".
Upon termination of the Trust, as described under the caption "The
Trust--Trust Termination", each holder will receive any remaining net assets of
the Trust.
The Trust does not permit the reinvestment of distributions.
TAX TREATMENT OF DISTRIBUTIONS
The following table sets forth information regarding the distributions
to be received on the U.S. Treasury securities to be acquired by the Trust with
part of the proceeds of the Offering (assuming no exercise of the Underwriters'
over-allotment option), 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 (assuming a yield-to-maturity accrual
election in respect of any short-term U.S. Treasury securities) on those U.S.
Treasuries with respect to a holder who acquires its Securities at the issue
price from an Underwriter pursuant to the original offering. See "Certain
Federal Income Tax Considerations--Recognition of Original Issue Discount on the
U.S. Treasury Securities".
<TABLE>
<CAPTION>
ANNUAL GROSS ANNUAL GROSS ANNUAL INCLUSION OF
DISTRIBUTIONS DISTRIBUTIONS FROM ANNUAL RETURN OF ORIGINAL ISSUE
FROM U.S. TREASURIES CAPITAL PER DISCOUNT
YEAR U.S. TREASURIES PER SECURITY SECURITY IN INCOME PER SECURITY
- ---- --------------- ------------------ ---------------- ----------------------
<S> <C> <C> <C> <C>
1999...........................
2000...........................
2001...........................
2002...........................
</TABLE>
The annual distribution of $____ per Security is payable quarterly on
each [March __, June __, September __ and December__,] commencing [June] __,
1999. Quarterly distributions on the Securities will consist solely of the cash
received from the U.S. Treasury securities. The Trust will not be entitled to
any dividends that may be declared on the Common Stock.
VOTING
Holders are entitled to a full vote for each Security held on all
matters to be voted on by holders and are not able to cumulate their votes in
the election of Trustees. The Trustees of the Trust have been selected initially
by Warburg Dillon Read LLC, as the initial holder of Securities of the Trust.
The Trust intends to hold annual meetings as required by the rules of [the
NYSE.] The Trustees may call special meetings of holders for action by holder
vote as may be required by either the Investment Company Act or the Amended and
Restated Trust Agreement. The holders have the right, upon the declaration in
writing or vote of more than two-thirds of the outstanding Securities, to remove
a Trustee. The Trustees will call a meeting of holders to vote on the removal of
a Trustee upon the written request of the holders of record of 10% of the
Securities or to vote on other matters upon the written request of the holders
of record of 51% of the Securities (unless substantially the same matter was
voted on during the previous 12 months). The Trustees will establish, and notify
the holders in writing of, the record date for each such meeting. The record
date must be not less than 10 nor more than 50 days before the meeting date.
Holders at the close of business on the record date will be entitled to vote at
the meeting. The Trust will also assist in
18
<PAGE>
communications with other holders as required by the Investment Company Act.
BOOK-ENTRY-ONLY ISSUANCE
The Depository Trust Company ("DTC") will act as securities depository
for the Securities. The information in this section concerning DTC and DTC's
book-entry system is based upon information obtained from DTC. The Securities
offered hereby will be issued only as fully-registered securities registered in
the name of Cede & Co. (as nominee for DTC). One or more fully-registered global
Security certificates will be issued, representing in the aggregate the total
number of Securities, and will be deposited with DTC.
DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York Banking
Law, a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities that its participants ("Participants") deposit with DTC. DTC
also facilitates the settlement among Participants of securities transactions,
such as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in Participants' accounts, eliminating the need
for physical movement of securities certificates. Direct Participants include
securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations ("Direct Participants"). Access to the DTC
system is also available to others such as securities brokers and dealers, banks
and trust companies that clear through or maintain a custodial relationship with
a Direct Participant, either directly or indirectly ("Indirect Participants").
Purchases of Securities within the DTC system must be made by or
through Direct Participants, which will receive a credit for the Securities on
DTC's records. The ownership interest of each actual purchaser of a Security
("Beneficial Owner") is in turn to be recorded on the Direct or Indirect
Participants' records. Beneficial Owners will not receive written confirmation
from DTC of their purchases, but Beneficial Owners are expected to receive
written confirmations providing details of the transactions, as well as periodic
statements of their holdings, from the Direct or Indirect Participants through
which the Beneficial Owners purchased Securities. Transfers of ownership
interests in Securities are to be accomplished by entries made on the books of
Participants acting on behalf of Beneficial Owners. Beneficial Owners will not
receive certificates representing their ownership interests in Securities,
except upon a resignation of DTC.
DTC has no knowledge of the actual Beneficial Owners of the Securities;
DTC's records reflect only the identity of the Direct Participants to whose
accounts those Securities are credited, which may or may not be the Beneficial
Owners. The Participants will remain responsible for keeping account of their
holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Payments on the Securities will be made to DTC. DTC's practice is to
credit Direct Participants' accounts on the relevant payment date in accordance
with their respective holdings shown on DTC's records unless DTC has reason to
believe that it will not receive payments on that payment date. Payments by
Participants to Beneficial Owners will be governed by standing instructions and
customary practices and will be the responsibility of that Participant and not
of DTC or the Trust, subject to any statutory or regulatory requirements that
may be in effect from time to time. Payment of dividends to DTC is the
responsibility of the Trust, disbursement of those payments to Direct
Participants is the responsibility of DTC, and disbursement of those payments to
the Beneficial Owners is the responsibility of Direct and Indirect Participants.
Except as provided herein, a Beneficial Owner of an interest in a
global Security will not be entitled to receive physical delivery of Securities.
Accordingly, each Beneficial Owner must rely on the procedures of DTC to
exercise any rights under the Securities.
DTC may discontinue providing its services as securities depository
with respect to the Securities at any time by giving reasonable notice to the
Trust. Under those circumstances, if a successor securities depository is not
obtained, certificates representing the Securities will be printed and
delivered.
