As filed with the Securities and Exchange Commission on August 17, 1999
Securities Act File No. 333-74989
Investment Company Act File No. 811-09273
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM N-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |X|
Pre-Effective Amendment No. 1 |X|
Post-Effective Amendment No. |_|
and/or
REGISTRATION STATEMENT UNDER THE |X|
INVESTMENT COMPANY ACT OF 1940
Amendment No. 1 |X|
(check appropriate box or boxes)
-----------------
SANDISK PEPS TRUST
(Exact Name of Registrant as Specified in Charter)
-----------------
C/O PUGLISI & ASSOCIATES
850 Library Avenue
Newark, Delaware 19715
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (302) 738-6680
-----------------
Donald J. Puglisi
Puglisi & Associates
850 Library Avenue
Newark, Delaware 19715
(Name and Address of Agent for Service)
-----------------
Copies to:
<TABLE>
<S> <C> <C>
John Larson, Esq. Bruce K. Dallas, Esq. Chris Fennell, Esq.
Timothy R. Curry, Esq. Davis Polk & Wardwell John Fore, Esq.
Brobeck Phleger & Harrison LLP 450 Lexington Avenue Wilson Sonsini Goodrich & Rosati
Two Embarcadero Place New York, New York 10017 650 Page Mill Road
2200 Geng Road Palo Alto, CA 94304
Palo Alto, CA 94303
</TABLE>
-----------------
Approximate date of proposed public offering: As soon as practicable after
the effective date of this Registration Statement.
-----------------
If any securities being registered on this form will be offered on a delayed or
continuous basis in reliance on Rule 415 under the Securities Act of 1933, as
amended, other than securities offered in connection with a dividend
reinvestment plan, check the following box. [ ]
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
<TABLE>
Proposed
Proposed Maximum
Maximum Aggregate
Title of Securities Amount Being Offering Price Per Offering Amount of
Being Registered Registered PEPS (1) Price (1) Registration Fee
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PEPS representing shares of beneficial interest $230,000,000 $63,940(2)
- --------------------------------------------------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee.
(2) A total of $2,780 was previously paid.
</TABLE>
-----------------
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>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and we are not soliciting offers to buy these
securities in any state where the offer or sale is not permitted.
PROSPECTUS (Subject to Completion)
Issued August 17, 1999 [SANDISK LOGO]
o PEPSSM
SANDISK PEPS Trust
o $ Premium Exchangeable Participating Shares - PEPSSM
(Subject to Exchange for Common Stock of SanDisk Corporation or Cash)
------------------------
We are offering Premium Exchangeable Participating Shares (PEPS) of SanDisk PEPS
Trust. We are a newly created Delaware business trust formed to purchase and
hold U.S. Treasury securities and a prepaid forward purchase contract with
Seagate Technology, Inc., one of the stockholders of SanDisk Corporation, for
the purchase of SanDisk common stock. The PEPS are securities that represent all
of the beneficial interest in SanDisk PEPS Trust.
We will make payments of $o per PEPS on o, o, o and o of each year, beginning on
o, until o, from funds we receive in respect of the U.S. Treasury securities
that we hold.
The prepaid forward purchase contract that we hold will provide that Seagate
Technology will deliver to us on o between 0. o of a share and one share of
common stock of SanDisk per PEPS. The number of shares delivered per PEPS will
depend on the average of the closing prices of the SanDisk common stock on the
20 trading days immediately prior to o, as follows (subject to adjustments as
described in this prospectus). If the average closing price is:
o greater than $o , we will receive 0. o of a share per PEPS.
o greater than $o but less than or equal to $o, we will receive shares
worth $o, valued at the average closing price, per PEPS.
o less than or equal to $o, we will receive one share per PEPS.
Seagate Technology may also satisfy the forward purchase contract in whole or in
part by delivering cash to us in an amount equal to the value (measured at the
average closing price) of the shares otherwise deliverable. Following the
delivery of the shares of the SanDisk common stock or cash to us, our trust will
terminate and we will deliver those shares or cash (or combination thereof) to
you in exchange for your PEPS. The forward purchase contract may be accelerated,
and our trust may terminate, if there is a default under, or insufficient
collateral securing, the forward purchase contract. In such an event, you would
receive shares of SanDisk common stock or cash as described in this prospectus.
Seagate Technology will have the right to extend the maturity of the forward
purchase contract from o to o, and Seagate Technology will then have the right
to accelerate the maturity of the forward contract to a date after o but on or
prior to o if Seagate Technology elects to finance the cash settlement of the
forward purchase contract through a "rollover offering" of new securities. In
either case, the number of shares of SanDisk common stock, or the amount of
cash, that you will receive in exchange for your PEPS may be greater or less
than the number of shares, or the amount of cash, that you would have received
if Seagate Technology had not extended the maturity of the forward purchase
contract.
The PEPS do not guarantee any return of your initial investment. The value of
the SanDisk common stock or cash that you receive in exchange for your PEPS may
be less than the price that you paid for the PEPS, in which case you will suffer
a loss on your investment.
The SanDisk common stock is listed on the Nasdaq National Market under the
symbol "SNDK." On August 16, 1999, the closing price of the SanDisk common stock
on the Nasdaq National Market was $883/16 per share.
The PEPS have no history of public trading. Closed-end fund shares frequently
trade at a discount from the net asset value of the fund. This characteristic of
investments in closed-end investment companies is a risk separate and distinct
from the risk that the fund's net asset value will decrease. This risk may be
greater for you if you anticipate selling your PEPS soon after this public
offering.
--------------------
We will apply to the Nasdaq National Market to list the PEPS for trading under
the symbol "o."
--------------------
Investing in the PEPS involves risks. See "Risk Factors" beginning on page 19.
--------------------
PRICE $o A PEPS
--------------------
Sales Proceeds to
Price to Public Load Trust
--------------- ---- -----------
Per PEPS............................$o $o $o
Total.............................. $o $o $o
--------------------
The Securities and Exchange Commission and state securities regulators have not
approved or disapproved these securities or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
We have granted the underwriters the right to purchase up to an additional o
PEPS to cover over-allotments. Morgan Stanley & Co. Incorporated expects to
deliver the PEPS to purchasers on o.
--------------------
MORGAN STANLEY DEAN WITTER
September , 1999
<PAGE>
TABLE OF CONTENTS
Page
----
Prospectus Summary.............................................................1
Fee Table......................................................................6
The Trust......................................................................7
Use of Proceeds................................................................7
Investment Objective and Policies..............................................7
Investment Restrictions.......................................................18
Risk Factors..................................................................19
Description of the PEPS.......................................................24
Management Arrangements.......................................................25
Dividends and Distributions...................................................27
Net Asset Value...............................................................28
Certain Tax Considerations....................................................28
Underwriter...................................................................30
Legal Matters.................................................................32
Experts.......................................................................32
Where You Can Find More Information...........................................32
Independent Auditors' Report.................................................F-1
Statement of Assets, Liabilities and Capital.................................F-2
In this prospectus, "SanDisk PEPS Trust," the "Trust", "we," "us" and
"our" each refers to SanDisk PEPS Trust.
--------------------
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, PEPS only in jurisdictions where offers and sales are permitted. The
information contained in this prospectus is accurate only as of the date of this
prospectus, regardless of the time of delivery of this prospectus or of any sale
of the PEPS.
--------------------
Until o, all dealers that buy, sell or trade PEPS, 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.
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this
prospectus. This summary may not contain all of the information that you should
consider before deciding to invest in the PEPS. We urge you to read this entire
prospectus carefully, including the "Risk Factors" section. Except as otherwise
noted, all information in this prospectus assumes no exercise of the
underwriters' over-allotment option. The following summary assumes that on the
Exchange Date described below the antidilution provisions contained in the
forward purchase contract will not have been triggered.
We use certain defined terms in this document for ease of reading and to
avoid repetition. You should be aware that capitalized terms used in this
document will have the meanings given to them in this document.
The Trust and the PEPS
We are a newly created Delaware business trust and will be registered as a
non-diversified closed-end management investment company under the Investment
Company Act of 1940. The term of our trust will expire on or shortly after o,
which we refer to as the "Exchange Date" because that is the date on which your
PEPS will be exchanged for SanDisk common stock or cash, unless Seagate
Technology, one of the stockholders of SanDisk, exercises its rights to extend
and, if it so chooses, subsequently accelerate the Exchange Date. If Seagate
Technology exercises these rights, the "Exchange Date" will be such extended or
accelerated Exchange Date. Our trust may be dissolved earlier than the Exchange
Date if there is a default under, or insufficient collateral securing, our
forward purchase contract with Seagate Technology. We will be treated as a
grantor trust for United States Federal income tax purposes. See "The Trust" and
"Investment Objective and Policies."
Each PEPS represents a proportionate share of beneficial interest in the
U.S. Treasury securities and the forward purchase contract that we hold. See
"Description of the PEPS."
The Offering
We are offering o PEPS at an initial offering price of $o per PEPS, which
is equal to the closing price of the SanDisk common stock on the Nasdaq National
Market on September , 1999, through the underwriter named in the "Underwriter"
section of this prospectus. We have given the underwriter an option to purchase
up to an additional o PEPS from us at the public offering price within 30 days
of the date of this prospectus in order to cover over-allotments. See
"Underwriter."
You will not pay a sales load, and Seagate Technology will pay the
underwriting commission from its own assets in connection with the offering. See
"Fee Table."
Quarterly Distributions
We will make quarterly distributions of $o per PEPS on each o, o, o and o,
or on the next business day if the distribution date is not a business day, if
you are the holder of record as of each o, o, o and o, respectively. You will
receive the first distribution of $o per PEPS on o if you are the holder of
record on o. See "Dividends and Distributions."
Trust Assets
Our assets will consist of a series of zero-coupon U.S. Treasury
securities with face amounts and maturities that exactly correspond to the
amounts and payment dates of the quarterly distributions you will receive on
your PEPS through o, comprising approximately o% of our initial assets, and a
forward purchase contract with Seagate Technology, one of the stockholders of
SanDisk, for the purchase of SanDisk common stock, comprising approximately o%
of our initial assets. See "Investment Objective and Policies."
<PAGE>
The purchase price under the forward purchase contract is $o, or $o if the
Underwriters exercise their over-allotment option in full. We will pay the
purchase price to Seagate Technology on or about September , 1999, which is the
expected closing date for the offering of the PEPS. See "Investment Objective
and Policies."
Investment Objective and Policies
Our investment objective is to pay to you the quarterly distribution of $o
per PEPS and to deliver to you on or shortly after the Exchange Date the shares
of SanDisk common stock that we receive under the forward purchase contract in
an amount between 0.o of a share and one share per PEPS. Except as described
below in connection with an extension or acceleration of the Exchange Date, the
number of shares of SanDisk common stock that you will receive per PEPS will be
determined as follows. If the average of the closing prices of the SanDisk
common stock on the 20 trading days immediately prior to o, which is the second
scheduled trading day prior to the Exchange Date, is:
o greater than $o, which represents a o% increase over the closing price
at the time of this offering, you will receive 0.o of a share of
SanDisk common stock per PEPS.
o greater than $o but less than or equal to $o, you will receive shares
of SanDisk common stock worth $o, valued at the average closing price,
per PEPS.
o less than or equal to $o, you will receive one share of SanDisk common
stock per PEPS.
Instead of delivering some or all of these shares of SanDisk common stock,
Seagate Technology has the option to deliver cash to us in an amount equal to
the value, measured at the average closing price, of the shares otherwise
deliverable, in which case you will receive cash in lieu of shares of SanDisk
Common Stock in exchange for your PEPS.
The PEPS do not guarantee any return of your initial investment. The value
of the SanDisk common stock or cash that you receive in exchange for your PEPS
may be less than the price that you paid for the PEPS, in which case you will
suffer a loss on your investment.
Seagate Technology will have the right, on o business days' notice to us,
to extend the Exchange Date from o to o. If Seagate Technology elects to extend
the Exchange Date, and does not subsequently accelerate the Exchange Date as
described in the next paragraph, then the number of shares of SanDisk common
stock (or the amount of cash) that you will receive will be based on the average
of the closing prices of the SanDisk common stock on the 20 trading days
immediately prior to the second scheduled trading day prior to o, and your
receipt of shares or cash (or a combination thereof) will be delayed until
following o. Seagate Technology will have the right to extend the Exchange Date
only if at least one nationally recognized statistical rating agency has rated
Seagate Technology's unsecured long-term debt in one of its generic rating
categories which signifies investment grade.
If Seagate Technology elects to extend the Exchange Date, then Seagate
Technology will have the right to finance an all-cash settlement of the forward
purchase contract through a "rollover offering" of new securities priced on or
before o (the date that is 30 business days prior to o). In connection with a
rollover offering, Seagate Technology will have the right, by notice to us by o,
New York City time, on the date of pricing of the rollover offering, to
accelerate the Exchange Date from o to the second business day following the
closing date of the rollover offering. If Seagate Technology accelerates the
Exchange Date in connection with a rollover offering, the amount of cash that
you will receive will be based on the closing price of the SanDisk common stock
on the date of pricing of the rollover offering, rather than an average of
closing prices.
If Seagate Technology extends or accelerates the Exchange Date, you will
receive an additional partial cash distribution on your PEPS on the extended or
accelerated Exchange Date. The amount of the cash distribution will
<PAGE>
be equal to the regular quarterly distribution on the PEPS of $o, prorated to
reflect the number of days by which the Exchange Date is ultimately extended
beyond o.
The forward purchase contract requires Seagate Technology to deliver to us
on the business day before the Exchange Date the number of shares of SanDisk
common stock or the amount of cash required to exchange all of the PEPS
(including any PEPS issued as a result of the over-allotment option) on the
Exchange Date.
Seagate Technology has secured its obligations under the forward purchase
contract by pledging to o, our Collateral Agent, the maximum number of shares of
SanDisk common stock that may be delivered under the forward purchase contract.
o may choose to substitute U.S. government obligations as collateral.
The amounts determined under the formula described above are subject to
adjustment under the antidilution provisions contained in the forward purchase
contract to protect you against some but not all of the dilutive events that
could affect the SanDisk common stock, which may also result in your receiving
securities or property other than SanDisk common stock instead of or in addition
to shares of SanDisk common stock. In any event, the value (calculated as
described in this prospectus) of the securities, other property or cash you
receive will be as determined under this formula. You will receive cash for any
fractional shares or other interests to which you may be entitled. See
"Investment Objective and Policies."
Acceleration of Forward Purchase Contract and Dissolution of Trust
The forward purchase contract may be accelerated to a date prior to o if:
o Seagate Technology is declared bankrupt or insolvent or otherwise
defaults under the forward purchase contract; or
o the collateral supporting the forward purchase contract is
insufficient.
