As filed with the Securities and Exchange Commission on September 2, 1999
Securities Act File No. 333-74989
Investment Company Act File No. 811-09273
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |X|
Pre-Effective Amendment No. 2 |X|
Post-Effective Amendment No. |_|
and/or
REGISTRATION STATEMENT UNDER THE |X|
INVESTMENT COMPANY ACT OF 1940
Amendment No. 2 |X|
(check appropriate box or boxes)
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SANDISK PEPS TRUST
(Exact Name of Registrant as Specified in Charter)
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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
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Donald J. Puglisi
Puglisi & Associates
850 Library Avenue
Newark, Delaware 19715
(Name and Address of Agent for Service)
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<TABLE>
<S> <C> <C>
Copies to:
John Larson, Esq. Bruce K. Dallas, Esq. John A. Fore, Esq.
Timothy R. Curry, Esq. Davis Polk & Wardwell Andrew J. Hirsch, 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>
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Approximate date of proposed public offering: As soon as practicable after
the effective date of this Registration Statement.
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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. [ ]
-----------------------
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 September 2, 1999
[SANDISK LOGO]
o PEPS(SM)
SANDISK PEPS Trust
$ o Premium Exchangeable Participating Shares - PEPSSM
(Subject to Exchange for Common Stock of SanDisk Corporation or Cash)
-----------------------
The Trust
We are a newly created Delaware business trust. We will enter into a prepaid
forward purchase contract with Seagate Technology, Inc., one of the
stockholders of SanDisk Corporation, for the purchase of SanDisk common stock.
We will purchase U.S. Treasury securities to fund quarterly payments on the
PEPS.
The PEPS
Each PEPS represents a proportionate share of beneficial interest in our
assets. 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 from our Treasury securities.
Number of Shares of SanDisk Common Stock or Amount of Cash You Will Receive for
Each PEPS:
On o, Seagate Technology will deliver shares of SanDisk common stock to us and
we will distribute to you your proportionate share of such property. If the
average on the closing prices of the SanDisk common stock on the 20 trading
days immediately prior to o, is:
o greater than $o, you will receive 0. o of a share per PEPS.
o greater than $o but less than or equal to $o, you will receive shares
worth $o, valued at the average closing price, per
PEPS.
o less than or equal to $o, you will receive one share per PEPS.
Early or Delayed Settlement of 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. Seagate Technology will have the right to extend the
maturity of the forward purchase contract from o to o if it elects to finance
the cash settlement of the forward purchase contract through a "rollover
offering" of new securities. Seagate Technology may only engage in a "rollover
offering" if its unsecured long-term debt has been given at least one rating
that signifies investment grade.
Trading of the PEPS
The PEPS have no history of public trading. 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."
On August 31, 1999, the closing price of the SanDisk common stock on the Nasdaq
National Market was $851/2 per share. SanDisk Corporation is not affiliated
with us. Closed-end fund shares frequently trade at a discount from the net
asset value of the fund. This risk may be greater for you if you anticipate
selling your PEPS soon after this public offering.
-----------------------
The prospectus sets forth concisely the information about SanDisk PEPS Trust
that you should know before investing and should be retained for future
reference. Additional information about SanDisk PEPS Trust has been filed with
the Securities and Exchange Commission and is available upon written or oral
request and without charge. See "Where You Can Find More Information" on page
35 of this prospectus.
-----------------------
Investing in the PEPS involves risks. See "Risk Factors" beginning on page 20.
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PRICE $o A PEPS
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Price to Public Sales Loan Proceeds to Trust
--------------- ---------- -----------------
Per PEPS........................$o None $o
Total...........................$o None $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, 1999.
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MORGAN STANLEY DEAN WITTER
September , 1999
<PAGE>
TABLE OF CONTENTS
Page
Summary Information Q&A.....................................................1
Fee Table...................................................................7
The Trust...................................................................7
Use of Proceeds.............................................................8
Investment Objective and Policies...........................................8
Investment Restrictions....................................................19
Risk Factors...............................................................20
Description of the PEPS....................................................25
Management Arrangements....................................................27
Dividends and Distributions................................................29
Net Asset Value............................................................29
Certain Tax Considerations.................................................30
Underwriter................................................................33
Legal Matters..............................................................34
Experts....................................................................35
Where You Can Find More Information........................................35
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, 1999 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>
SUMMARY INFORMATION Q&A
This summary includes questions and answers that highlight selected
information from the prospectus to help you understand the PEPS. 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 underwriter's
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.