19
<PAGE>
RISK FACTORS
INTERNAL MANAGEMENT; NO PORTFOLIO
MANAGEMENT AND NO CHANGE IN ASSETS
The Trust will not be managed like a typical closed-end investment
company. The Trust will be internally managed by its Trustees and will not have
any separate investment adviser.
The Trust will not dispose of the Contracts even if the price of the
Common Stock falls significantly or the financial condition of the Company
suffers (or if, after a Reorganization Event, comparable developments occur
affecting any Marketable Securities or the issuer of those Marketable
Securities).
Similarly, the U.S. Treasury securities held by the Trust may not be
disposed of before the earlier of their respective maturities and the
termination of the Trust, even if their value falls significantly.
LIMITED OPPORTUNITY FOR INCREASE IN VALUE; RISK
OF DEPRECIATION IN COMMON STOCK
Because the Contracts allow the Sellers to deliver less than a full
share of Common Stock for each outstanding Security if the Average Market Price
exceeds the Initial Price, the Securities have more limited appreciation
potential than the Common Stock. If the price of Common Stock rises, a holder of
a Security will not receive all of this increase in value. Holders will not
receive any of this increase if the average market price of the Common Stock at
the Exchange Date is below $______. Holders will receive only ____% of any
increase in the value of the Common Stock over $____. On the other hand, holders
of Securities will suffer any fall in the value of the Common Stock. The value
of the Common Stock to be received by holders on the Exchange Date (and any cash
received in lieu of those shares) may be less than the amount paid for the
Securities. Furthermore, the Securities may trade below the value of the Common
Stock if the Common Stock appreciates in value.
FIXED RATE OF DISTRIBUTIONS
The distributions on the Securities will be at a higher rate than the
dividends paid on the Common Stock in the past year. However, the dividend on
the Common Stock may be raised to a level higher than the distributions on the
Securities, which will not increase.
DILUTION ADJUSTMENTS
The number of shares of Common Stock that holders are entitled to
receive at the termination of the Trust will be adjusted for certain events
arising from stock splits and combinations, stock dividends and certain other
actions of the Company that modify its capital structure. See "Investment
Objective and Policies--The Contracts--Dilution Adjustments". The number of
shares to be received by holders may not be adjusted for other events, such as
offerings of Common Stock for cash or in connection with acquisitions, that may
adversely affect the price of the Common Stock and, because of the relationship
of the amount to be received pursuant to the Contracts to the price of the
Common Stock, these other events may adversely affect the trading price of the
Securities. There can be no assurance that the Company will not take any of the
foregoing actions, or that it will not make offerings of, or that major
shareholders will not sell any, Common Stock in the future, or as to the amount
of any such offerings or sales.
NON-DIVERSIFIED STATUS
The Trust is considered non-diversified under the Investment Company
Act, which means that the Trust is not limited in the proportion of its assets
that may be invested in the obligations of a single issuer. The only assets held
by the Trust will be the U.S. Treasury securities and the Contracts. As a
result, an investment in the Trust will be riskier than an investment in an
investment company with diversified investments.
TRADING VALUE AFFECTED BY COMMON STOCK
PRICE AND OTHER FACTORS
The Trust is a newly organized closed-end investment company with no
previous operating history and the Securities are innovative securities. It is
not possible to predict how the Securities will trade in the secondary market.
The trading prices of the Securities in the secondary market will be
directly affected by the trading prices of the Common Stock in the secondary
market. The trading prices of the Common Stock may fluctuate, due to changes in
the Company's financial condition, results of operations or prospects, or
because of complex and interrelated political, economic, financial and other
factors that can affect the capital markets generally, the stock exchanges or
quotation systems on which the Common Stock is traded or the market segment of
which the Company is a part. The trading price of the Securities may also
fluctuate due to, among other things, fluctuations in interest rates and other
factors that are difficult to predict and beyond the Trust's control. The Trust
believes, however, that because of the yield on the Securities and the formula
for determining the number of shares of Common Stock to be delivered on the
Exchange
20
<PAGE>
Date, the Securities will tend to trade at a premium to the market value of the
Common Stock to the extent the Common Stock price falls and at a discount to the
market value of the Common Stock to the extent the Common Stock price rises.
There can, however, be no assurance that the Securities will trade at a premium
to the market value of the Common Stock.
Shares of closed-end investment companies 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 fall. The Trust cannot predict whether its
shares will trade at, below or above net asset value. The risk of purchasing
investments in a closed-end investment company that might trade at a discount
may be greater for investors who wish to sell their investments soon after
completion of an initial public offering because for those investors,
realization of a gain or loss on their investments is likely to be more
dependent upon the existence of a premium or discount than upon portfolio
performance.
LIMITED TRADING MARKET FOR SECURITIES
Warburg Dillon Read LLC currently intends, but is not obligated, to
make a market in the Securities. There can be no assurance that a secondary
market will develop or, if a secondary market does develop, that it will provide
the holders with liquidity of investment or that it will continue for the life
of the Securities. Warburg Dillon Read LLC may cease to make a market in the
Securities at any time without notice. Application will be made to list the
Securities on the [______]. Assuming the acceptance of that application, there
can be no assurance that the Securities will not later be delisted or that
trading in the Securities on the [_______] will not be suspended. If the
Securities are delisted or suspended from trading on that exchange, the Trust
will apply for listing of the Securities on another national securities exchange
or for quotation on another trading market. If the Securities are not listed or
traded on any securities exchange or trading market, or if trading of the
Securities is suspended, pricing information for the Securities may be more
difficult to obtain, and the price and liquidity of the Securities may be
adversely affected.
SHAREHOLDER RIGHTS
Holders of the Securities will not be entitled to any rights with
respect to the Common Stock unless and until they actually receive Common Stock
in exchange for the Securities. For example, holders of Securities will not be
entitled to vote the shares of Common Stock or receive dividends.