If the forward purchase contract is accelerated, our assets (except for
the forward purchase contract) will be liquidated and our trust dissolved. Upon
dissolution, our assets will include proceeds received from the liquidation and
any assets received under the forward purchase contract, less any expenses,
which will be distributed pro rata to you, and our term will immediately expire.
See "Investment Objective and Policies -- The Contract."
SanDisk Corporation
SanDisk Corporation designs, manufactures and markets flash memory storage
products that are used in a wide variety of electronic systems. SanDisk has
designed its flash memory storage solutions to address the storage requirements
of emerging applications in the consumer electronics and
communications/industrial markets. Its products are used in a number of rapidly
growing consumer electronics applications, such as digital cameras, personal
digital assistants, MP3 portable music players, digital video recorders and
smart phones, as well as in communications and industrial applications, such as
communications routers and switches, wireless communications, point-of-sale
terminals, [navigation] systems and medical instrumentation. SanDisk is the
world's leading provider of flash memory card storage products, with over 40%
market share in 1998, according to International Data Corporation. In the
quarter ended June 30, 1999, SanDisk shipped over one million flash memory cards
and flash chip sets.
SanDisk's products include removable CompactFlash cards, FlashDisk cards,
MultiMediaCard products, embedded FlashDrives and FlashChipSet products, with
storage capacities ranging from 2 megabytes to 440 megabytes. These products are
designed to meet the storage requirements of emerging consumer electronics and
communications/industrial applications, including non-volatility, which is the
ability to retain information with the power supply turned off, small size, high
reliability, low operating power consumption and the capability to withstand
high levels of shock and vibration and extreme temperature fluctuations.
<PAGE>
Unless we deliver cash in lieu of shares as described in this prospectus,
you will receive shares of SanDisk common stock in exchange for your PEPS on or
shortly after the Exchange Date, or the date that we earlier dissolve. For
information about SanDisk, you should refer to the accompanying prospectus of
SanDisk. SanDisk is not affiliated with us, will not receive any of the proceeds
from this offering and has no obligations with respect to the PEPS. We are
providing the SanDisk prospectus to you as a prospective purchaser of PEPS only
as a convenience. The SanDisk prospectus is not a part of this prospectus, and
it is not incorporated by reference into this prospectus. See "Investment
Objective and Policies -- SanDisk."
Relationship to SanDisk Common Stock
Owning a PEPS is not the same as owning a share of SanDisk common stock.
Your opportunity to benefit from any appreciation in the price of SanDisk common
stock by investing in PEPS is less than you would have if you invested directly
in SanDisk common stock, because the number of shares of SanDisk Common Stock
that you will receive in exchange for your PEPS may decline by up to o% as the
price of the SanDisk common stock rises (or, if you receive cash in lieu of
shares of SanDisk Common Stock, the amount of that cash will not increase as the
price of the SanDisk common stock rises from $o to $o ).
You will receive distributions on your PEPS at a rate of o% of its issue
price per year. [SanDisk has not historically paid any dividends on the SanDisk
common stock but in the future] SanDisk might pay dividends that are higher than
your quarterly distributions. SanDisk's board of directors has absolute
discretion to decide whether or not to pay dividends in the future and the
amount of those dividends. Quarterly distributions on your PEPS will consist
solely of the proceeds from the U.S. Treasury securities. Even if SanDisk's
board of directors decide to pay a dividend, you will generally not be entitled
to receive the dividend unless the applicable record date for determining
stockholders entitled to receive dividends occurs after you have received your
SanDisk common stock in exchange for your PEPS. See "Investment Objective and
Policies" and "Risk Factors."
Voting Rights
You will not have the right to vote any shares of SanDisk common stock
unless and until they are delivered to you in exchange for your PEPS. You will
have the right to vote on matters that affect the trust. See "Description of the
PEPS."
Certain United States Federal Income Tax Considerations
We will be treated as a grantor trust for United States federal income tax
purposes. You will be treated for federal income tax purposes as the owner of
your pro rata portion of the U.S. Treasury securities and the forward purchase
contract. Income (including original issue discount) that we realize that is
attributable to the PEPS you own will generally be treated as your income.
The U.S. Treasury securities we hold will be treated for federal income
tax purposes as having "original issue discount," which will accrue over the
term of the U.S. Treasury securities. We anticipate that a substantial portion
of each quarterly cash distribution to you will be treated as a tax-free return
of your costs of the U.S. Treasury securities and therefore will not be
considered current income for federal income tax purposes. However, whether you
are on the cash or accrual method of tax accounting, you must recognize
currently as income original issue discount on the U.S. Treasury securities as
it accrues. We expect that the portion of each quarterly cash distribution
representing a tax-free return of capital will increase as a percentage of the
total distribution during the term of our trust.
Under existing law, you will not recognize income, gain or loss upon the
execution of the forward purchase contract and you generally should not
recognize income on the forward purchase contract before its settlement. Upon
settlement of the forward purchase contract, you will recognize taxable gain or
loss if cash is delivered, but you should not recognize gain or loss if SanDisk
common stock or other securities are delivered. Assuming this
<PAGE>
treatment is respected, you will have a basis in the SanDisk common stock or
other securities received equal to the pro rata portion of your adjusted basis
in the forward purchase contract allocable to that property.
The law regarding the treatment of the PEPS for United States federal
income tax purposes is subject to some uncertainty. Although you should not
recognize taxable income with respect to your pro rata portion of the forward
purchase contract prior to the settlement of the forward purchase contract,
there are alternative characterizations that could require you to recognize more
income than would be included under the analysis set forth above. Accordingly,
you should consult your tax advisers with respect to the tax consequences of the
purchase, ownership and disposition of the PEPS in light of your particular
circumstances, including the tax risks associated with possible alternative
characterizations of the PEPS. See "Certain Tax Considerations."
Management Arrangements
We will be internally managed by our trustees and we will not have an
investment adviser. Our portfolio will not be actively managed. The trustees
will oversee our administration and o will act as administrator to carry out the
day-to-day administration of our trust. o will also act as custodian for our
assets, as paying agent, registrar and transfer agent for the PEPS and as
collateral agent for Seagate Technology pledge of SanDisk common stock to us.
The trustees have delegated most of their operational duties to the
administrator. o has no other affiliation with us. For its services as
collateral agent, administrator, custodian and paying agent, registrar and
transfer agent, Seagate Technology will pay o at the closing of the offering of
the PEPS a one-time, up-front fee. See "Management Arrangements."
Term of the Trust
Our trust will terminate on or shortly after the Exchange Date, or earlier
if the forward purchase contract is accelerated as described in this prospectus.
See "The Trust."
Risk Factors
We will not actively manage our portfolio. We have adopted a fundamental
policy that we may not dispose of the forward purchase contract during our term
and that, unless we dissolve earlier than the Exchange Date, we will not dispose
of the U.S. Treasury securities before their maturity dates. We will continue to
hold the forward purchase contract despite any significant decline in the value
of the SanDisk common stock or adverse changes in the financial condition of
SanDisk
We are classified as a "non-diversified," closed-end, management
investment company under the Investment Company Act. Consequently, we are not
limited by the Investment Company Act in the proportion of our assets that may
be invested in the securities of a single issuer. Since the only assets we hold
will be the U.S. Treasury securities and the forward purchase contract, we may
be subject to greater risk than would be the case for an investment company with
more diversified investments.
You will bear the entire risk of declines in the value of the SanDisk
common stock between the date of this offering and the Exchange Date. The number
of shares of SanDisk common stock that you will receive when you exchange your
PEPS is not fixed, but depends on the market value of the SanDisk common stock
shortly before the Exchange Date. If the price of the SanDisk common stock
decreases, then the value of the shares of SanDisk common stock or cash that you
will receive in exchange for your PEPS will be less than what you paid to
purchase PEPS and you will lose money.
An investment in PEPS offers you less of an opportunity to realize any
appreciation in the value of SanDisk common stock over its current value than
does a direct investment in SanDisk common stock. The amount you receive when
you exchange your PEPS will be greater than the issue price you paid to purchase
your PEPS only if the value of the SanDisk common stock has appreciated by more
than o% from the time of the offering of the
<PAGE>
PEPS. In addition, even if it does appreciate by more than o%, you are entitled
to receive only o% of this additional appreciation.
The trading prices of the PEPS in the secondary market will be affected by
the trading prices of the SanDisk common stock. It is impossible to predict
whether the price of SanDisk common stock will rise or fall. Trading prices of
SanDisk common stock and the PEPS will be influenced by SanDisk's operating
results and future prospects and by economic, financial and other factors beyond
our control.
A bankruptcy of Seagate Technology or the extension or acceleration of the
Exchange Date, each as described in this prospectus, could adversely affect the
timing of the exchange of the PEPS for the SanDisk common stock and the amount
you will receive. In addition, if Seagate Technology exercises its right to
accelerate the maturity of the forward contract in connection with a rollover
offering, the amount of cash you will receive for your PEPS will be based on a
single closing price of the SanDisk common stock, rather than an average of
closing prices, and you will only receive notice of the date on which the single
closing price will be determined on the determination date.
For a complete description of these and other risk factors that should be
considered prior to investing in the PEPS, see "Risk Factors" beginning on p. o.
Listing
We will apply to the Nasdaq National Market to list the PEPS for trading
under the symbol "o."
The SanDisk common stock is listed on the Nasdaq National Market under the
symbol "SNDK."
Fee Table
Regulations of the SEC require the presentation of trust expenses in the
following format to help you understand the various costs you will bear in our
trust, either directly or indirectly. Because we will not have any ongoing fees
or expenses, you will not have any direct expenses. We will be internally
managed, so we will not pay a separate investment advisory fee. Seagate
Technology will pay the underwriters a sales load of $o per PEPS (or o%).
Seagate Technology will also pay our organization costs in the amount of $o, the
costs associated with the initial registration and offering of the PEPS
estimated to be approximately $o, and approximately $o for anticipated ongoing
expenses over our term. Any unanticipated expenses will be paid by Morgan
Stanley & Co. Incorporated, which Seagate Technology will reimburse. See
"Management Arrangements -- Estimated Expenses." The only expenses that you
might be considered to bear indirectly are (i) the sales load payable by Seagate
Technology with respect to your PEPS and (ii) our ongoing expenses, which
Seagate Technology will pay as described below in the footnote to the table.
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load (as a percentage of offering price)............. 0%
Automatic Dividend Reinvestment Plan Fees.......................... None
ANNUAL EXPENSES (as a percentage of net assets)
Management Fees.................................................... 0%
Other Expenses (after payment of costs and expenses by Seagate
Technology, as described above)*................................... 0%
TOTAL ANNUAL EXPENSES 0%
- --------------------
* If we did not have these arrangements, our "Other Expenses" and "Total
Annual Expenses" would be approximately o% of our net assets.
<PAGE>
SEC regulations also require that closed-end investment companies present
an illustration of cumulative expenses (both direct and indirect) that you would
bear.
EXAMPLE 1 YEAR 3 YEARS
You would pay the following expenses on a $1,000 investment,
assuming (1) no annual expenses and (2) a 5% annual return
throughout the periods: $ 0.00 $ 0.00
According to SEC regulations, our example assumes reinvestment of all
dividends and other distributions and uses a 5% annual rate of return, as the
SEC mandates. You should note that the assumption of a 5% annual return does not
accurately reflect the financial terms of the trust. In addition, we do not
permit the reinvestment of distributions.
THE TRUST
We are a newly created Delaware business trust and will be registering as
a non-diversified closed-end management investment company under the Investment
Company Act of 1940, as amended (the "Investment Company Act"). We were created
on February 23, 1999 pursuant to a Trust Agreement dated as of the same date (as
amended and restated as of August 17, 1999, and as subsequently amended and
restated as of September , 1999, the "Trust Agreement"). Our term will expire on
or shortly after the Exchange Date, or earlier if the forward purchase contract
that we hold is accelerated as described in this prospectus. We will be treated
as a grantor trust for United States Federal income tax purposes. See "Certain
Tax Considerations." Our principal office is located at 850 Library Avenue,
Suite 204, Newark, Delaware 19715 and our telephone number is (302) 738-6680.
USE OF PROCEEDS
We will receive approximately $o, after deducting fees and expenses (or
approximately $ o if the underwriters exercise their over-allotment option in
full) from the offering of PEPS (the "Offering"). We will use the proceeds
immediately to purchase a series of zero-coupon U.S. Treasury securities (the
"Treasury Securities") with face amounts and maturities that exactly correspond
to the quarterly distributions to be made to you and to pay the purchase price
(the "Purchase Price") payable under the forward purchase contract (the
"Contract") to Seagate Technology (the "Contracting Stockholder").
INVESTMENT OBJECTIVE AND POLICIES
General
We will purchase and hold the Treasury Securities and the Contract. Our
investment objective is to pay to you the quarterly distribution of $ o per PEPS
and to deliver to you on or shortly after the Exchange Date the Exchange Amount
of each type of Reference Property (as such terms are defined below), or cash,
in each case as described below.
Our assets will consist primarily of the Treasury Securities and the
Contract. We may also make temporary investments. See "-- Temporary
Investments." We have adopted a fundamental policy to invest at least 65% of our
portfolio in the Contract. The Contract will comprise approximately o% of our
initial assets. We have also adopted a fundamental policy that the Contract may
not be disposed of during our term and that, unless we dissolve earlier than the
Exchange Date, we will not dispose of the Treasury Securities before their
maturity dates. We cannot change these fundamental policies without the vote of
100% of the outstanding PEPS.
<PAGE>
The Contract
General. The Contract requires the Contracting Stockholder to deliver to
us, on the Business Day (as defined below) before the Exchange Date, that number
or amount of each type of Reference Property (or cash in lieu thereof) equal to
the Exchange Amount determined in the manner described below.