21
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion of the principal United States federal income
tax consequences of ownership of Securities represents the opinion of Sullivan &
Cromwell, counsel to the Trust. It deals only with Securities held as capital
assets by a holder who acquires its Securities at the issue price from an
Underwriter pursuant to the original offering, and not with special classes of
holders, such as dealers in securities or currencies, banks, life insurance
companies, persons who are not United States Holders (as defined below), persons
that hold Securities that are part of a hedging transaction, straddle or
conversion transaction, or persons whose functional currency is not the U.S.
dollar. The summary is based on the Internal Revenue Code of 1986, as amended
(the "Code"), its legislative history, existing and proposed regulations under
the Code, published rulings and court decisions, all as currently in effect and
all subject to change or different interpretation at any time, perhaps with
retroactive effect. It should be noted that the Trust has not sought a ruling
from the Internal Revenue Service with respect to the federal income tax
consequences of ownership of Securities, and the Internal Revenue Service is not
required to agree with the opinion of Sullivan & Cromwell.
Prospective purchasers of Securities should consult their own tax
advisors concerning the consequences, in their particular circumstances, under
the Code and the laws of any state, local or other taxing jurisdiction, of
ownership of Securities.
A United States Holder is a beneficial owner of Securities who or that
is (i) a citizen or resident of the United States, (ii) a domestic corporation
or (iii) otherwise subject to United States federal income taxation on a net
income basis in respect of Securities.
Holders should also be aware that there are alternative
characterizations of the assets of the Trust which could result in different
federal income tax consequences. See "Alternative Characterizations" below.
While Sullivan & Cromwell does not believe these alternative characterizations
should apply for federal income tax purposes, there can be no assurance in this
regard, and holders should consult their tax advisors concerning the risks
associated with alternative characterizations. The following discussion assumes
that no such alternative characterizations will apply.
TAX STATUS OF THE TRUST. The Trust will be treated as a grantor trust
for federal income tax purposes, and each holder will be considered the owner of
its pro rata portions of the stripped U.S. Treasury securities and the Contracts
in the Trust under the grantor trust rules of the Code. Income received by the
Trust will be treated as income of the holders in the manner set forth below.
RECOGNITION OF ORIGINAL ISSUE DISCOUNT ON THE U.S. TREASURY SECURITIES.
The U.S. Treasury securities in the Trust will consist of stripped U.S. Treasury
securities. A holder will be required to treat its pro rata portion of each U.S.
Treasury security initially acquired by the Trust as a bond that was originally
issued on the date the Trust acquired the relevant U.S. Treasury securities and
will include original issue discount in income over the life of the U.S.
Treasury securities in an amount equal to the holder's pro rata portion of the
excess of the amounts payable on those U.S. Treasury securities over the value
of the U.S. Treasury securities at the time the Trust acquires them. The amount
of that excess will constitute only part of the total amounts payable in respect
of U.S. Treasury securities held by the Trust, however. Consequently, a
substantial portion of each quarterly cash distribution to the holders will be
treated as a tax-free return of the holders' investment in the U.S. Treasury
securities and will not be considered current income for federal income tax
purposes. See "Description of the Securities--Tax Treatment of Distributions".
A holder (whether on the cash or accrual method of tax accounting) will
be required to include original issue discount (other than original issue
discount on short-term U.S. Treasury securities as defined below) in income for
federal income tax purposes as it accrues on a constant yield basis. The Trust
expects that more than 20% of the holders will be accrual basis taxpayers, in
which case original issue discount on any short-term U.S. Treasury security
(i.e., any U.S. Treasury security with a maturity of one year or less from the
date it is purchased) held by the Trust also will be required to be included in
income by the holders as it is accrued. Unless a holder elects to accrue the
original issue discount on a short-term U.S. Treasury security according to a
constant yield method based on daily compounding, that original issue discount
will be accrued on a straight-line basis.
TAX BASIS OF THE U.S. TREASURY SECURITIES AND THE CONTRACTS. A holder's
initial tax basis in the Contracts and the U.S. Treasury securities,
respectively, will equal its pro rata portion of the amounts paid for them by
the Trust. It is currently anticipated that ____% and ____% of the net proceeds
of the offering will be used by the Trust to purchase the U.S. Treasury
securities and as payments for the Contracts, respectively. A holder's tax basis
in the U.S. Treasury securities will be increased by the amounts of original
issue discount included in income in respect of U.S. Treasury
22
<PAGE>
securities and decreased by each amount of cash received in respect of U.S.
Treasury securities.
TREATMENT OF THE CONTRACTS. Each holder will be treated as having
entered into a pro rata portion of the Contracts and, at the Exchange Date, as
having received a pro rata portion of the Common Stock or cash, Marketable
Securities or a combination of Common Stock, Marketable Securities and cash
delivered to the Trust.
DISTRIBUTION OF THE COMMON STOCK. The delivery of Common Stock to the
Trust pursuant to the Contracts and the Trust's distribution of Common Stock to
the holders will not be taxable to the holders. Each holder's basis in its
Common Stock will be equal to its basis in its pro rata portion of the Contracts
less the portion of that basis allocable to any fractional shares of Common
Stock for which cash is received. A holder will recognize short-term capital
gain or loss upon receipt by the Trust of cash in lieu of fractional shares of
Common Stock equal to the difference between the holder's allocable portion of
the amount of cash received and the holder's basis in those fractional shares.
The holding period for the Common Stock will begin on the day after it is
acquired by the Trust.
DISTRIBUTION OF CASH. If the Trust receives cash upon settlement of the
Contracts, a holder will recognize capital gain or loss equal to the difference
between the holder's allocable portion of the amount of cash received and the
holder's basis in the Contracts settled for cash. Any gain or loss will be
capital gain or loss which is taxable to holders as described below under "Sale
of Securities".
SALE OF SECURITIES. A holder who sells Securities will be treated as
having sold its pro rata portions of the U.S. Treasury securities and the
Contracts underlying the Securities. As a result, the holder will recognize
capital gain or loss equal to the difference between the amount realized and the
holder's aggregate tax bases in its pro rata portions of the U.S. Treasury
securities and the Contracts. Any gain or loss will be long-term capital gain or
loss if the Trust has held the relevant property for more than one year.
Long-term capital gain of an individual holder will be subject to a maximum tax
rate of 20% in respect of property held for more than one year.
ALTERNATIVE CHARACTERIZATIONS. Sullivan & Cromwell believes the
Contracts should be treated for federal income tax purposes as prepaid forward
contracts for the purchase of a variable number of shares of Common Stock.
The Internal Revenue Service could conceivably seek to treat the
Contracts differently. The Internal Revenue Service might, for example, seek to
treat the cash paid to the Sellers pursuant to the Contracts as loans to the
Sellers in exchange for contingent debt obligations of the Sellers. If the
Internal Revenue Service were to prevail in making such an assertion, a holder
might be required to include original issue discount in income over the life of
the Securities at a market rate of interest for the Seller, taking account of
all the relevant facts and circumstances. In addition, a holder would be
required to include interest (rather than capital gain) in income on the
Exchange Date in an amount equal to the excess, if any, of the value of the
Common Stock received on the Exchange Date (or the proceeds from cash settlement
of the Contracts) over the aggregate of the basis of the Contracts and any
interest on the Contracts previously included in income (or might be entitled to
an ordinary deduction to the extent of interest previously included in income
and not ultimately received). The Internal Revenue Service could also
conceivably take the view that a holder should include in income the amount of
cash actually received each year on the Securities.
BACKUP WITHHOLDING AND INFORMATION REPORTING. The payments of principal
and original issue discount on the U.S. Treasury securities, and the proceeds
received from cash settlement of the Contracts or the sale of Securities, may be
subject to U.S. backup withholding tax at the rate of 31% if the holder of those
Securities fails to supply an accurate taxpayer identification number or
otherwise to comply with applicable U.S. information reporting or certification
requirements. Any amounts so withheld will be allowed as a credit against that
holder's U.S. federal income tax liability and may entitle that holder to a
refund, provided that the required information is furnished to the Internal
Revenue Service.
After the end of each calendar year, the Trust will furnish to each
record holder of Securities an annual statement containing information relating
to the payments on the U.S. Treasury securities received by the Trust. The Trust
will also furnish annual information returns to each record holder of the
Securities and to the Internal Revenue Service.
23
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Trust has agreed to sell the Securities to the Underwriters, and the
Underwriters have agreed to purchase the Securities from the Trust.
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the Securities offered
hereby, if any are taken.
The Underwriters propose to offer the Securities in part directly to
the public at the price to the public set forth on the cover page of this
Prospectus and in part to certain securities dealers at that price less a
concession of $____ per Security. The Underwriters may allow, and those dealers
may re-allow, a concession not more than $____ per Security to certain brokers
and dealers. After the Securities are released for sale to the public, the
offering price and other selling terms may from time to time be varied by the
Underwriters. The sales load of $__________ per Security is equal to ____% of
the initial public offering price. Investors must pay for any Securities
purchased in the initial public offering on or before March __, 1999.
In connection with the offering, the Underwriters may purchase and sell
the Securities and the Common Stock in the open market. These transactions may
include over-allotment and stabilizing transactions and purchases to cover
syndicate short positions created in connection with the offering. Stabilizing
transactions consist of certain bids or purchases for the purpose of preventing
or retarding a fall in the market price of the securities or the Common Stock;
and short positions created by the Underwriters involve the sale by the
Underwriters of a greater number of Securities than they are required to
purchase from the Trust in the offering. The Underwriters also may impose a
penalty bid, whereby selling concessions allowed to syndicate members or other
broker-dealers in respect of the Securities sold in the offering may be
reclaimed by the syndicate if those securities are repurchased by the syndicate
in stabilizing or covering transactions. These activities may stabilize,
maintain or otherwise affect the market price of the Securities which may be
higher than the price that might otherwise prevail in the open market, and these
activities, if commenced, may be discontinued at any time. These transactions
may be effected on the [NYSE], in the over-the-counter market or otherwise.
In light of the fact that proceeds from the sale of the Securities will
be used by the Trust to purchase the Contracts from the Sellers, the
Underwriting Agreement provides that the Sellers will pay to the Underwriters
the Underwriters' Compensation of $____ per Security.
The Trust has granted the Underwriters an option exercisable for 30
calendar days after the date of this Prospectus to purchase up to an aggregate
of _______ additional Securities solely to cover over-allotments, if any. If the
Underwriters exercise their over-allotment option, they will receive the
Underwriters' Compensation referred to above for each Security so purchased.
The Sellers and the Company have agreed that, during the period
beginning from the date of this Prospectus and continuing to and including the
date 90 days after the date of this Prospectus, they will not offer, sell,
contract to sell or otherwise dispose of any Common Stock or other securities of
the Company (other than pursuant to employee stock option plans existing, or on
the conversion or exchange of convertible or exchangeable securities
outstanding, on the date of this Prospectus) which are substantially similar to
the Common Stock or which are convertible or exchangeable into Common Stock or
other securities which are substantially similar to the Common Stock, without
the prior written consent of Warburg Dillon Read LLC.
The Securities will be a new issue of securities with no established
trading market. Application has been made to list the Securities on the
________. Warburg Dillon Read LLC [and _______] have advised the Company that
they intend to make a market in the Securities, but they are not obligated to do
so and may discontinue market making at any time without notice. No assurance
can be given as to the liquidity of the trading market for the Securities.
The Underwriters have informed the Trust that they will not confirm
sales to any accounts over which they exercise discretionary authority without
specific written approval of those transactions by the customer.
The Company and the Sellers have agreed to indemnify the Underwriters
against certain liabilities, including certain liabilities under the Securities
Act of 1933.