We use the following terms to describe the Contract and the exchange
provisions of the PEPS:
o "SanDisk Common Stock" means the common stock, par value $0.001 per
share, of SanDisk.
o "Business Day" means any day that is not a Saturday, a Sunday or a day
on which the Nasdaq National Market or banking institutions or trust
companies in The City of New York are authorized or obligated by law or
executive order to close.
o The "Closing Price" of any Reference Security depends on where the
Reference Security is quoted or listed on the date of determination, as
follows:
(a) if the Reference Security is listed on the Nasdaq National Market,
the "Closing Price" means the closing sale price of the Reference
Security on the Nasdaq National Market on that date;
(b) if the Reference Security is listed on the Nasdaq National Market,
but there is no closing sale price on that date, the "Closing
Price" means the last reported sale price on that date;
(c) if the Reference Security is not listed on the Nasdaq National
Market, then the "Closing Price" means the closing sales price on
that date reported in the composite transactions for the principal
United States securities exchange on which the Reference Security
is listed for trading;
(d) if the Reference Security is not listed on a United States
national or regional securities exchange, then the "Closing Price"
means the closing sale price as reported by the National Market
System of the Nasdaq Stock Market on that date;
(e) if the closing sales price for the Reference Security is not
reported by the National Market System of the Nasdaq Stock Market,
then the "Closing Price" means the last quoted bid price in the
over-the-counter market on that date as reported by the National
Quotation Bureau; and
(f) if a quoted bid price is not available, the "Closing Price" means
the market value of the Reference Security on that date as
determined by a nationally recognized independent investment
banking firm we retain for this purpose.
o "Exchange Date" means o, except that if the Contracting Stockholder
exercises its rights to extend or accelerate the Exchange Date as
described under "-- Extension and Acceleration of the Exchange Date at
the Option of the Contracting Stockholder" and "-- Rollover Offering"
below, the "Exchange Date" will be the extended or accelerated Exchange
Date.
o "Initial Price" means $o, which is the Closing Price per share of the
SanDisk Common Stock on the date we price the offering of PEPS for sale
to the public.
o "Reference Property" initially means SanDisk Common Stock and, under
the circumstances described under "-- Reference Property Adjustments,"
may change or be adjusted at any time until the Business Day before the
Exchange Date to add or substitute cash, securities and/or other
property. "Reference Property per PEPS" means the number or amount of
each type of Reference Property relating to one PEPS, which is
initially one share of SanDisk Common Stock, subject to adjustment in
the manner described under "-- Reference Property Adjustments." The
Reference Property that we are entitled to receive under the Contract,
and therefore that you will receive on or shortly after any Exchange
Date in exchange for your PEPS, may include a combination of SanDisk
Common Stock, other securities (including rights or
<PAGE>
warrants) of SanDisk, cash, securities of another company and/or other
property, depending on the cause and nature of the change or
adjustment.
o "Reference Property Value per PEPS" means the aggregate Then-Current
Value of the Reference Property per PEPS on the Exchange Date or, if
the Contracting Stockholder elects to finance the cash settlement of
the Contract with the proceeds of a Rollover Offering (as defined
below), on the date of pricing of the Rollover Offering.
o "Reference Security" means any security (as defined in Section 2(1) of
the Securities Act) that is part of the Reference Property, including
the SanDisk Common Stock.
o "Securities Act" means the Securities Act of 1933, as amended.
o "Then-Current Value" means, for any item of Reference Property as of
any date:
(a) if the item consists of cash, the amount of cash;
(b) if the item consists of a Reference Security, the average Closing
Price per unit of the Reference Security on the 20 Trading Days
immediately prior to, but not including, the second Trading Day
preceding that date (provided, however, that if the Contracting
Stockholder elects to finance the cash settlement of the Contract
with the proceeds of a Rollover Offering, then the Then-Current
Value of a Reference Security will be determined in a different
matter, as described below under "-- Rollover Offering"); and
(c) if the item consists of property other than cash or Reference
Securities, the fair market value of that property as of 10:00
A.M., New York City time, on the third Business Day preceding that
date. The fair market value will be determined by a nationally
recognized independent investment banking firm we retain for this
purpose.
o "Trading Day" means, in relation to any Reference Security, a day on
which the Reference Security (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 Reference Security.
o "Threshold Appreciation Price" means $o, which represents a o%
appreciation over the Initial Price.
The "Exchange Amount" will be determined as follows:
(i) if the Reference Property Value per PEPS is greater than the
Threshold Appreciation Price, then we (and therefore you) will
receive in respect of each PEPS o% of the Reference Property per
PEPS,
(ii) if the Reference Property Value per PEPS is greater than the Initial
Price, but less than or equal to the Threshold Appreciation Price,
then we (and therefore you) will receive in respect of each PEPS a
percentage of the Reference Property per PEPS, allocated as
proportionately as practicable, so that the aggregate Then-Current
Value of your distribution on the Exchange Date equals $o per PEPS,
and
(iii) if the Reference Property Value per PEPS is less than or equal to
the Initial Price, then we (and therefore you) will receive in
respect of each PEPS 100% of the Reference Property per PEPS.
You will receive cash instead of fractional units or interests of any
Reference Property. See "-- Fractional Interests Under the Contract" and "--
Fractional Interests Upon Dissolution."
The Contract requires the Contracting Stockholder to deliver to us, on the
Business Day before the Exchange Date, that number or amount of each type of
Reference Property required to exchange all of the PEPS (including any PEPS
issued as a result of the over-allotment option) on the Exchange Date. The
Contracting Stockholder has
<PAGE>
the option to deliver cash instead of some or all of this Reference Property
(the "Cash Settlement Option"). If the Contracting Stockholder elects the Cash
Settlement Option, it will deliver to us, on the Business Day before the
Exchange Date, cash in an amount equal to the aggregate Then-Current Value of
the Reference Property the Contracting Stockholder would otherwise have
delivered on the Exchange Date. If the Contracting Stockholder elects the Cash
Settlement Option, you will receive a pro rata share of the cash delivered in
lieu of Reference Property, or a combination of cash and Reference Property, on
or shortly after the Exchange Date.
Except as described below in connection with a Rollover Offering, on or
prior to the twenty-sixth Business Day before the originally scheduled Exchange
Date or, if the Contracting Stockholder elects to extend the Exchange Date, the
extended Exchange Date, we will notify The Depository Trust Company (the
"Depositary") (if the PEPS are then held in book-entry form) and publish a
notice in The Wall Street Journal or another daily newspaper of national
circulation stating whether you will receive Reference Property or cash (or a
combination thereof) in exchange for your PEPS. At the time the notice is
published, we will not have determined the Reference Property Value per PEPS.
However, if the Contracting Stockholder elects to finance the cash settlement of
the Contract with the proceeds of a Rollover Offering, you will only receive
notice of this fact, and of the fact that you will receive cash in exchange for
your PEPS, on the date of pricing of the Rollover Offering. If the Contracting
Stockholder elects to deliver Reference Property other than cash, you will be
responsible for the payment of any and all brokerage costs upon your sale of the
Reference Property.
As an illustration only, the following table shows the number of shares
of SanDisk Common Stock that you would receive for each PEPS at various
Reference Property Values per PEPS. The table assumes that there will be no
adjustments to the Reference Property so that on the Exchange Date the Reference
Property per PEPS will consist of one share of SanDisk Common Stock. There can
be no assurance that the Reference Property Value per PEPS will be within the
range set forth below. Given the Initial Price of $o and the Threshold
Appreciation Price of $o, you would receive on or shortly after the Exchange
Date the following number of shares of SanDisk Common Stock or the following
amount of cash (if the Contracting Stockholder elects the Cash Settlement
Option) per PEPS:
<TABLE>
Number of Shares of SanDisk
Reference Property Value per PEPS Common Stock OR Amount of Cash
- --------------------------------- --------------------------- --------------
<S> <C> <C>
$ $
$ $
$ $
$ $
$ $
$ $
$ $
</TABLE>
The foregoing table illustrates potential outcomes on the Exchange Date
with respect to your investment in PEPS. If the Reference Property Value per
PEPS is greater than $o (the Threshold Appreciation Price), you will receive in
exchange for each PEPS o% of the Reference Property per PEPS, resulting in your
receiving only o % of the appreciation in value of the Reference Property above
$o. If the Reference Property Value per PEPS is greater than $o (the Initial
Price) but less than or equal to $o (the Threshold Appreciation Price), you will
receive in exchange for each PEPS only Reference Property with an aggregate
Then-Current Value equal to $o, resulting in your receiving none of the
appreciation in value of the Reference Property. If the Reference Property Value
per PEPS is less than or equal to $o (the Initial Price), you will receive in
exchange for each PEPS 100% of the Reference Property per PEPS, regardless of
the value of the Reference Property, resulting in your realizing the entire loss
on the decline in value of the Reference Property.
Extension and Acceleration of the Exchange Date at the Option of the
Contracting Stockholder. The Contracting Stockholder will have the right under
the Contract, on o Business Days' notice to us, to extend the Exchange Date to
o. If the Contracting Stockholder elects to extend the Exchange Date, the
Contracting Stockholder will then have the right in connection with a Rollover
Offering, by notice to us by o, New York City
<PAGE>
time, on the date of pricing of the Rollover Offering, to accelerate the
Exchange Date from o to the second Business Day following the closing date of
the Rollover Offering. Accordingly, a Rollover Offering must be priced not
earlier than o nor later than o. The Contracting Stockholder will have the right
to extend the Exchange Date only if at least one nationally recognized
statistical rating agency has rated the Contracting Stockholder's unsecured
long-term debt in one of its generic rating categories which signifies
investment grade.
If the Contracting Stockholder elects to extend the Exchange Date, then
the Exchange Amount will be calculated as of the extended Exchange Date. If the
Contracting Stockholder elects to extend and then accelerate the Exchange Date,
then the Exchange Amount will be calculated as set forth below under " --
Rollover Offering." In either case, your receipt of shares or cash (or a
combination thereof) will be delayed until following the extended or accelerated
Exchange Date, and you will receive an additional partial cash distribution on
your PEPS on the extended or accelerated Exchange Date.
The amount of the additional distribution on the PEPS will be equal to the
regular quarterly distribution on the PEPS of $o, prorated to reflect the number
of days by which the Exchange Date is ultimately extended beyond o. For example,
if the Exchange Date were extended to o and then accelerated to o (i.e.,
two-thirds of the time between o, the originally scheduled Exchange Date, and
o), the additional distribution would be equal to $o, or two-thirds of the
regular quarterly distribution. If the Contracting Stockholder elects to extend
the Exchange Date, the Contracting Stockholder will be required to deliver to
the Collateral Agent additional Treasury Securities sufficient to fund the
additional distribution.
On or prior to the twenty-sixth Business Day before the originally
scheduled Exchange Date, we will notify the Depositary (if the PEPS are then
held in book-entry form) and publish a notice in the Wall Street Journal or
another daily newspaper of national circulation stating whether the Contracting
Stockholder has elected to extend the Exchange Date.
Rollover Offering. If the Contracting Stockholder elects to extend the
Exchange Date, then the Contracting Stockholder will have the right to finance
an all-cash settlement of the Contract in whole or in part with the proceeds of
a Rollover Offering, provided that if this cash payment is financed only in part
with the proceeds of a Rollover Offering, not less than half of the payment will
be so financed. A "Rollover Offering" is an offering of securities in which all
or a portion of the proceeds are ultimately received by the Contracting
Stockholder. The securities offered in any Rollover Offering may be
substantially similar to the PEPS. The Contracting Stockholder will have the
right to extend the Exchange Date only if at least one nationally recognized
statistical rating agency has rated the Contracting Stockholder's unsecured
long-term debt in one of its generic rating categories which signifies
investment grade.
If the Contracting Stockholder elects to finance the cash settlement of
the Contract in whole or in part with the proceeds of a Rollover Offering, then
the "Reference Property Value per PEPS" will equal the Then-Current Value of the
Reference Property per PEPS on the date of pricing of the Rollover Offering and,
if the Reference Property includes any Reference Security, the "Then-Current
Value" of the Reference Security for the purpose of determining the Reference
Property Value per PEPS will be the Closing Price per unit of the Reference
Security on the date of pricing of the Rollover Offering.
Reference Property Adjustments. The amount and type of Reference Property
that we are entitled to receive under the Contract, and therefore that you will
receive on or shortly after the Exchange Date, is subject to adjustment under
the antidilution provisions in the Contract, which are designed to protect the
Contracting Stockholder and you against the dilutive or concentrative effects on
any Reference Security of the following corporate events (each, a "Dilution
Event").
(i) If the issuer of any Reference Security (the "Issuer") subdivides
or splits the outstanding units of the Reference Security into a
greater number of units, combines the outstanding units of the
Reference Security into a smaller number of units or reclassifies the
outstanding units of the Reference Security into
<PAGE>
units of another of the Issuer's securities, then the Reference
Property per PEPS will be adjusted to include the number of units of
the Reference Security or other security of the Issuer that a holder
of the Reference Security would have been entitled to receive as a
result of the Dilution Event had the holder held, immediately prior to
such Dilution Event, the number of units of the Reference Security
that were then part of the Reference Property per PEPS. Every
adjustment of the type described in this paragraph (i) will be made
successively.
(ii) If the Issuer grants rights or warrants to all holders of any
Reference Security entitling them to subscribe for or purchase any of
its securities or other property for a period ending before the
fifteenth calendar day following the Exchange Date (other than rights
to purchase Reference Security units pursuant to a plan for the
reinvestment of dividends or interest), then the Reference Property
per PEPS will be adjusted to include cash as follows. The amount of
cash will equal the fair market value of each right or warrant on the
fifth Business Day after the date the holders of the Reference
Security receive their rights or warrants (the "Receipt Date")
multiplied by the product of (A) the number of rights or warrants
issued for each unit of the Reference Security and (B) the number of
units of the Reference Security that are part of the Reference
Property per PEPS immediately before the issuance takes place, without
any interest. To determine this fair market value, we will select the
bid of the recognized securities dealer in The City of New York that
provides the highest net bid as of approximately 10:00 A.M. (New York
City time) on the fifth Business Day after the Receipt Date, for
settlement three Business Days later, from among the bids of three
such dealers (or less than three if three such dealers are not
providing bids) for the purchase by that dealer of the number (the
"Aggregate Number") of rights or warrants that a holder of the
Reference Security would have received if the holder held, on the
record date for determination of holders entitled to receive the
rights or warrants (the "Record Date"), a number of units of the
Reference Security equal to the product of (1) the aggregate number of
outstanding PEPS as of the Record Date and (2) the number of units of
the Reference Security that were part of the Reference Property per
PEPS on the Record Date. The fair market value of each right or
warrant will be the quotient of (x) such highest net bid divided by
(y) the Aggregate Number. Each adjustment of the type described in
this paragraph (ii) will become effective on the fifth Business Day
after the Receipt Date. If for any reason we are unable to obtain the
required bid on the fifth Business Day after the Receipt Date, we will
attempt to obtain bids at successive intervals of three months
thereafter and on the third Business Day before the Exchange Date
until we obtain the required bid or, if the PEPS are to be exchanged
on an earlier date, until the third Business Day before that date.
From the date of issuance of rights or warrants until the required bid
is obtained or those efforts end on the third Business Day prior to
the Exchange Date or any such earlier date, the Reference Property per
PEPS will include the number of those rights or warrants issued for
each unit of the Reference Security multiplied by the number of units
of the Reference Security that are part of the Reference Property per
PEPS immediately before the issuance of those rights or warrants, and
those rights or warrants constituting part of the Reference Property
per PEPS will be deemed for all purposes to have a fair market value
of zero.