One Security has been subscribed for by Warburg Dillon Read LLC at an
aggregate purchase price of $100,000. No Securities will be sold to the public
until the Securities subscribed for have been purchased and the purchase price
of the Securities paid in full to the Trust.
24
<PAGE>
VALIDITY OF SECURITIES
The validity of the Securities will be passed upon for the Trust by
Sullivan & Cromwell, New York, New York, and for the Underwriters by
______________________________________, New York, New York.
EXPERTS
The financial statement included in this Prospectus has been audited by
_______________, independent accountants, as stated in their opinion appearing
herein, and has been so included in reliance upon that opinion given upon the
authority of that firm as experts in accounting and auditing.
FURTHER INFORMATION
The Trust has filed with the Securities and Exchange Commission,
Washington, D.C. 20549, a Registration Statement under the Securities Act of
1933, as amended, with respect to the Securities offered hereby. More
information concerning the Securities and the Trust may be found in the
Registration Statement of which this Prospectus constitutes a part. The
Registration Statement may be inspected without charge at the Commission's
office in Washington, D.C., and copies of all or any part of the Registration
Statement may be obtained from that office after payment of the fees prescribed
by the Commission. The Registration Statement is also available on the
Commission's website (http://www.sec.gov).
25
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Securityholders of
Trust-Issued Required Equity Exchange Securities Trust:
We have audited the accompanying statement of assets and liabilities of
Trust-Issued Required Equity Exchange Securities Trust as of March __, 1999.
This financial statement is the responsibility of the Trust's management. Our
responsibility is to express an opinion on this financial statement based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of assets and liabilities is
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statement. An
audit also includes assessing the accounting principles used and significant
estimates made by the Trust's management, as well as evaluating the overall
financial statement presentation. We believe that our audit of the financial
statement provides a reasonable basis for our opinion.
In our opinion, the financial statement referred to above presents
fairly, in all material respects, the financial position of Trust-Issued
Required Equity Exchange Securities Trust, as of March __, 1999 in conformity
with generally accepted accounting principles.
New York, New York
March __, 1999
26
<PAGE>
TRUST-ISSUED REQUIRED EQUITY EXCHANGE SECURITIES TRUST
STATEMENT OF ASSETS AND LIABILITIES
MARCH __, 1999
ASSETS
Cash................................................................. $ 100,000
---------
Total assets......................................................... $ 100,000
=========
LIABILITIES
...................................................................... $ 0
---------
NET ASSETS
Balance applicable to 1 Security outstanding......................... $ 100,000
---------
Net asset value per Security......................................... $ 100,000
=========
- --------------------
(1) Trust-Issued Required Equity Exchange Securities Trust (the "Trust") was
established on January 19, 1999 and has had no operations to date other
than matters relating to its organization and registration as a
non-diversified, closed-end management investment company under the
Investment Company Act of 1940. Costs incurred in connection with the
organization of the Trust will be paid by the Underwriters.
(2) The Trust proposes to sell Trust-Issued Required Equity Exchange Securities
(the "Securities") to the public pursuant to a Registration Statement on
Form N-2 under the Securities Act of 1933, as amended, and the Investment
Company Act of 1940, as amended.
The Trust is a newly organized, finite-term trust established to purchase
and hold a portfolio of stripped U.S. treasury securities and a forward
purchase contract with existing shareholders of [Company] relating to the
Common Stock of [Company]. The Trust will be internally managed and will
not have an investment adviser. The administration of the Trust, which will
be overseen by the trustees, will be carried out by ____________________ as
trust administrator. ____________________ will also serve as custodian,
paying agent, registrar and transfer agent with respect to the Securities.
Ongoing fees and anticipated expenses for the term of the Trust will be
paid for by ____________________.
(3) The Trust issued one Security on March __, 1999 to Warburg Dillon Read LLC
in consideration for the aggregate purchase price of $100,000.
The Amended and Restated Trust Agreement provides that before the offering,
the Trust will split the outstanding Security to be effected on the date
that the price and underwriting discount of the Securities being offered to
the public is determined, but before the sale of the Securities to the
Underwriters. The initial Security will be split into the smallest whole
number of Securities that would result in the per Security amount recorded
as shareholders' equity after effecting the split not exceeding the Public
Offering price per Security.
27
<PAGE>
GLOSSARY
"Administration Agreement" means the Administration Agreement between
the Trust and ______________________, as Trust Administrator.
"Administrator" means ___________________ (or its successor) in its
capacity as Trust Administrator under the Administration Agreement.
"Amended and Restated Trust Agreement" means the trust agreement dated
as of January 19, 1999 pursuant to which the Trust was formed, as amended and
restated as of [March] __, 1999.
"Appreciation Threshold Price" means $_______.
"Average Market Price" per share of Common Stock on any date means the
average Closing Price per share of Common Stock for the 20 Trading Days
immediately before, but not including, that date.
"Beneficial Owner" means an actual purchaser of a Security, which will
not receive written confirmation from DTC of their purchases of Securities but
which are expected to receive written confirmations providing details of the
transactions, as well as periodic statements of their holdings, from the Direct
or Indirect Participants through which the Beneficial Owners purchased
Securities.
"Calculation Period" means any period of Trading Days for which an
average security price must be determined pursuant to the Contracts.
"Cash Delivery Obligations" means, for any Seller after a
Reorganization Event, the Transaction Value of any consideration other than
Marketable Securities received by that Seller in exchange for the maximum number
of shares covered by its Contract at the time of the Reorganization Event.
"Cash Settlement Alternative" means the provision of each Contract that
permits the Seller to elect to pay cash upon settlement of that Contract in an
amount equal to the then Average Market Price of the number of shares of Common
Stock deliverable thereunder.