(iii) If the Issuer pays a dividend, makes a distribution to all
holders of any Reference Security of cash, securities or other
property, issues rights or warrants to subscribe for or purchase any
of its securities or other property (other than those referred to in
clause (ii) above) (each, a "Distributed Asset"), then the Reference
Property per PEPS will be adjusted to include the number and amount of
each type of Distributed Asset received for each unit of the Reference
Security multiplied by the number of units of the Reference Security
that are part of the Reference Property per PEPS immediately before
the dividend, distribution or issuance. However, no adjustment of the
type described in this paragraph (iii) shall be made for (a) any cash
dividend on any Reference Security consisting of capital stock, which
dividend is not an Extraordinary Cash Dividend (as defined below), (b)
any payment of interest on any Reference Security consisting of an
evidence of indebtedness and (c) any dividend or distribution referred
to in clause (i) or (ii) above.
<PAGE>
An "Extraordinary Cash Dividend" means, with respect to any Reference
Security consisting of capital stock, any cash dividend on the Reference
Security that, together with all cash dividends on the Reference Security
occurring in the preceding 12-month period (or, if the Reference Security was
not outstanding at the commencement of that 12-month period, occurring in the
shorter period during which the Reference Security was outstanding) exceeds on a
per share basis 10% of the Then-Current Value of the Reference Security on the
date the dividend was declared. However, the amount of cash dividends paid on a
per share basis will be appropriately adjusted to reflect the occurrence during
that 12-month period (or the shorter period during which the Reference Security
was outstanding) of any Dilution Event with respect to such Reference Security.
If any of the following events shall occur (each, a "Reorganization
Event"):
(A) any consolidation, merger or conversion of an Issuer with or into
another entity (other than a consolidation, merger or conversion in
which the Issuer is the continuing corporation and in which the units
of each Reference Security of that Issuer outstanding before the
consolidation, merger, or conversion are not exchanged for cash,
securities or other property of the Issuer or another entity),
(B) any sale, transfer, lease or conveyance to another corporation of
the property of an Issuer as an entirety or substantially as an
entirety,
(C) any statutory exchange of securities of an Issuer with another
entity (other than in connection with a merger or acquisition) or
(D) any liquidation, dissolution, winding up or bankruptcy of an
Issuer,
then the Reference Property per PEPS will be adjusted to include, in lieu of the
number of units of each Reference Security of the Issuer that were part of the
Reference Property per PEPS immediately before the effective date of the
Reorganization Event, cash in an amount equal to the Then-Current Value, as of
the Exchange Date, of the amount or number of any cash, securities and/or other
property owned or received in the Reorganization Event for each unit of the
Reference Security multiplied by the number of units of the Reference Security
that were part of the Reference Property per PEPS immediately before the
effective date of the Reorganization Event. However, if any Marketable
Securities (as defined below) are received by holders of any Reference Security
in a Reorganization Event, the Contracting Stockholder may, at its option, elect
to include those Marketable Securities in the Reference Property per PEPS in
lieu of cash. The number of units of those Marketable Securities included in the
Reference Property per PEPS will be equal to the number owned or received in the
Reorganization Event for each unit of the Reference Security multiplied by the
number of units of the Reference Security that were part of the Reference
Property per PEPS immediately before the effective date of the Reorganization
Event, and those Marketable Securities will be included in the Reference
Property per PEPS in lieu of an amount of cash equal to the Then- Current Value,
as of the Exchange Date, of the Marketable Securities so included. "Marketable
Securities" means shares of common equity securities listed on a U.S. national
securities exchange or any foreign securities exchange or quoted on the National
Market System of the Nasdaq Stock Market.
If a Reorganization Event permits holders of a Reference Security to elect
to own or receive either Marketable Securities or cash and/or other securities
or property, or a combination, for purposes of determining the Reference
Property adjustments, we will assume that each holder of a Reference Security
has elected to own or receive the maximum possible amount of Marketable
Securities. You are responsible for the payment of any and all brokerage and
other transaction costs upon any sale of any Marketable Securities received by
you.
Within ten Business Days after the event that requires a Reference
Property adjustment (or as soon as practicable after we become aware of the
event), we are required to provide to you written notice of the event and a
statement in reasonable detail setting forth the amount or number of each type
of Reference Property per PEPS, as adjusted.
<PAGE>
We will not adjust the Reference Property per PEPS for other events,
including any offerings by SanDisk of SanDisk Common Stock for cash or in
connection with acquisitions. Likewise, we will not adjust the Reference
Property per PEPS for any sales of SanDisk Common Stock by the Contracting
Stockholder.
Collateral Arrangements; Acceleration. We have entered into a Security and
Pledge Agreement with the Contracting Stockholder and o, as collateral agent
(the "Collateral Agent"), pursuant to which the Contracting Stockholder will
secure its obligations under the Contract by pledging to us the maximum number
or amount of each type of Reference Property that the Contracting Stockholder
may be required to deliver under the Contract (initially o shares of SanDisk
Common Stock). Unless the Contracting Stockholder is in default of its
obligations under the Contract or the Security and Pledge Agreement, the
Contracting Stockholder will be permitted to substitute short-term, direct
obligations of the U.S. government for the pledged Reference Property. Any U.S.
government obligations pledged as substitute collateral will be required to have
an aggregate market value at the time of substitution and at daily
mark-to-market valuations thereafter of not less than 150% (or, from and after
any Insufficiency Determination (as defined below) that shall not be cured by
4:00 P.M., New York City time, on the third Business Day following the day on
which notice thereof is given, as described below, 200%) of the aggregate
Then-Current Value of each type of Reference Property that would otherwise be
pledged.
The Collateral Agent will promptly pay over to the Contracting Stockholder
any dividends, interest, principal or other payments it receives on any
collateral pledged by the Contracting Stockholder, including any substitute
collateral, unless the Contracting Stockholder is in default of its obligations
under the Contract or the Security and Pledge Agreement or unless the payment
would cause the collateral to become insufficient. The Contracting Stockholder
will have the right to vote any pledged units of any Reference Security for so
long as those units are owned by it, unless the Contracting Stockholder is in
default of its obligations under the Contract or the Security and Pledge
Agreement.
If the Collateral Agent determines (an "Insufficiency Determination") that
the U.S. government obligations pledged as substitute collateral fail to meet
the valuation requirements described above or that the Contracting Stockholder
has failed to pledge additional collateral that may be required as a result of
an adjustment to the Reference Property, and the failure is not cured by 4:00
P.M., New York City time, on the third Business Day following the day on which
the Collateral Agent gives notice of the Insufficiency Determination, then the
Collateral Agent will, if practicable, sell the U.S. government obligations and
use the proceeds to purchase each type of Reference Property in the numbers or
amounts necessary to cause the collateral pledged to meet the requirements of
the Security and Pledge Agreement. The Collateral Agent will discontinue these
sales and purchases if at any time a Collateral Event of Default has occurred
and is continuing.
A "Collateral Event of Default" means, at any time:
(A) if no U.S. government obligations are pledged as substitute
collateral, the collateral pledged does not consist of at least the
maximum number or amount of each type of Reference Property that the
Contracting Stockholder may be required to deliver under the Contract
(as adjusted as a result of any Dilution Event or Reorganization
Event) ; and
(B) if any U.S. government obligations are pledged as substitute
collateral, the U.S. government obligations do not have a market value
at that time of at least 105% of the difference between (x) the
aggregate Then-Current Value of the maximum number or amount of each
type of Reference Property that the Contracting Stockholder may be
required to deliver under the Contract (as adjusted as a result of any
Dilution Event or Reorganization Event) and (y) the aggregate
Then-Current Value of the number or amount of each type of Reference
Property then pledged as collateral.
A Collateral Event of Default or the bankruptcy or insolvency of the
Contracting Stockholder (each, a "Default") will automatically accelerate the
Contracting Stockholder's obligations under the Contract. If there is a Default,
the Contracting Stockholder will be required to deliver a number or amount of
each type of Reference
<PAGE>
Property, allocated as proportionately as practicable, with an aggregate
Then-Current Value as of the acceleration date equal to the Aggregate
Acceleration Value (as defined below), and the Contracting Stockholder will not
have the option to deliver cash in lieu of Reference Property. The "Aggregate
Acceleration Value" will be based on an "Acceleration Value" derived from
quotations we receive from independent dealers. Each independent dealer will
quote an amount that it would require to be paid to enter into an agreement with
us that would have the effect of preserving our rights to receive the number or
amount of each type of Reference Property under a portion of the Contract that
corresponds to 1,000 PEPS. We will request quotations from four nationally
recognized independent dealers on or as soon as reasonably practicable following
the acceleration date. If we receive four quotations, the Acceleration Value
will be the arithmetic mean of the two quotations remaining after disregarding
the highest and the lowest quotations. If we receive only two or three
quotations, the Acceleration Value will be the arithmetic mean of all of the
quotations. If we receive only one quotation, the Acceleration Value will be
that quotation. The Aggregate Acceleration Value will be computed by dividing
the Acceleration Value by 1,000 and multiplying the quotient by the number of
outstanding PEPS. If no quotations are provided, the Aggregate Acceleration
Value will be the aggregate Then-Current Value on the acceleration date of the
aggregate number or amount of each type of Reference Property that would be
required to be delivered if the Exchange Date were the acceleration date. If
there is a Default, the number or amount of each type of Reference Property
delivered to you will be based solely on the Aggregate Acceleration Value.
If there is a Default, the Collateral Agent will distribute to us, and we
will distribute to you pro rata, Reference Property then pledged, or cash
generated from the liquidation of the U.S. government obligations then pledged,
or a combination, so that the aggregate Then-Current Value of that Reference
Property or cash distributed equals the Aggregate Acceleration Value. In
addition, if by the Exchange Date any substitute collateral has not been
replaced by sufficient Reference Property, the Collateral Agent will distribute
to us, and we will distribute to you pro rata, the Reference Property then
pledged plus cash generated from the liquidation of U.S. government obligations
then pledged with an aggregate Then-Current Value equal to the aggregate
Then-Current Value of the Reference Property required to be delivered by the
Contracting Stockholder under the Contract. See "-- Trust Dissolution."
Fractional Interests Under the Contract. The Contracting Stockholder will
not be required to deliver any fractional units of any Reference Security.
Instead of any fractional unit that would otherwise be delivered to fulfill the
Contracting Stockholder's obligations under the Contract, we will receive an
amount in cash equal to the Then- Current Value of that fractional unit as of
the Exchange Date.
To do the extent it is practical to do so, the Contracting Stockholder
will deliver fractional interests of any Reference Property other than cash or a
Reference Security. To the extent that it is not practical to do so, in lieu of
delivering any fractional interest that would otherwise be delivered, the Trust
will receive an amount in cash equal to the Then-Current Value of that
fractional unit as of the Exchange Date.
The Contracting Stockholder. Specific information about the Contracting
Stockholder's holdings of SanDisk Common Stock [and other relationships with
SanDisk] is included or incorporated by reference in the accompanying SanDisk
Prospectus (as defined below).
Purchase Price. The Purchase Price under the Contract is equal to $o (or
$o if the underwriters exercise their over-allotment option in full). We will
pay the purchase price to the Contracting Stockholder on or about o and we are
not required to pay the Contracting Stockholder anything other than the Purchase
Price. The Purchase Price was arrived at by arm's length negotiations between
ourselves and the Contracting Stockholder, taking into consideration various
factors including the price, expected dividend level and volatility of the
SanDisk Common Stock, current interest rates, the term of the Contract, current
market conditions generally, the collateral pledged by the Contracting
Stockholder, the value of other similar instruments and the costs and
anticipated proceeds of the Offering.
<PAGE>
SanDisk Corporation
SanDisk Corporation designs, manufactures and markets flash memory storage
products that are used in a wide variety of electronic systems. SanDisk has
designed its flash memory storage solutions to address the storage requirements
of emerging applications in the consumer electronics and
communications/industrial markets. Its products are used in a number of rapidly
growing consumer electronics applications, such as digital cameras, personal
digital assistants, MP3 portable music players, digital video recorders and
smart phones, as well as in communications and industrial applications, such as
communications routers and switches, wireless communications, point-of-sale
terminals, [navigation] systems and medical instrumentation. SanDisk is the
world's leading provider of flash memory storage card products, with over 40%
market share in 1998, according to International Data Corporation. In the
quarter ended June 30, 1999, SanDisk shipped over one million flash memory cards
and flash chip sets.
SanDisk's products include removable CompactFlash cards, FlashDisk cards,
MultiMediaCard products, embedded FlashDrives and FlashChipSet products, with
storage capacities ranging from 2 megabytes to 440 megabytes. These products are
designed to meet the storage requirements of emerging consumer electronics and
communications/industrial applications, including non-volatility, which is the
ability to retain information with the power supply turned off, small size, high
reliability, low operating power consumption and the capability to withstand
high levels of shock and vibration and extreme temperature fluctuations.
The SanDisk Common Stock is traded on the Nasdaq National Market under the
symbol "SNDK." The following table sets forth, for the periods indicated, the
reported high and low last sale prices of the shares of SanDisk Common Stock on
the Nasdaq National Market (adjusted for any stock splits or stock dividends).
Year Ended December 31, 1997:
Quarter High Low
- -------------------------------------- ------- ------
First................................. $13 1/4 $8 7/8
Second................................ 14 1/2 9 3/4
Third................................. 34 1/8 14 3/4
Fourth................................ 39 5/8 15 3/4
Year Ended December 31, 1998:
Quarter High Low
- -------------------------------------- ------- ------
First................................. $25 7/16 $17 3/16
Second................................ 24 7/8 13 3/8
Third................................. 14 5/8 7 1/2
Fourth................................ 14 7/16) 5 7/8
Year Ended December 31, 1999:
Quarter High Low
- -------------------------------------- ------- ------
First................................. $37 $12 11/16
Second................................ 44 1/2 12 11/16
Third (through August 16, 1999)....... 88 3/16 41 3/8
As of August 6, 1999, there were 177 holders of record of the SanDisk
Common Stock, including Cede & Co., a nominee of The Depository Trust Company.
Cede & Co. holds shares of SanDisk Common Stock on behalf of an indeterminate
number of beneficial owners.
SanDisk has not historically paid any dividends on the SanDisk Common
Stock. SanDisk's board of directors has absolute discretion to decide whether or
not to pay dividends in the future. We anticipate that the board of directors'
decision regarding dividends will depend upon SanDisk's operating results,
financial condition and
<PAGE>
capital requirements, contractual restrictions, general business conditions and
any other factors SanDisk's board of directors believes to be relevant.
Even if SanDisk's board of directors were to decide to pay a dividend, you
would generally not be entitled to receive the dividend unless you had already
exchanged your PEPS for SanDisk Common Stock. In addition, the applicable record
date for determining stockholders entitled to receive the dividend would have to
occur after you had received your SanDisk Common Stock. See "Risk Factors -- You
Will Have No Shareholder Rights With Respect to any Reference Securities."
We are not affiliated with SanDisk. SanDisk will not receive any of the
proceeds from the Offering, and has no obligations with respect to the PEPS.
This prospectus relates only to the PEPS being offered, and does not relate to
SanDisk or the SanDisk Common Stock. SanDisk has filed a registration statement
with the SEC to register the shares of SanDisk Common Stock that you may receive
when you exchange your PEPS. The registration statement contains a prospectus
(the "SanDisk Prospectus") that includes information relating to SanDisk and the
SanDisk Common Stock, including risk factors relevant to an investment in the
SanDisk Common Stock. The SanDisk Prospectus is attached to this prospectus and
is being delivered to you only as a convenience. The SanDisk Prospectus is not
part of this prospectus, and it is not incorporated by reference into this
prospectus. See "Risk Factors -- No Affiliation Between the Trust and SanDisk."
Enhanced Yield; Less Potential for Equity Appreciation than SanDisk Common
Stock; No Depreciation Protection
Owning a PEPS is not the same as owning a share of SanDisk Common Stock.
The PEPS will provide you with a current distribution yield that is higher than
the current dividend yield on the SanDisk Common Stock [(the SanDisk Common
Stock currently does not pay any dividends)]. However, there can be no assurance
that the yield on the PEPS will be higher than the dividend yield on the SanDisk
Common Stock in the future. In addition, your opportunity to benefit from
appreciation in the price of SanDisk Common Stock by investing in PEPS is less
than you would have if you invested directly in SanDisk Common Stock, because
the value of the Reference Property you receive when you exchange your PEPS will
be greater than the issue price you paid to purchase your PEPS only if the
Reference Property Value per PEPS is greater than the Threshold Appreciation
Price of $o. Even if the Reference Property Value per PEPS is greater than the
Threshold Appreciation Price, because each PEPS will in that case entitle you to
receive only o% of the Reference Property per PEPS, you will receive only o%
(the percentage equal to the Initial Price divided by the Threshold Appreciation
Price) of any appreciation in the value of the Reference Property above the
Threshold Appreciation Price. However, if the Reference Property Value per PEPS
is less than the Initial Price, you will bear the entire decline in value of the
Reference Property. See "Risk Factors -- PEPS Give You Less Opportunity for
Equity Appreciation than SanDisk Common Stock." Additionally, because the
Reference Property Value per PEPS is determined based on a 20 Trading Day
average, the value of a share of SanDisk Common Stock or other Reference
Property distributed in exchange for your PEPS may be more or less than the
Reference Property Value per PEPS used to determine the number or amount of
Reference Property you will receive.
The U.S. Treasury Securities
We will purchase and hold the Treasury Securities, which will have face
amounts and maturities that exactly correspond to the amounts and payment dates
of the quarterly distributions you will receive on your PEPS. Up to 35% of our
total assets may be invested in these Treasury Securities. If the Contract is
accelerated as described under "The Contract -- Reorganization Events Causing a
Dissolution of the Trust" or "-- Collateral Arrangements; Acceleration," we will
liquidate the Treasury Securities and distribute the proceeds to you pro rata,
together with other amounts distributed upon acceleration.
<PAGE>
If you acquired PEPS from an underwriter at the initial public offering
price on the date the PEPS were first offered for sale , the following table
contains information regarding your quarterly distributions, the portion of each
year's distributions that will constitute a return of capital for U.S. federal
income tax purposes and the amount of original issue discount accruing on the
Treasury Securities, assuming a yield-to-maturity accrual election for
short-term Treasury Securities. See "Certain Tax Considerations."
<TABLE>
Annual Gross
Annual Gross Distributions from Annual Inclusion of
Distributions from Treasury Securities per Annual Return of Original Issue Discount
Year Treasury Securities PEPS Capital per PEPS in Income per PEPS
- ------------ ------------------- ----------------------- ---------------- -----------------------
<S> <C> <C> <C> <C>
$ $ $ $
</TABLE>
We will make quarterly distributions of $o per PEPS on each o, o, o and o
(or on the next Business Day if that date is not a Business Day), beginning o,
if you are the holder of record as of each o, o, o, and o, respectively . Our
quarterly distributions will consist solely of the cash we receive from the
proceeds of the Treasury Securities as they mature.
Temporary Investments
For cash management purposes, we may invest the proceeds of the Treasury
Securities and any other cash we hold in short-term obligations of the U.S.
government maturing no later than the Business Day before the next distribution
date.
Trust Dissolution
Our trust will terminate on or shortly after the Exchange Date, or earlier
if the contract is accelerated as described above. We have adopted a fundamental
policy that we will not dispose of the Contract during our term, though under
the circumstances described above the Contract may terminate before the Exchange
Date. If a Default occurs with respect to the Contracting Stockholder, our
assets (except for the Contract) will be liquidated and our trust dissolved.
Upon dissolution, our assets will include proceeds received from the liquidation
and any assets received under the Contract, less any expenses, which will be
distributed pro rata to you, and our term will immediately expire. See "-- The
Contract -- Reorganization Events Causing a Dissolution of the Trust" and "--
Collateral Arrangements; Acceleration."
Fractional Interests Upon Dissolution
We will not distribute to you on the Exchange Date (or earlier if we
dissolve earlier) any fractional units of any Reference Security, or fractional
interests of any Reference Property other than cash or a Reference Security. All
fractional units or interests to which you would otherwise be entitled on the
Exchange Date (or earlier if we dissolve earlier) will be aggregated and
liquidated and, in lieu of the fractional units or interests to which you would
otherwise have been entitled, you will receive a pro rata portion of the
proceeds from the liquidation (net of any brokerage or related expenses).
INVESTMENT RESTRICTIONS
We have adopted a fundamental policy that we will not:
o purchase any securities or instruments other than the Treasury
Securities, the Contract and any Reference Security received under the
Contract and, for cash management purposes, short-term obligations of
the U.S. government;
<PAGE>
o issue any securities or instruments except for the PEPS;
o make short sales or purchase securities on margin;
o write put or call options;
o borrow money except as permitted by the Investment Company Act;
o underwrite securities of other issuers;
o purchase or sell real estate and real estate mortgage loans,
commodities or commodities contracts;
o make loans;
o invest less than 65% of our portfolio in the Contract;
o dispose of the Contract during our term; and
o unless we dissolve earlier than the Exchange Date if a Default occurs,
dispose of the Treasury Securities before their maturity dates.
We cannot change these fundamental policies without the vote of 100% of
the outstanding PEPS. Unless expressly designated as fundamental, all other
policies of the Trust may be changed by our trustees without your approval.
Because of the foregoing fundamental policies, our investments will be
concentrated initially in the flash memory storage industry, which is the
industry in which SanDisk currently operates. However, if in the future SanDisk
diversifies its operations into one or more other industries, or if the
Reference Property includes a Reference Security of an issuer that operates in
another industry, our investments will be less concentrated in the flash memory
storage industry. See "Risk Factors -- Our Portfolio is Not Diversified."
RISK FACTORS
You should carefully consider each of the following risks and all of the
other information set forth in this prospectus and the accompanying SanDisk
Prospectus before deciding to invest in the PEPS.
We Will Not Actively Manage our Portfolio
Unlike a typical closed-end investment company, we will not have an
investment advisor to manage our portfolio. Instead, we will be internally
managed by our trustees. See "Management Arrangements." We have adopted a
fundamental policy that we may not dispose of the Contract before our term
expires. Similarly, unless a Default or a Tax Event occurs and we dissolve
earlier than the Exchange Date, we will not dispose of the Treasury Securities
before their maturity dates. As a result, we will continue to hold the Contract
despite any significant decline in the value of the SanDisk Common Stock (or any
other Reference Property) or any adverse change in the financial condition of
SanDisk (or any other Issuer). See "Investment Objective and Policies -- Trust
Assets."
Our Portfolio is Not Diversified
We are classified as a "non-diversified," closed-end, management
investment company under the Investment Company Act. Consequently, we are not
limited by the Investment Company Act in the proportion of our assets that may
be invested in the securities of a single issuer. Our assets will consist almost
entirely of the Contract and
<PAGE>
the Treasury Securities. As a result, we may be subject to greater risk than
would be the case for an investment company with more diversified investments.
You Bear the Risk of Any Loss in the Value of SanDisk Common Stock
The PEPS are similar to ordinary equity securities in that the aggregate
value of the SanDisk Common Stock or other Reference Property or cash that you
will receive on or shortly after the Exchange Date is not fixed, but is based on
the value of the SanDisk Common Stock (or other Reference Property), which may
be more or less than the Initial Price. See "Investment Objective and Policies
- -- The Contract." If the Reference Property Value per PEPS is less than the
Initial Price, then you will receive assets with a value less than the issue
price you paid to purchase the PEPS, in which case your investment in PEPS will
result in a loss, and you will bear the entire decline in value. Accordingly,
you are assuming the risk that the market value of the SanDisk Common Stock may
decline, and that such decline may be substantial. If SanDisk is insolvent or
bankrupt when you receive SanDisk Common Stock, you may lose your entire
investment.
In addition, because the Then-Current Value of any Reference Security is
determined over a 20 Trading Day averaging period (except in the case of a
Rollover Offering), the actual market price of SanDisk Common Stock (or other
Reference Security) that you receive on or shortly after the Exchange Date may
be less than the Reference Property Value per PEPS. For example, if the value of
SanDisk Common Stock is continuously falling during the averaging period, the
actual market price on the Exchange Date of the SanDisk Common Stock that you
receive may be less than the Reference Property Value per PEPS.
PEPS Give You Less Opportunity for Equity Appreciation than SanDisk Common Stock
Owning a PEPS is economically different from owning a share of SanDisk
Common Stock. An investment in PEPS offers you less opportunity to realize any
appreciation in the value of SanDisk Common Stock over its current value than
does a direct investment in SanDisk Common Stock. The amount you receive when
you exchange your PEPS will be greater than the issue price you paid to purchase
the PEPS only if the Reference Property Value per PEPS is greater than the
Threshold Appreciation Price. The Threshold Appreciation Price of $o represents
an appreciation of o% over the Initial Price. In addition, you are entitled to
receive only o% (the percentage equal to the Initial Price divided by the
Threshold Appreciation Price) of any appreciation in the Reference Property
Value per PEPS above the Threshold Appreciation Price. See "Investment Objective
and Policies -- The Contract."
Trading Prices of the PEPS May Be Influenced by Many Unpredictable Factors
Many factors, all of which are beyond our control, will influence the
value of the PEPS. We expect that the market value of the SanDisk Common Stock
will affect the value of the PEPS more than any other factor. The trading price
of the SanDisk Common Stock may fluctuate significantly and experience
significant volatility. Factors that may affect the trading prices of the
SanDisk Common Stock and the PEPS include:
o the operating results and future prospects of SanDisk;
o the health of the industry in which SanDisk operates;
o economic, financial and political events that affect the capital
markets generally;
o sales of substantial amounts of SanDisk Common Stock after the
offering of the PEPS (which could occur, among other reasons, in
connection with hedging or arbitrage of investors' positions in the
PEPS -- see "-- The Issuance of the PEPS May Adversely Impact the
Market for the SanDisk Common Stock") or the perception that these
sales could occur;
<PAGE>
o the volatility (frequency and magnitude of changes in price) of the
SanDisk Common Stock;
o the dividend rate on the SanDisk Common Stock;
o interest and yield rates in the capital markets generally; and
o the time remaining until the Exchange Date.
The capital markets in general have experienced extreme volatility that
often has been unrelated to the operating performance of particular companies.
These broad market and industry fluctuations may cause declines in the value of
the SanDisk Common Stock and the PEPS regardless of the actual operating
performance of SanDisk.
The Issuance of the PEPS May Adversely Impact the Market for the SanDisk Common
Stock.
Investor's anticipation that the Contracting Stockholder may deliver to us
under the Contract SanDisk Common Stock representing approximately o% of the
currently outstanding shares of SanDisk Common Stock could cause the price of
the SanDisk Common Stock to be unstable or to fall. In addition, the following
events may occur as a result of the issuance of the PEPS, which events may also
adversely affect the price of the SanDisk Common Stock:
o sales of SanDisk Common Stock by investors who prefer to invest in
SanDisk by purchasing PEPS;
o short sales of SanDisk Common Stock by holders of PEPS who wish to
hedge their investment in SanDisk; or
o arbitrage trading activity between the PEPS and the SanDisk Common
Stock.
You Bear Some Market Risk if the Contracting Stockholder Elects the Cash
Settlement Option
If the Contracting Stockholder decides to exercise the Cash Settlement
Option, the amount of cash we will receive in lieu of any Reference Security
will be based on the average of the Closing Prices of that Reference Security
for the 20 Trading Day period ending immediately before the second Trading Day
prior to the Exchange Date (except in the case of a Rollover Offering). The
price of the SanDisk Common Stock (or any other Reference Security that you may
receive as a result of dilution adjustments) will be subject to market
fluctuations during that period. The amount of cash you receive on the Exchange
Date may be less than the value of the SanDisk Common Stock (or other Reference
Securities) that you would have received on the Exchange Date had the
Contracting Stockholder not exercised the Cash Settlement Option. For example,
if the Contracting Stockholder elects to exercise the Cash Settlement Option and
the value of the SanDisk Common Stock is continuously rising during the
averaging period, the average of the Closing Prices of the SanDisk Common Stock
over the averaging period may be lower than the value of the SanDisk Common
Stock otherwise deliverable on the Exchange Date.
The Contract will be collateralized only by a pledge of the maximum number
or amount of each type of Reference Property that the Contracting Stockholder
may be required to deliver under the Contract (or, at the Contracting
Stockholder's option, by U.S. government obligations). Therefore, you bear the
risk that the Contracting Stockholder's obligation to deliver cash to us will
not be fully collateralized if the Contracting Stockholder elects the Cash
Settlement Option and the value of the SanDisk Common Stock (or other Reference
Securities) falls during the averaging period so that the value of the Reference
Property pledged to us is less than the amount of cash that the Contracting
Stockholder is obligated to deliver to us under the Contract. See "Investment
Objective and Policies -- The Contract."
<PAGE>
The Amount You Receive and the Timing of Exchange Will Be Affected If the
Contracting Stockholder Elects to Extend the Exchange Date or Engage in a
Rollover Offering
The Contracting Stockholder will have the right under the Contract, on o
Business Days' notice to us, to extend the Exchange Date to o. The Contracting
Stockholder will have the right to extend the Exchange Date only if at least one
nationally recognized statistical rating agency has rated the Contracting
Stockholder's unsecured long-term debt in one of its generic rating categories
which signifies investment grade. If the Contracting Stockholder elects to
extend the Exchange Date, the Contracting Stockholder will then have the right
in connection with a Rollover Offering, by notice to us by o, New York City
time, on the date of pricing of the Rollover Offering, to accelerate the
Exchange Date from o to the second Business Day following the date of closing of
the Rollover Offering. If the Contracting Stockholder elects to extend the
Exchange Date, then the Exchange Amount will be calculated as of the extended
Exchange Date. If the Contracting Stockholder elects to extend and then
accelerate the Exchange Date, then the Exchange Amount will be calculated as set
forth above under "Investment Objective and Policies -- The Contract -- Rollover
Offering." In either case, your receipt of shares or cash (or a combination
thereof) will be delayed until following the extended or accelerated Exchange
Date.