"Closing Price" of the Common Stock on any date of determination means
the daily closing sale price (or, if no closing sale price is reported, the last
reported sale price) of the Common Stock as reported on the NYSE Consolidated
Tape on that date of determination or, if the Common Stock 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 the Common Stock is
so listed, or if the Common Stock is not so listed on a United States national
or regional securities exchange, as reported by The NASDAQ National Market or,
if the Common Stock is not so reported, the last quoted bid price for the Common
Stock in the over-the-counter market as reported by the National Quotation
Bureau or similar organization, provided that if any event that results in an
adjustment to the number of shares of Common Stock deliverable under the
Contracts occurs before the Exchange Date, the Closing Price as determined
pursuant to the foregoing will be appropriately adjusted to reflect the
occurrence of that event.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collateral Agent" means _________________ (or its successor) in its
capacity as Collateral Agent under the Collateral Agreements.
"Collateral Agreements" means the Collateral Agreements between the
Sellers and ______________________, as Collateral Agent, securing the Sellers'
obligations under their respective Contracts.
"Collateral Event of Default" under any Seller's Collateral Agreement
means, at any time, (A) if no U.S. Government obligations are pledged as
substitute collateral at or before that time, failure of the collateral to
consist of at least the maximum number of shares of Common Stock covered by that
Seller's Contract at that time (or, if a Reorganization Event has occurred at or
before that time, failure of the collateral to include the maximum number of
shares of any Marketable Securities required to be pledged pursuant to the
Collateral Agreement); (B) if any U.S. Government obligations are pledged as
substitute collateral for shares of Common Stock (or shares of Marketable
Securities deliverable pursuant to the Contracts) at that time, failure of those
U.S. Government obligations to have a market value at that time of at least 105%
of the market price per share of Common Stock (or the then-Average Market Price
per share of those Marketable Securities, as the case may be) times the
difference between (x) the maximum number of shares of Common Stock (or shares
of those Marketable Securities) covered by that Contract at that time and (y)
the number of shares of Common
28
<PAGE>
Stock (orshares of those Marketable Securities) pledged as collateral at that
time; and (C) at any time after a Reorganization Event in which consideration
other than Marketable Securities has been delivered, failure of any U.S.
Government obligations pledged as collateral for Cash Delivery Obligations to
have a market value at that time of at least 105% of those Cash Delivery
Obligations, if that failure is not cured within one business day after notice
of that failure is delivered to that Seller.
"Common Stock" means the Common Stock, par value $__ per share, of the
Company.
"Company" means [Company], a ___________ corporation.
"Company Prospectus" means the prospectus of the Company, dated [March]
__, 1999 (pages A-1 through A-o hereof), which describes the Company and the
shares of Common Stock deliverable to the holders upon mandatory exchange of the
Securities on the Exchange Date.
"Company Successor" means a surviving entity or subsequent entity of
the Company.
"Contracts" means the forward purchase contracts between the Sellers
and the Trust relating to the Common Stock.
"Custodian" means __________________ (or its successor) in its capacity
as Custodian under the Custodian Agreement.
"Custodian Agreement" means the Custodian Agreement between the Trust
and _____________________________, as Custodian.
"Defaulting Seller" means a Seller with respect to which a Collateral
Event of Default has occurred under that Seller's Collateral Agreement or that
is the subject of a bankruptcy or insolvency.
"Direct Participants" means Participants of DTC, including brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations, that are direct Participants of DTC.
"DTC" means The Depository Trust Company.
"Excess Purchase Payment" means the excess, if any, of (i) the cash and
the value (as determined by a nationally recognized independent investment
banking firm retained for this purpose by the Administrator, whose determination
will be conclusive) of all other consideration paid by the Company with respect
to one share of Common Stock acquired in a tender offer or exchange offer by the
Company over (ii) the Then-Current Market Price per share of Common Stock.
"Exchange Date" means March __, 2002.
"Exchange Rate" means the rate of exchange of Common Stock for
Securities on the Exchange Date, and will be determined as follows (adjusted in
certain events):
o if the Average Market Price is less than the Appreciation
Threshold Price but equal to or greater than the Initial Price,
the Exchange Rate will be the number of shares of Common Stock
having a value (determined at the Average Market Price) equal to
the Initial Price;
o if the Average Market Price is equal to or greater than the
Appreciation Threshold Price, the Exchange Rate will be 0.____
shares of Common Stock; and
o if the Average Market Price is less than the Initial Price, the
Exchange Rate will be one share of Common Stock.
"Excluded Distribution" means any Permitted Dividend, any cash
distributed in consideration of fractional shares of Common Stock and any cash
distributed in a Reorganization Event.
"holders" means the registered holders of the Securities.
"Indirect Participants" means Participants of DTC, such as securities
brokers and dealers, banks and trust companies, that clear through or maintain a
custodial relationship with a Direct Participant, either directly or indirectly.
"Initial Price" means $_______.
"Insufficiency Determination" means a determination by the Collateral
Agent that U.S. Government obligations pledged by any Seller as substitute
collateral fail to meet the requirements specified in the Collateral Agreement
at any valuation, or that that Seller has failed to pledge additional collateral
required as a result of a dilution adjustment increasing the maximum number of
shares of
29
<PAGE>
Common Stock or shares of Marketable Securities covered by that Seller's
Contract.
"Investment Company Act" means the Investment Company Act of 1940, as
amended.
"majority of the Trust's outstanding Securities" means the lesser of
(i) 67% of the Securities represented at a meeting at which more than 50% of the
outstanding Securities are represented, and (ii) more than 50% of the
outstanding Securities.
"Managing Trustee" means the Trustee of the Trust designated to serve
as Managing Trustee.
"Marketable Securities" means any common equity securities (whether
voting or non-voting) listed on a U.S. national securities exchange or reported
by The NASDAQ National Market.
"NYSE" means the New York Stock Exchange.
"Participants" means participants of DTC.
"Paying Agent" means ____________________ (or its successor) in its
capacity as transfer agent, registrar and Paying Agent under the Paying Agent
Agreement.
"Paying Agent Agreement" means the Paying Agent Agreement between the
Trust and __________________________, as transfer agent, registrar and Paying
Agent.