If the Contracting Stockholder elects to finance an all-cash settlement of
the Contract in whole or in part with the proceeds of a Rollover Offering, then
the "Reference Property Value per PEPS" will be equal to the Then- Current Value
of the Reference Property per PEPS on the date of pricing of the Rollover
Offering and, if the Reference Property includes any Reference Security, the
"Then-Current Value" of the Reference Security for the purpose of determining
the Reference Property Value per PEPS will be the Closing Price per unit of the
Reference Security on the date of pricing of the Rollover Offering. Therefore,
the number or amount of each type of Reference Property or the amount of cash
(or a combination thereof) that you receive in exchange for your PEPS may be
less than or greater than the number or amount that you would have received if
the Contracting Stockholder had not elected to extend or accelerate the Exchange
Date or to engage in a Rollover Offering. In addition, if the Contracting
Stockholder elects to finance the cash settlement of the Contract with the
proceeds of a Rollover Offering, you will only receive notice of the Rollover
Offering, and of the fact that you will receive cash in exchange for your PEPS,
on the pricing date of the Rollover Offering.
In addition, if the Contracting Stockholder engages in a Rollover
Offering, the amount of cash you will receive for your PEPS will be based on a
single Closing Price for any Reference Security included in the Reference
Property, rather than an average of Closing Prices, and you will only receive
notice of the date on which the single Closing Price will be determined on the
determination date.
You Bear Some Risk if the Stockholder Becomes Bankrupt
We believe that the Contract constitutes a "securities contract" for
purposes of Title 11 of the United States Code (the "Bankruptcy Code").
Therefore, we believe that if the Contracting Stockholder becomes bankrupt, the
Contract will not be subject to the automatic stay provisions of the Bankruptcy
Code. If, however, the Contract was found not to constitute a "securities
contract" for this purpose, the Contract could become subject to the automatic
stay provisions of the Bankruptcy Code or otherwise affected by the bankruptcy
proceedings. This could adversely affect the timing of the exchange and the
amount of stock or other property that you receive in exchange for your PEPS.
In addition, if the Contracting Stockholder elects to extend the Exchange
Date, the Contracting Stockholder will be required to deliver to us additional
Treasury Securities sufficient to fund the additional cash distribution that we
will make. If the Contracting Stockholder becomes bankrupt after electing to
extend the Exchange Date but before the extended (or accelerated) Exchange Date,
your receipt of the additional cash distribution may be substantially delayed.
<PAGE>
You Will Have No Shareholder Rights With Respect to any Reference Security
If you invest in PEPS, you will have no rights with respect to any
Reference Security, including voting rights and rights to receive any dividends
or other distributions on the Reference Security, unless you receive the
Reference Securities in exchange for your PEPS. You will have these rights with
respect to any Reference Securities that you receive in exchange for your PEPS
only if the applicable record date for determining stockholders entitled to
those rights occurs after you have received the Reference Securities.
The Contracting Stockholder is not responsible for determining the amount
you will receive for your PEPS on or shortly after the Exchange Date. The
Contract is a commercial transaction and does not create any rights in any third
party and is not for the benefit of any third party, including you.
The Number of Shares You Receive Will Not be Adjusted for Potentially Dilutive
Events
SanDisk (or any other Issuer) is free to issue additional shares of common
stock or other securities during the term of the PEPS. Similarly, any
stockholder of SanDisk may decide to sell SanDisk Common Stock at any time.
Although the amount of Reference Property you receive will be adjusted to
protect you from the dilutive events specified under "Investment Objective and
Policies -- The Contract -- Reference Property Adjustments," it will not be
adjusted if SanDisk offers SanDisk Common Stock for cash or as consideration to
make an acquisition or if a stockholder sells shares of SanDisk Common Stock or
if SanDisk or anyone else makes a partial tender offer or partial exchange offer
for the SanDisk Common Stock. See "Investment Objective and Policies -- The
Contract -- Reference Property Adjustments." Any of these issuances, sales or
offers could lead to declines in the value of SanDisk Common Stock and, because
no adjustment is made to the PEPS, in the value of your PEPS. Neither SanDisk
nor the Contracting Stockholder has any obligation to consider your interests
for any reason.
Your Opportunity for Gain May be Diminished if the PEPS Expire Early
Our term (which is scheduled to expire on or shortly after the Exchange
Date) may be accelerated and our assets (except for the Contract) liquidated if:
SanDisk consolidates or merges into another company, SanDisk liquidates or
similar events occur, the Contracting Stockholder defaults under the Contract or
the collateral supporting the Contract is insufficient. On acceleration, the
value of the proceeds and assets you receive could be substantially less than
the value of what you would have received had our term expired on the Exchange
Date.
PEPS May be Difficult to Resell
There may be little or no secondary market for the PEPS. The PEPS are a
new security and there currently is no secondary market for them. We will apply
to the Nasdaq National Market to list the PEPS for trading under the symbol "o,"
but we do not know whether active trading in the PEPS will develop and continue
even if they are so listed. If there is a secondary market for the PEPS, it may
not provide significant liquidity or it may not continue for the life of the
PEPS.
The PEPS may later be delisted or trading in the PEPS on the Nasdaq
National Market may later be suspended. If the PEPS are delisted or trading
suspended, we will apply to list the PEPS on another national securities
exchange or for quotation on another trading market. If the PEPS are not listed
or traded on any securities exchange or trading market, or if trading is
suspended, you may find it more difficult to obtain pricing information for the
PEPS, and the price and liquidity of the PEPS may be adversely affected.
The underwriters have told us that they currently intend to make a market
in the PEPS, although they have no obligation to do so.
<PAGE>
PEPS May Trade at a Discount to Net Asset Value
We are a newly organized closed-end investment company with no previous
operating history. Our net asset value may decrease. In addition, shares of
closed-end investment companies frequently trade at a discount from their net
asset value. It is impossible to predict whether the PEPS will trade at, below
or above our net asset value. Since the PEPS are not redeemable, if you wish to
dispose of them prior to the Exchange Date, you must bear the risk that if they
do trade at a discount at the time you sell them, you would realize a loss on
your investment in the PEPS, regardless of our performance.
No Affiliation Between the Trust and SanDisk
We are not affiliated with SanDisk. We have no knowledge whether any of
the events described under "The Contracts -- Reference Property Adjustments" are
currently being considered by SanDisk unless those events have been publicly
disclosed, and we also have no knowledge of any event that would have a material
adverse effect on SanDisk or on the price of the SanDisk Common Stock. We have
no ability to control these events and these events are difficult to predict.
SanDisk has no obligations with respect to the PEPS or the Contract,
including any obligation to consider our needs or your needs for any reason.
SanDisk will not receive any of the proceeds from the Offering. SanDisk is not
responsible for and has not participated in determining the number amount or
type of property you will receive for your PEPS. SanDisk is not involved with
the administration or trading of the PEPS.
Uncertain Tax Treatment
The law regarding the treatment of the PEPS for United States federal
income tax purposes is subject to some uncertainty. Although you should not
recognize taxable income with respect to your pro rata portion of the Contract
prior to partial or full settlement of the Contract, there are alternative
characterizations that could require you to include more income than would be
included under the analysis set forth under "Certain Tax Considerations."
Accordingly, you should consult your tax advisers with respect to the tax
consequences of the purchase, ownership and disposition of the PEPS in light of
your particular circumstances, including the tax risks associated with possible
alternative characterizations of the PEPS. See "Certain Tax Considerations."
Risks Factors relating to SanDisk
You should carefully consider the information in the SanDisk Prospectus,
including the risk factors relating to SanDisk beginning on page 6 of the
SanDisk Prospectus.
DESCRIPTION OF THE PEPS
Each PEPS represents a proportionate share of beneficial interest in our
trust, and a total of o PEPS will be issued in the Offering, assuming the
underwriters do not exercise their over-allotment option. You are entitled to
share pro rata in our remaining assets available for distribution if we
liquidate. PEPS have no preemptive, redemption or conversion rights. The PEPS,
when issued and delivered to you against payment of the purchase price, will be
fully paid and nonassessable undivided beneficial interests in our assets.
You are entitled to one vote for each PEPS you hold on all matters to be
voted on by holders of PEPS. You cannot cumulate your votes in the election of
trustees. We intend to hold annual meetings as required by the rules of the
Nasdaq National Market. You have the right, upon the declaration in writing or
vote of more than two-thirds of the outstanding PEPS, to remove any of our
trustees. The trustees will call a meeting for holders to vote on the removal of
a Trustee upon the written request of the record holders of 10% of the PEPS, or
to vote on other matters
<PAGE>
upon the written request of the record holders of 51% of the PEPS (unless
substantially the same matter was voted on during the preceding 12 months).
Book-entry System
The PEPS will be issued in the form of one or more global securities (the
"Global Securities") deposited with the Depositary and registered in the name of
the Depositary's nominee.
The Depositary has informed us as follows. The Depositary is a
limited-purpose trust company organized under the laws of the State of New York,
a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code and a "clearing agency"
registered pursuant to Section 17A of the Exchange Act. The Depositary was
created to hold securities for people who have accounts with them
("participants") and to facilitate the clearance and settlement of securities
transactions among its participants through electronic book-entry changes in the
participants' accounts. This book-entry system eliminates the need to physically
move certificates. These participants include securities brokers and dealers,
banks, trust companies and clearing corporations. Indirect access to the
Depositary's book-entry system is also available to others, such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly.
After a Global Security is issued, the Depositary or its nominee will
credit the PEPS represented by the Global Security to its participants'
accounts. The underwriters will designate the accounts to be credited. Only
participants or persons that hold interests through participants may
beneficially own the Global Securities. If you are a participant, the Depositary
or its nominee will maintain the records that show your beneficial ownership in
the Global Securities and effect any transfer of those beneficial ownership
interests among participants. If you hold through a participant, the participant
will maintain the records that show your beneficial ownership in the Global
Securities and effect any transfer of those beneficial interests within the
participant. The laws of some jurisdictions may require that purchasers of
securities take physical delivery of those securities in definitive form. These
laws may impair the ability to transfer beneficial interests in a Global
Security.
So long as the Depositary or its nominee is the registered owner of a
Global Security, the Depositary or its nominee will be considered the sole owner
or holder of the PEPS represented by that Global Security. Generally, you will
not be entitled to have PEPS registered in your name and will not receive or be
entitled to receive physical delivery of PEPS in definitive form and will not be
considered the owner or holder of the PEPS that you beneficially own.
Because the Depositary or its nominee is the registered owner or the
holder of the Global Securities, we will pay the quarterly distributions and
deliver any Reference Property or any other consideration in connection with the
PEPS to the Depositary or its nominee. We expect that the Depositary or its
nominee, when it receives a payment or delivery, will immediately credit its
participants' account with amounts proportionate to their respective beneficial
interests in the Global Securities, according to its records. We also expect
that payments by participants to persons who hold through participants will be
governed by standing instructions and customary practices, as is now the case
with securities held for the accounts of customers in bearer form or registered
in "street name", and will be the responsibility of the participants. None of
us, any underwriter, any of our trustees, the Administrator (as defined below),
the Paying Agent (as defined below) or the Custodian (as defined below) will
have any responsibility or liability for any aspect of the records relating to
beneficial ownership interests in a Global Security, or payments made on account
of beneficial ownership interests or for maintaining, supervising or reviewing
any records relating to beneficial ownership interests.
A Global Security may not be transferred except as a whole by the
Depositary to a nominee or a successor of the Depositary. If the Depositary is
at any time unwilling or unable to continue as depositary and we do not appoint
a successor depositary within ninety days, we will issue PEPS in definitive
registered form in exchange for
<PAGE>
the Global Securities. In this event, you will be entitled to receive PEPS in
definitive form registered in your name equal in number to your proportionate
interest in the Global Securities.
MANAGEMENT ARRANGEMENTS
General
Our trustees consist of three individuals (each, a "Trustee"). None of the
Trustees is an "interested person" in us as defined in the Investment Company
Act. The Trustees are responsible for the overall supervision of our operations
and perform the various duties imposed on the trustees of management investment
companies by the Investment Company Act.
The name of each Trustee, his position and his principal occupation during
the past five years are set forth below:
<TABLE>
Principal Occupation During
Name, Age and Address Title Past Five Years
- --------------------------------------- ---------------- ---------------------------
<S> <C> <C>
Donald J. Puglisi, 53................. Managing Trustee Professor of Finance
Department of Finance University of Delaware
University of Delaware
Newark, DE 19716
William R. Latham, I, 54.............. Trustee Professor of Economics
Department of Economics University of Delaware
University of Delaware
Newark, DE 19716
James B. O'Neill, 59.................. Trustee Professor of Economics
Center for Economic Education University of Delaware
& Entrepreneurship
University of Delaware
Newark, DE 19716
</TABLE>
Compensation of Trustees
Each Trustee will be paid a one-time, up-front fee of $o by the
Contracting Stockholder. The Managing Trustee will also receive an additional
up-front fee of $o for serving in that capacity. We will not compensate the
Trustees in any manner, including any pension or retirement benefits. The
Trustees do not receive any compensation for serving as a trustee or director of
any other affiliated investment company.
Portfolio Management and Administration
We will be internally managed by our three Trustees and we will not have
an investment adviser. Our portfolio will not be actively managed. The Trustees
will authorize the purchase of the Contract and the Treasury Securities as
directed by the Trust Agreement. We have a fundamental policy that the Contract
may not be disposed of during our term and that, unless we dissolve earlier than
the Exchange Date due to a Default or a Tax Event, we will not dispose of the
Treasury Securities before their maturity dates.
The Contracting Stockholder and Morgan Stanley & Co. Incorporated will pay
all expenses we incur in our operations, including, among other things,
accounting services, expenses for legal and auditing services, taxes, costs
<PAGE>
of printing proxies, listing fees, if any, stock certificates and shareholder
reports, charges of the Administrator, the Custodian and the Paying Agent,
expenses of registering the PEPS under federal and state securities laws, SEC
fees, the Trustees' fees, insurance, interest, brokerage costs, litigation and
other extraordinary or non-recurring expenses and mailing expenses. See "Fee
Table" and "-- Estimated Expenses."