"Permitted Dividend" means any quarterly cash dividend on the Common
Stock, other than a quarterly cash dividend that exceeds the immediately
preceding quarterly cash dividend, and then only to the extent that the per
share amount of that dividend results in an annualized dividend yield on the
Common Stock of more than 12.5%.
"Pricing Date" means the date that a Rollover Offering is priced.
"Reorganization Event" means (A) any consolidation or merger of the
Company, or any Company Successor, with or into another entity (other than a
merger or consolidation in which the Company is the continuing corporation and
in which the Common Stock outstanding immediately before the merger or
consolidation is not exchanged for cash, securities or other property of the
Company or another corporation), (B) any sale, transfer, lease or conveyance to
another corporation of the property of the Company or any Company Successor as
an entirety or substantially as an entirety, (C) any statutory exchange of
securities of the Company or any Company Successor with another corporation
(other than in connection with a merger or acquisition) or (D) any liquidation,
dissolution or winding up of the Company or any Company Successor.
"SEC" means the Securities and Exchange Commission.
"Securities" means the $_____ Trust-Issued Required Equity Exchange
Securities of the Trust.
"Sellers" means [list Selling Stockholders].
"Then-Current Market Price" of the Common Stock, in respect of any
dilution adjustment, means the average Closing Price per share of Common Stock
for a Calculation Period of five Trading Days immediately before the time that
adjustment is effected (or, in the case of an adjustment effected at the opening
of business on the business day after a record date, immediately before the
earlier of the time that adjustment is effected and the related "ex-date" on
which the shares of Common Stock first trade regular way on their principal
market without the right to receive the relevant dividend, distribution or
issuance); provided that if no Closing Price for the Common Stock is determined
for one or more (but not all) of such Trading Days, such Trading Days will be
disregarded in the calculation of the Then-Current Market Price (but no
additional Trading Days will be added to the Calculation Period). If no Closing
Price for the Common Stock is determined for any of such Trading Days, the most
recently available Closing Price for the Common Stock before those five Trading
Days will be the Then-Current Market Price.
"Trading Day" means a day on which the Common Stock (A) is not
suspended from trading on any national or regional securities exchange or
association or over-the-counter market at the close of business and (B) has
traded at least once on the national or regional securities exchange or
association or over-the-counter market that is the primary market for the
trading of that security.
"Transaction Value" means (i) for any cash received in a Reorganization
Event, the amount of cash received per share of Common Stock, (ii) for any
property other than cash or Marketable Securities received in any such
Reorganization Event, an amount equal to the market value on the date the
Reorganization Event is consummated of such
30
<PAGE>
property received per share of Common Stock as determined by a nationally
recognized independent investment banking firm retained for this purpose by the
Administrator and (iii) for any Marketable Securities received in a
Reorganization Event, an amount equal to the average Closing Price per share of
those securities on the 20 Trading Days immediately before the Exchange Date
multiplied by the number of those securities received for each share of Common
Stock; provided that if no Closing Price for those Marketable Securities is
determined for one or more (but not all) of those Trading Days, those Trading
Days will be disregarded in the calculation of that average Closing Price (but
no additional Trading Days will be added to the Calculation Period). If no
Closing Price for the Marketable Securities is determined for all those Trading
Days, the calculation in the preceding clause (iii) will be based on the most
recently available Closing Price for the Marketable Securities before those 20
Trading Days. The number of shares of Marketable Securities included in the
calculation of Transaction Value for purposes of the preceding clause (iii) will
be adjusted if a dilution event of the type described above occurs with respect
to the issuer of the Marketable Securities between the time of the
Reorganization Event and the Exchange Date. For purposes of determining the
Transaction Value, the terms "Trading Day" and "Closing Price" will have the
same meanings, as applied to those Marketable Securities, as these terms have as
applied to the Common Stock for purposes of determining the Average Market
Price.
"Trust" means the Trust-Issued Required Equity Exchange Securities
Trust.
"Trustees" means the three trustees who will internally manage the
Trust.
"Underwriters" means Warburg Dillon Read LLC [and ________], the
Underwriters of the Securities.
"Underwriters' Compensation" means the compensation of $____ per
Security payable to the Underwriters by the Sellers pursuant to the Underwriting
Agreement.
"United States Holders" means a beneficial owner of Securities who or
that is (i) a citizen or resident of the United States, (ii) a domestic
corporation or (iii) otherwise covered by United States federal income taxation
on a net income basis in respect of Securities.
31
<PAGE>
<TABLE>
<S> <C>
================================================================= =============================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR
MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR ___________ SHARES
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
OR A SOLICITATION OF ANY OFFER TO BUY ANY SECURITIES OTHER THAN TRUST-ISSUED REQUIRED
THE SECURITIES TO WHICH IT RELATES OR ANY OFFER TO SELL OR THE EQUITY EXCHANGE SECURITIES TRUST
SOLICITATION OF ANY OFFER TO BUY SUCH SECURITIES IN ANY
CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
$_____ TRUST-ISSUED REQUIRED
--------------------------- EQUITY EXCHANGE SECURITIES
(T-REX SECURITIES)
TABLE OF CONTENTS
PAGE -------------------------
----
Prospectus Summary......................................... 2
The Trust.................................................. 7 PROSPECTUS
Use of Proceeds............................................ 9
Investment Objective and Policies.......................... 10
Description of the Securities.............................. 18 -------------------------
Risk Factors............................................... 20
Certain Federal Income Tax Considerations.................. 22
Underwriting............................................... 24
Validity of Securities..................................... 25
Experts.................................................... 25
Further Information........................................ 25
Report of Independent Accountants.......................... 26
Statement of Assets and Liabilities........................ 27
Glossary................................................... 28 WARBURG DILLON READ LLC
Appendix A: Prospectus of [Company]........................
---------------------------
UNTIL ________, 1999 (25 DAYS AFTER THE DATE OF THIS
PROSPECTUS) ALL DEALERS THAT EFFECT TRANSACTIONS IN THE
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS 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
SUBSCRIPTIONS.