Administrator
Our day-to-day affairs will be managed by o, as trust administrator (the
"Administrator") pursuant to an administration agreement dated as of o (the
"Administration Agreement"). Under the Administration Agreement, the Trustees
have delegated most of their operational duties to the Administrator. These
include the duties to: (i) receive invoices for and pay all of our expenses;
(ii) with the approval of the Trustees, engage legal and other professional
advisors (other than our independent public accountants); (iii) instruct the
Paying Agent to pay any distributions on the PEPS; (iv) prepare and mail, file
or publish all of our notices, proxies, reports, tax returns and other
communications and documents, and keep all of our books and records; (v) at the
direction of the Trustees, institute and prosecute legal and other appropriate
proceedings to enforce our rights and remedies; and (vi) make all necessary
arrangements with respect to meetings of Trustees and any meetings of holders.
The Administrator will not, however, select our independent public accountants
or sell or otherwise dispose of our assets (except in connection with an
acceleration of the Contract as described under "Investment Objective and
Policies -- The Contract -- Reorganization Events Causing a Dissolution of the
Trust" and "-- Collateral Arrangements; Acceleration" or the settlement of the
Contract on the Business Day before the Exchange Date).
The Administration Agreement may be terminated by us or the Administrator
with 60 days prior written notice, but the agreement may not be terminated until
a successor Administrator has been chosen and has accepted the Administrator's
duties.
Except for its roles as our Administrator, Custodian, Paying Agent and
registrar and transfer agent and as Collateral Agent under the Security and
Pledge Agreement, o has no other affiliation with us, and is not engaged in any
other transactions with us.
The address of the Administrator is o.
Custodian
The custodian (the "Custodian") for our assets is o pursuant to a
custodian agreement dated as of o (the "Custodian Agreement"). Under the
Custodian Agreement, all net cash we receive will be invested by the Custodian
in short-term U.S. government securities maturing on or shortly before the next
quarterly distribution date. If we terminate the Custodian Agreement or the
Custodian resigns, we must engage a new Custodian to carry out the duties of the
Custodian.
The address of the Custodian is o.
Paying Agent
The transfer agent, registrar and paying agent (the "Paying Agent") for
the PEPS is o pursuant to a paying agent agreement dated as of o (the "Paying
Agent Agreement"). If we terminate the Paying Agent Agreement or the Paying
Agent resigns, we must engage a new transfer agent, registrar and paying agent
to carry out the duties of the Paying Agent.
The address of the Paying Agent is o.
<PAGE>
Indemnification
We will indemnify each Trustee, the Administrator, the Paying Agent and
the Custodian with respect to any claim, liability, loss or expense (including
the costs and expenses of the defense against any claim or liability) that they
may incur in acting in that capacity, except in the case of willful misfeasance,
bad faith, gross negligence or reckless disregard of their respective duties or
where applicable law prohibits this indemnification. Morgan Stanley & Co.
Incorporated has agreed to reimburse us for any amounts we pay as
indemnification to any Trustee, the Administrator, the Paying Agent or the
Custodian. Morgan Stanley & Co. Incorporated will in turn be reimbursed by the
Contracting Stockholder.
Estimated Expenses
At the closing of the Offering, the Contracting Stockholder will pay to
each of the Administrator, the Custodian and the Paying Agent a one-time,
up-front amount in respect of its fee and, in the case of the Administrator, our
anticipated ongoing expenses over our term. Our organization costs in the amount
of $o and estimated costs in connection with the initial registration and public
offering of the PEPS in the amount of approximately $o will be paid by the
Contracting Stockholder. See "Fee Table."
The amount payable to the Administrator for our anticipated ongoing
expenses was determined based on estimates made in good faith on the basis of
information currently available to us, including estimates furnished by our
agents. Any unanticipated expenses will be paid by Morgan Stanley & Co.
Incorporated. Morgan Stanley & Co. Incorporated will in turn be reimbursed by
the Contracting Stockholder.
DIVIDENDS AND DISTRIBUTIONS
We will make quarterly distributions from the proceeds of the Treasury
Securities, less any of our expenses. You will receive the first distribution of
$o per PEPS (in respect of the period from o until o) on o if you are the holder
of record on o. After that, we will make quarterly distributions of $o per PEPS
on each o, o, o and o (or on the next Business Day if that date is not a
Business Day) if you are the holder of record as of each o, o, o and o,
respectively.
NET ASSET VALUE
We will calculate the net asset value of the PEPS on a quarterly basis by
dividing the value of our net assets (the value of our assets less our
liabilities) by the total number of PEPS outstanding. Our net asset value will
be published semi-annually as part of our semi-annual report to you and at other
times as the Trustees may determine. The Treasury Securities will be valued at
the mean between the last current bid and asked prices or, if quotations are not
available, as we determine in good faith under the direction of the Trustees.
Short-term investments having a maturity of 60 days or less are valued at cost
with accrued interest or discount earned included in interest receivable. The
Contract will be valued at the mean of the bid prices we receive from at least
three independent broker-dealer firms who are in the business of making bids on
financial instruments similar to the Contract and with comparable terms.
CERTAIN TAX CONSIDERATIONS
The following discussion sets forth the opinion of Davis Polk & Wardwell,
special tax counsel to the Trust ("Counsel"), as to certain of the material
United States federal income tax consequences that may be relevant to the
ownership of a PEPS. This general discussion addresses only initial holders who
purchase the PEPS at the public offering price appearing on the cover of this
prospectus, and who hold the PEPS as capital assets within the meaning of
Section 1221 of the Internal Revenue Code of 1986, as amended (the "Code"). The
discussion set forth
<PAGE>
below does not address all of the tax consequences that may be relevant to you
in light of your particular circumstances or if you are subject to special
treatment under federal income tax laws (e.g., rules which apply to certain
financial institutions, tax-exempt organizations, dealers in options or
securities, traders in securities that elect to mark-to-market, certain former
citizens or residents of the United States or persons who hold a PEPS as a part
of a hedging transaction or straddle or as part of a "conversion transaction" or
a "synthetic security" or other integrated transaction). It also does not
discuss the tax consequences of the ownership of the SanDisk Common Stock.
The summary set forth below is based on the Code, administrative
pronouncements, judicial decisions and existing and proposed Treasury
Regulations, changes to any of which subsequent to the date of this prospectus
may affect the tax consequences described in this prospectus. No ruling has been
requested from the Internal Revenue Service ("IRS") with respect to the PEPS and
Counsel has advised that, because of the lack of statutory, judicial or
administrative authority on point, there are uncertainties regarding the United
States federal income tax consequences of an investment in the PEPS.
Accordingly, you are urged to consult your tax advisors regarding the United
States federal income tax consequences of an investment in the PEPS and with
respect to any tax consequences arising under the laws of any state, local or
foreign taxing jurisdiction.
As used in this prospectus, the term "United States Holder" means a holder
of PEPS that is, for United States federal income tax purposes, (i) an
individual citizen or resident of the United States, (ii) a corporation created
or organized in or under the laws of the United States or of any political
subdivision thereof or (iii) an estate or trust the income of which is subject
to United States federal income taxation regardless of its source. The term
"Non- U.S. Holder" means a holder of PEPS that is, for United States federal
income tax purposes, (i) a nonresident alien individual, (ii) a foreign
corporation or (iii) a nonresident alien fiduciary of a foreign estate or trust.
Tax Status of the Trust
The following section applies to you if you are a United States Holder (as
defined above).
We will be treated as a grantor trust for federal income tax purposes, and
income we receive will be treated as income of the holders in the manner set
forth below.
Tax Consequences to United States Holders
The following section applies to you if you are a United States Holder (as
defined above).
Tax Basis of the Treasury Securities and the Contracts. You will be
considered the owner of your pro rata portion of the stripped Treasury
Securities and the Contract in our Trust under the grantor trust rules of the
Code. The cost to you of your PEPS will be allocated among the your pro rata
portion of the Treasury Securities and the Contract (in proportion to the fair
market values thereof on the date on which you acquire your PEPS) in order to
determine your tax bases. It is currently anticipated that we will use % and %
of the net proceeds of the Offering to purchase the Treasury Securities and as
payment under the Contract, respectively.
Recognition of Original Issue Discount on the Treasury Securities. The
Treasury Securities in our Trust will consist of stripped Treasury Securities.
You will be required to treat your pro rata portion of each Treasury Security in
our trust as a bond that was originally issued on the date you purchased your
PEPS at an original issue discount equal to the excess of your pro rata portion
of the amounts payable on that Treasury Security over your tax basis therefor.
You are required (whether you are on the cash or accrual method of tax
accounting) to include original issue discount (other than original issue
discount on short-term Treasury Securities, as defined in this prospectus) in
income for federal income tax purposes as it accrues, in accordance with a
constant yield method. The return on any short-term Treasury Security (i.e., any
Treasury Security with a maturity of one year or less from the date it is
purchased) we hold will also be required to be included in your income as it is
accrued. Unless you elect to accrue the return on a short-term Treasury Security
according to a constant yield method, the original issue
<PAGE>
discount will be accrued on a straight-line basis. Your tax basis in a Treasury
Security will be increased by the amount of any original issue discount included
in your income with respect to that Treasury Security.
Treatment of the Contract. You will be treated as entering into a pro rata
portion of the Contract and, at the Exchange Date, as receiving a pro rata
portion of the Reference Property delivered to us. You will not recognize
income, gain or loss upon entry into the Contract. You should not recognize
income with respect to the Contract prior to its settlement, except as noted
below.
Sale or Exchange of PEPS Prior to Settlement. Prior to the Exchange Date,
upon the sale or exchange of a PEPS, you will recognize taxable gain or loss
equal to the difference between the amount realized on the sale or exchange and
your adjusted tax basis in the PEPS. Any gain or loss should generally be
long-term capital gain or loss, as the case may be, if at that time the PEPS has
been held for more than one year.
Upon Settlement. On settlement of the PEPS, you should not recognize any
gain or loss with respect to any Reference Property other than cash received
with respect to the Contract. Assuming this treatment is respected, you will
have an adjusted tax basis in the Reference Property equal to the pro rata
portion of your adjusted tax basis in the Contract allocable to the Reference
Property. The allocation of adjusted tax basis in the PEPS between cash
received, if any, and other Reference Property received should be based on the
relative fair market value, as of settlement, of the cash and the other
Reference Property. Your holding period for any Reference Property received upon
settlement will start on the day after the Exchange Date.
With respect to any cash received upon settlement, you will recognize gain
or loss, as the case may be, to the extent that your portion of the cash differs
from the pro rata portion of your adjusted tax basis in the Contract allocable
to the cash received. The character of this gain or loss generally should be
capital rather than ordinary (and long-term if you have held the PEPS for more
than one year).
Possible Alternative Tax Treatments of an Investment in the PEPS. It is
possible that the IRS would seek to impose tax consequences on you different
from those described above. The IRS could contend, for example, that you should
include imputed interest income over the term of the Contract. The IRS could
also argue that settlement of the Contract is a taxable event and that gain
realized on sale or exchange of a PEPS should be treated as interest income
rather than capital gain.
Tax Consequences to Non-U.S. Holders
You should consult your tax advisor regarding the tax consequences (which
could be different from those discussed below) that will apply if, for U.S.
federal income tax purposes, (i) you hold PEPS in connection with the conduct of
a trade or business in the United States, (ii) you own more than 10% of the
combined voting power of stock of Seagate Technology, (iii) you are a
"controlled foreign corporation" related to Seagate Technology, or (iv) you are
an individual who may be present in the United States for 183 days or more in
any tax year in which you held PEPS.
Subject to the discussion below concerning backup withholding, any
distributions you receive from us and any gain you realize on the sale of your
PEPS generally will not be subject to U.S. federal income or withholding tax,
provided that the statement required by Section 871(h) or Section 881(c) of the
Code regarding your tax status has been furnished as discussed in the next
paragraph.
In order to obtain an exemption from withholding tax, either you as the
beneficial owner of the PEPS, or a securities clearing organization, bank or
other financial institution that holds customers' securities in the ordinary
course of its trade or business (a "Financial Institution") and that is holding
the PEPS on your behalf, must file a statement with the Trust to the effect that
the beneficial owner of the PEPS is a Non-U.S. Holder. Under temporary and final
United States Treasury regulations, this requirement will be fulfilled if you
certify on IRS Form W-8 (or a successor form), under penalties of perjury, that
you are a Non-U.S. Holder and provide your name and address,
<PAGE>
and any Financial Institution holding the PEPS on your behalf files a statement
with the Trust to the effect that it has received such a statement from you (and
furnishes the Trust with a copy of it).
If you are an individual, your Contract may be treated as part of your
gross estate for United States federal estate tax purposes.
Backup Withholding and Information Reporting
You may be subject to information reporting and to backup withholding at a
rate of 31 percent of the amounts paid to you, unless you provide proof of an
applicable exemption or a correct taxpayer identification number, and otherwise
comply with the applicable requirements of the backup withholding rules. If you
are a Non-U.S. Holder and the statement regarding your tax status is furnished
as discussed above, you will not be subject to backup withholding. The amounts
withheld under the backup withholding rules are not an additional tax and may be
refunded, or credited against your United States federal income tax liability,
if you provide certain required information to the IRS.
UNDERWRITERS
Under the terms and subject to the conditions contained in the
underwriting agreement dated the date of this prospectus (the "Underwriting
Agreement"), the underwriters named below, for whom Morgan Stanley & Co.
Incorporated is acting as representative, have severally agreed to purchase, and
we have agreed to sell to them, severally, the respective number of PEPS set
forth opposite the names of such underwriters below:
Underwriter Number of PEPS
- ----------- --------------
Morgan Stanley & Co. Incorporated..............
----------
Total.....................................
==========
The Underwriting Agreement provides that the obligations of the several
underwriters to pay for and accept delivery of the PEPS offered by this
prospectus are subject to the approval of certain legal matters by their counsel
and to certain other conditions. The underwriters are obligated to take and pay
for all of the PEPS offered by this prospectus, other than those covered by the
over-allotment option described below, if any such PEPS are taken.
The underwriters initially propose to offer part of the PEPS directly to
the public at the public offering price set forth on the cover page of this
prospectus and part to certain dealers at a price that represents a concession
not in excess of $o per PEPS under the public offering price. Any underwriter
may allow, and such dealers may reallow, a concession not in excess of $o per
PEPS to other underwriters or to certain other dealers. You will not pay any
sales load or underwriting commission. After the initial offering of the PEPS,
the offering price and other selling terms may from time to time be varied by
the representatives of the underwriters.
We have granted to the underwriters an option, exercisable for 30 days
from the date of this prospectus, to purchase up to an aggregate of o additional
PEPS at the public offering price set forth on the cover page of this
prospectus. The underwriters may exercise such option solely for the purpose of
covering over-allotments, if any, made in connection with the offering of PEPS
offered by this prospectus. To the extent such option is exercised, each
underwriter will become obligated, subject to certain conditions, to purchase
approximately the same percentage of such additional PEPS as the number set
forth next to such underwriter's name in the preceding table
<PAGE>
bears to the total number of PEPS set forth next to the names of all
underwriters in the preceding table. If the underwriters exercise their
over-allotment option in full, the total price to public will be $o, the total
sales load will be $o and the total proceeds to the trust will be $o.