================================================================= =============================================================
</TABLE>
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
Part A -- Report of Independent Accountants.
Statement of Assets and Liabilities.
Part B -- None.
(b) Exhibits
2.a.(i) Trust Agreement
2.a.(ii) Form of Amended and Restated Trust Agreement*
2.d Form of Specimen Certificate of Trust-Issued Required
Equity Exchange Security (included in Exhibit 2.a.(ii))*
2.h Form of Underwriting Agreement*
2.j Form of Custodian Agreement*
2.k.(i) Form of Administration Agreement*
2.k.(ii) Form of Paying Agent Agreement*
2.k.(iii) Form of Purchase Contract*
2.k.(iv) Form of Collateral Agreement*
2.k.(v) Form of Fund Expense Agreement*
2.k.(vi) Form of Fund Indemnity Agreement*
2.l Opinion and Consent of Counsel to the Trust*
2.n.(i) Tax Opinion of Counsel to the Trust (Consent contained
in Exhibit 2.n.(i))*
2.n.(iii) Consent of Independent Public Accountants*
2.n.(iv) Consents to Being Named as Trustee*
2.p Form of Subscription Agreement*
2.r Financial Data Schedule*
- --------------------
* To be Filed by Amendment.
ITEM 25. MARKETING ARRANGEMENTS
See the Form of Underwriting Agreement to be filed as Exhibit 2.h to
this Registration Statement.
C-1
<PAGE>
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses to be incurred in
connection with the offering described in this Registration Statement:
Registration fees.................................................. $
[stock exchange] listing fee.......................................
Printing (other than certificates).................................
Fees and expenses of qualification under state securities laws
(excluding fees of counsel)......................................
Accounting fees and expenses.......................................
Legal fees and expenses............................................
NASD fees..........................................................
Miscellaneous......................................................
Total.............................................................. $
==========
ITEM 27. PERSON CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Before January 19, 1999 the Trust had no existence. As of the effective
date, the Trust will have entered into a Subscription Agreement for one Security
with Warburg Dillon Read LLC and an Underwriting Agreement with respect to
_________ Securities with Warburg Dillon Read LLC.
ITEM 28. NUMBER OF HOLDERS OF SECURITIES
NUMBER OF
TITLE OF CLASS RECORD HOLDERS
-------------- --------------
Trust-Issued Required Equity Exchange Securities ........ 1
ITEM 29. INDEMNIFICATION
The Underwriting Agreement, to be filed as Exhibit 2.h to this
Registration Statement, provides for indemnification to the Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act").
The Amended and Restated Trust Agreement filed as Exhibit 2.a.(ii) 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.(i) and 2.k.(ii) 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.(vi) to this Registration Statement provides that the Sellers will
indemnify the Trust for certain indemnification expenses incurred under the
Amended and Restated Trust Agreement, the Custodian Agreement, the
Administration Agreement and the Paying Agent Agreement.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to trustees, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. If a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a trustee, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
trustee, officer or controlling person in connection with the securities being
registered, the registrant
C-2
<PAGE>
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 Trust's accounts, books and other documents are currently located
at the offices of the Registrant, c/o Warburg Dillon Read LLC, 299 Park Avenue,
New York, New York 10171 and at the offices of ___________________,
_______________________________________, the Registrant's Administrator,
Custodian, paying agent, transfer agent and registrar.
ITEM 32. MANAGEMENT SERVICES
Not applicable.
ITEM 33. UNDERTAKINGS
(a) The Registrant hereby undertakes to suspend offering of its units
until it amends its prospectus if (1) subsequent to the effective date of its
Registration Statement, the net asset value falls more than 10 percent from its
net asset value as of the effective date of the Registration Statement or (2)
the net asset value increases to an amount greater than its net proceeds as
stated in the prospectus.
(b) The Registrant hereby undertakes that (i) for the purpose of
determining any liability under the Securities Act, the information omitted from
the form of prospectus filed as part of this registration statement in reliance
upon Rule 430A and contained in a form of prospectus filed by the Registrant
under Rule 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective; (ii) for the
purpose of determining any liability under the Securities Act, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of the securities at that time shall be deemed to be the initial
bona fide offering thereof.
C-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of New York, State of New York, on the 1st day of
March, 1999.
Trust-Issued Required Equity Exchange
Securities Trust
By: /s/ PAUL M. DONOFRIO
------------------------------------
Name: Paul M. Donofrio
Title: Trustee
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following person, in the
capacities and on the date indicated.
Name Title Date
---- ----- ----
/s/ PAUL M. DONOFRIO
- -------------------------- ------------------------------- ------------------
Paul M. Donofrio Principal Executive Officer, March 1, 1999
Principal Financial Officer,
Principal Accounting Officer
and Trustee
<PAGE>
EXHIBIT INDEX
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
- ------ ----------- ----------
2.a.(i) Trust Agreement
2.a.(ii) Form of Amended and Restated Trust Agreement*
2.d Form of Specimen Certificate of Trust-Issued Required
Equity Exchange Security (included in Exhibit 2.a.(ii))*
2.h Form of Underwriting Agreement*
2.j Form of Custodian Agreement*
2.k.(i) Form of Administration Agreement*
2.k.(ii) Form of Paying Agent Agreement*
2.k.(iii) Form of Purchase Contract*
2.k.(iv) Form of Collateral Agreement*
2.k.(v) Form of Fund Expense Agreement*
2.k.(vi) Form of Fund Indemnity Agreement*
2.l Opinion and Consent of Counsel to the Trust*
2.n.(i) Tax Opinion of Counsel to the Trust (Consent contained
in Exhibit 2.n.(i))*
2.n.(iii) Consent of Independent Public Accountants*
2.n.(iv) Consents to Being Named as Trustee*
2.p Form of Subscription Agreement*
2.r Financial Data Schedule*
- --------------------
* To be Filed by Amendment.