Each of SanDisk and the Contracting Stockholder has agreed that, without
the prior written consent of Morgan Stanley & Co. Incorporated on behalf of the
underwriters, during the period ending 90 days after the date of this
prospectus, it will not, directly or indirectly:
o offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend, or otherwise transfer or dispose
of, directly or indirectly, any shares of SanDisk Common Stock or any
securities convertible into or exercisable or exchangeable for SanDisk
Common Stock; or
o enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of
SanDisk;
whether any such transaction described above is to be settled by delivery of the
PEPS or such other securities, in cash or otherwise.
The restrictions described in the previous paragraph do not apply to:
o the sale of the PEPS to the underwriters;
o the issuance by SanDisk of shares of SanDisk Common Stock upon the
exercise of an option or a warrant or the conversion of a security
outstanding on the date of this prospectus of which the underwriters
have been advised in writing;
o the grant by SanDisk of options pursuant to existing benefit plans of
SanDisk, if the recipients of those options have agreed in writing to
restrictions on transfer of such options and any shares of SanDisk
Common Stock received upon the exercise thereof to the same effect as
the foregoing; or
o transactions by any person other than SanDisk relating to shares of
common stock or other securities acquired in open market or other
transactions after the completion of the Offering.
The SanDisk Common Stock is listed on the Nasdaq National Market under the
symbol "SNDK." We will apply to the Nasdaq National Market to list the PEPS for
trading under the symbol "o."
Under the Contract, the Contracting Stockholder will be obligated to
deliver to us on the Business Day before the Exchange Date a number or amount of
each type of Reference Property in respect of those PEPS on the same terms as
the PEPS being offered to you.
In order to facilitate the Offering, the underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the PEPS
or the SanDisk Common Stock. Specifically, the underwriters may agree to sell,
or allot, more shares than the o PEPS we have agreed to sell to them. This
over-allotment would create a short position in the common stock for the
underwriters' account. To cover any over-allotment or to stabilize the price of
the PEPS or the SanDisk Common Stock, the underwriters may bid for, and
purchase, PEPS or shares of the SanDisk Common Stock in the open market.
Finally, the underwriting syndicate may reclaim selling concessions allowed to
an underwriter or a dealer for distributing the PEPS in the Offering, if the
syndicate repurchases previously distributed PEPS in transactions to cover
syndicate short positions, in stabilization transactions or otherwise. The
underwriters have reserved the right to reclaim selling concessions in order to
encourage underwriters and dealers to distribute the PEPS for investment, rather
than for short-term profit taking. Increasing the proportion of the Offering
held for investment may reduce the supply of PEPS available for short-term
trading.
<PAGE>
Any of these activities may stabilize or maintain the market price of the PEPS
or the SanDisk Common Stock above independent market levels. The underwriters
are not required to engage in these activities, and may end any of these
activities at any time.
SanDisk and the Contracting Stockholder have agreed to indemnify the
underwriters against certain liabilities, including liabilities under the
Securities Act. The underwriters have agreed to pay any of our unanticipated
expenses.
Certain of the underwriters have in the past performed various banking
services for SanDisk or the Contracting Stockholder, for which such underwriters
received customary compensation.
LEGAL MATTERS
Davis Polk & Wardwell, New York, New York will pass upon certain legal
matters for us and for the Underwriters. Richards, Layton & Finger, Wilmington,
Delaware will pass upon certain matters of Delaware law. Wilson Sonsini Goodrich
& Rosati Professional Corporation will pass upon certain legal matters for
Seagate Technology.
EXPERTS
The statement of assets, liabilities and capital included in this
prospectus has been audited by o, independent auditors, as stated in their
opinion, which appears in this prospectus. The statement has been included in
reliance upon the opinion given on the authority of o as experts in auditing and
accounting.
WHERE YOU CAN FIND MORE INFORMATION
We filed a Registration Statement on Form N-2 to register the PEPS with
the SEC. This prospectus is a part of that Registration Statement. As permitted
by SEC rules, this prospectus does not contain all the information you can find
in the Registration Statement or the exhibits to the Registration Statement. You
may read and copy any reports, statements or other information we file at the
SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms. Our SEC filings are also available to the public
from commercial document retrieval services and at the web site maintained by
the SEC at "http://www.sec.gov."
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees and Shareholders of SanDisk PEPS Trust:
We have audited the accompanying statement of assets, liabilities and
capital of SanDisk PEPS Trust as of o. 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, liabilities and
capital 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 SanDisk PEPS Trust, as of o
in conformity with generally accepted accounting principles.
o
New York, New York
o
<PAGE>
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
o
Assets
Cash...................................... $
----------
Total Assets.............................. $
==========
Liabilities
Total Liabilities......................... $ 0
==========
Net Assets.................................... $
==========
Capital
$
==========
- --------------------
(1) The Trust was created as a Delaware business trust on February 23, 1999 and
has had no operations other than matters relating to its organization and
registration as a non-diversified, closed-end management investment company
under the Investment Company Act. Costs incurred in connection with the
organization of the Trust and ongoing administrative expenses will be paid
by the Contracting Stockholder.
(2) Offering expenses will be payable upon completion of the Offering and also
will be paid by the Contracting Stockholder.
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
1. Financial Statements
Part A - Independent Auditors' Report
Statement of Assets, Liabilities and Capital as of o
Part B - None
2. Exhibits
(a) (1) Trust Agreement**
(1a) Amended Trust Agreement
(2) Certificate of Trust**
(2a) Certificate of Amendment to the Certificate of Trust
(3) Restated Certificate of Trust*
(4) Amended and Restated Trust Agreement *
(b) Not applicable
(c) Not applicable
(d) (1) Form of specimen certificate for PEPS*
(2) Portions of the Amended and Restated Trust Agreement of the
Registrant defining the rights of holders of PEPS*
(e) Not applicable
(f) Not applicable
(g) Not applicable
(h) Form of Underwriting Agreement*
(i) Not applicable
(j) Form of Custodian Agreement*
(k) (1) Form of Paying Agent Agreement*
(2) Form of Forward Purchase Contract*
(3) Form of Administration Agreement*
(4) Form of Security and Pledge Agreement*
(5) Form of Fund Expense Agreement*
(6) Form of Fund Indemnity Agreement*
(l) Opinion and Consent of Richards, Layton & Finger, counsel to the
Trust*
(m) Not applicable
(n) (1) Consent of o, independent auditors for the Trust*
(2) Tax opinion and consent of Davis Polk & Wardwell, counsel to the
Trust*
(o) Not applicable
(p) Not applicable
(q) Not applicable
(r) Financial Data Schedule*
- --------------------
* To be filed by amendment.
** Previously filed.
<PAGE>
Item 25. Marketing Arrangements
See Exhibit (h) to this Registration Statement.
Item 26. Other Expenses of Issuance and Distribution
The following table sets forth the estimated expenses to be incurred in
connection with the offering described in this Registration Statement:
<TABLE>
<S> <C>
SEC Registration fees $63,940
Listing fee *
Printing (other than certificates) *
Engraving and printing certificates *
Fees and expenses of qualifications under state securities laws (including
fees of counsel) *
Accounting fees and expenses *
Legal fees and expenses *
NASD fees 23,500
-------
Miscellaneous *
-------
Total *
</TABLE>
- --------------------
* To be furnished by amendment.
Item 27. Person Controlled by or under Common Control with Registrant
The Trust will be internally managed and will not have an investment
adviser. The information in the prospectus under the caption "Management
Arrangements" is incorporated herein by reference.
Item 28. Number of Holders of Securities
There will be one record holder of the PEPS as of the effective date of
this Registration Statement.
Item 29. Indemnification
[Certain agreements to be specified] provide for indemnification.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "1933 Act"), may be permitted to trustees, officers
and controlling persons of the registrant, pursuant to the foregoing provisions
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission (the "Commission") such indemnification is
against public policy as expressed in the 1933 Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a trustee, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
trustee, officer, or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the 1933 Act and will be governed by the final
adjudication of such issue.
<PAGE>
Item 30. Business and Other Connections of Investment Adviser
The registrant is internally managed and does not have an investment
adviser.
Item 31. Location of Accounts and Records
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940, as amended, and the rules
promulgated thereunder are maintained at the offices of the registrant (Puglisi
& Associates, 850 Library Avenue, Suite 204, Newark, Delaware 19716) and its
paying agent (o).
Item 32. Management Services
Not applicable.
Item 33. Undertakings
(a) The registrant hereby undertakes to suspend the offering of the
PEPS covered hereby until it amends its prospectuses contained herein if (1)
subsequent to the effective date of this Registration Statement, its net asset
value per share declines more than 10 percent from its net asset value per share
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 purpose of
determining any liability under the 1933 Act, the information omitted from the
form of prospectuses 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 1933 Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective, and (ii) for
the purpose of determining any liability under the 1933 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.
<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 Amendment to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Newark, State of Delaware, on the 17th
day of August, 1999.
SANDISK PEPS TRUST
By: /s/ Donald J. Puglisi
----------------------------------
Name: Donald J. Puglisi
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
---- ----- ----
Principal Executive Officer,
By: /s/ Donald J. Puglisi Principal Financial Officer, August 17, 1999
----------------------- Principal Accounting Officer,
and Trustee
EXHIBIT (a)(2a)
CERTIFICATE OF AMENDMENT TO THE
CERTIFICATE OF TRUST OF XYZ PEPS TRUST
This Certificate Amendment, dated this 17th day of August, 1999, to the
Certificate of Trust of XYZ PEPS Trust (the "Trust"), dated February 23, 1999,
is being duly executed and filed by Donald J. Puglisi, as trustee, pursuant to
Section 3810(b) of the Delaware Business Trust Act (12 Del. C. Section 3801,
et seq.).
1. The name of the business trust is XYZ PEPS Trust.
2. Article 1 of the Certificate of Trust of the Trust is hereby amended
to read as follows:
The name of the business trust being created hereby is SanDisk PEPS
Trust.
3. This Certificate of Amendment to the Certificate of Trust of theTrust
shall be effective upon the date and time of filing.
IN WITNESS WHEREOF, the undersigned, being the sole trustee of the Trust,
has executed this Certificate of Amendment to the Certificate of Trust of the
Trust as of the date first above- written.
/s/ Donald J. Puglisi
----------------------------------
Donald J. Puglisi, as Sole Trustee
EXHIBIT (a)(4)
AMENDED AND RESTATED
TRUST AGREEMENT OF SANDISK PEPS TRUST
(f/k/a XYZ PEPS TRUST)
AMENDED AND RESTATED TRUST AGREEMENT, dated as of August 17, 1999
between Morgan Stanley & Co. Incorporated, as depositor (the "Depositor"), and
Donald J. Puglisi, as trustee (the "Trustee").
WHEREAS, the Depositor and the Trustee have previously executed the
Trust Agreement dated as of February 23, 1999 (the "Original Trust
Agreement"); and
WHEREAS, the Depositor and the Trustee now wish to amend and restate
the Original Trust Agreement as provided herein;
NOW, THEREFORE, the Depositor and the Trustee hereby agree as
follows:
1. The Trust created hereby shall be known as "SanDisk PEPS Trust",
in which name the Trustee may conduct the business of the Trust, make and
execute contracts, and sue and be sued.
2. The Depositor hereby assigns, transfers, conveys and sets over to
the Trustee the sum of $1. The Trustee hereby acknowledges receipt of such
amount in trust from the Depositor, which amount shall constitute the initial
trust estate. The Trustee hereby declares that it will hold the trust estate
in trust for the Depositor. It is the intention of the parties hereto that the
Trust created hereby constitute a business trust under Chapter 38 of Title 12
of the Delaware Code, 12 Del. C. Section 3801, et seq. and that this document
constitute the governing instrument of the Trust. The Trustee is hereby
authorized and directed to execute and file a certificate of trust with the
Delaware Secretary of State in such form as the Trustee shall approve.
3. The Depositor and the Trustee will enter into an Amended and
Restated Trust Agreement, satisfactory to each such party, to provide for the
contemplated operation of the Trust created hereby. Prior to the execution and
delivery of such Amended and Restated Trust Agreement, the Trustee shall not
have any duty or obligation hereunder or with respect to the trust estate,
except as otherwise required by applicable law or as may be necessary to
obtain prior to such execution and delivery any licenses, consents or
approvals required by applicable law or otherwise.
4. The Depositor and the Trustee hereby authorize and direct the
Trustee (i) to file with the Securities and Exchange Commission (the
"Commission") and to execute, on behalf of the Trust, (a) a Registration
Statement, including pre-effective or post-effective amendments to such
Registration Statement, relating to the registration under the Securities Act
of 1933, as amended (the "1933 Act"), and the Investment Company Act of 1940
(the "1940 Act"), of the PEPS of the Trust and (b) any preliminary prospectus
or prospectus or supplement thereto relating to the PEPS required to be filed
under the 1933 Act or the 1940 Act; (ii) to file with any national securities
exchange or automated quotation system and execute on behalf of the Trust a
listing application and all other applications, statements, certificates,
agreements and other instruments as shall be necessary or desirable to cause
the PEPS to be listed on such exchange or quotation
<PAGE>
system; and (iii) to file and execute on behalf of the Trust such
applications, reports, surety bonds, irrevocable consents, appointments of
attorney for service of process and other papers and documents as shall be
necessary or desirable to register the PEPS under the securities or "Blue Sky"
laws of such jurisdictions as the Trustee, on behalf of the Trust, may deem
necessary or desirable.
5. The number of trustees of the Trust initially shall be one and
thereafter the number of trustees of the Trust shall be such number as shall
be fixed from time to time by a written instrument signed by the Depositor
which may increase or decrease the number of trustees of the Trust. Subject to
the foregoing, the Depositor is entitled to appoint or remove without cause
any trustee of the Trust at any time. Any trustee of the Trust may resign upon
thirty days' prior notice to the Depositor.
6. This Trust Agreement may be executed in one or more counterparts.
7. All laws or rules of construction of the State of Delaware,
without regard to principles of conflict of laws, shall govern the rights of
the parties hereto and the construction, validity and effect of the provisions
hereof.
8. The Trust will be a registered investment company under the 1940
Act.
IN WITNESS WHEREOF, the parties hereto have caused this Trust
Agreement to be duly executed by their respective officers hereunto duly
authorized, as of the day and year first above written.
DEPOSITOR:
Morgan Stanley & Co. Incorporated
as Depositor
-------------------------------------
Name: John Marren
Title: Managing Director
TRUSTEE:
By:
---------------------------------
Donald J. Puglisi,
as Trustee
2