What are the PEPS?
Each PEPS represents a proportionate share of beneficial interest in the
U.S. Treasury securities and the forward purchase contract with Seagate
Technology that we hold. Each PEPS will entitle the holder to receive
distributions quarterly and upon conclusion of the Trust in accordance with our
investment objective. We are offering o PEPS at an initial offering price of $o
per PEPS, which is equal to the closing price of the SanDisk Corporation common
stock, par value $0.001 per share, 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."
Who is the Trust?
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, exercises its rights to extend and, if it so chooses, subsequently
accelerates the exchange date. If Seagate Technology exercises these rights,
the "exchange date" will be such extended or accelerated exchange date. We
expect the exchange date to be approximately three years from the date we
initially issue the PEPS. 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. See "The Trust" and
"Investment Objective and Policies."
Who is 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 industrial/communications applications, such as
communications routers and switches, wireless communications, point-of-sale
terminals, transportation 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.
1
<PAGE>
Can you tell me more about SanDisk Corporation?
For more information about SanDisk and the shares of SanDisk common stock
that you may receive on the exchange date or the date that we earlier dissolve
see the accompanying prospectus of SanDisk Corporation. 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."
What are the Trust's investment objectives and policies?
Our investment objective is to pay to you a quarterly cash distribution at
the rate of o% of the issue price of the PEPS per annum, subject to certain
adjustments, on each o, o, o and o. On the exchange date, we will distribute a
number of shares of SanDisk common stock, cash or a combination of cash and
SanDisk common stock according to a formula, which is described below.
What will the Trust hold?
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 the exchange date, comprising approximately o% of our initial
assets, and a forward purchase contract with Seagate Technology for the
purchase of SanDisk common stock, comprising approximately o% of our initial
assets. See "Investment Objective and Policies."
When will I receive my 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 the preceding o, o, o and o. 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."
What payment will I receive on the exchange date and can I receive a
payment before the exchange date?
For each PEPS you own, you will receive a number of shares of SanDisk
common stock on the exchange date based on the following formula. 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 we refer to as the "threshold appreciation
price," you will receive 0.o of a share of SanDisk common stock per
PEPS.
o greater than $o, which we refer to as the "initial price," but less
than or equal to the threshold appreciation price, you will receive
shares of SanDisk common stock worth $o per PEPS.
o less than or equal to the initial price, you will receive one share of
SanDisk common stock per PEPS.
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 other reference property or the amount of cash required to
exchange all of the PEPS on the exchange date.
2
<PAGE>
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 required to be delivered under the forward purchase
contract. Seagate Technology may choose to substitute U.S. government
obligations as collateral.
The forward purchase contract may be accelerated to a date prior to the
exchange date 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 other than 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 proportionately to you, and our term will immediately
expire. See "Investment Objective and Policies -- The Contract."
Can the exchange date be extended?
Seagate Technology will have the right, on 30 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 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, which is the date that is 30 business days prior to the extended
exchange date. 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 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 the
original exchange date.
What protection will I have against dilutive events?
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 of the
securities, other property or cash you receive will be as determined under the
formula described below. You will receive cash for any fractional shares or
other interests to which you may be entitled. See "Investment Objective and
Policies."
3
<PAGE>
When will I receive cash instead of shares of SanDisk common stock?
Instead of delivering some or all of the shares of SanDisk common stock
deliverable under the forward purchase contract, 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 rather than shares of SanDisk common stock in exchange for
your PEPS.
Are distributions on the PEPS the equivalent of dividends on the SanDisk common
stock?
No. You will receive distributions on your PEPS at a rate of o% of its
issue price per year. SanDisk has not paid any dividends on the SanDisk common
stock since its inception, SanDisk does not anticipate paying any cash
dividends on its common stock in the foreseeable future. SanDisk's board of
directors has absolute discretion to decide whether or not to pay dividends in
the future. Quarterly distributions on your PEPS will consist solely of the
proceeds from the 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."
Owning a PEPS is not the same as owning a share of SanDisk common stock.
Cash distributions on the PEPS will be treated as a return of your basis in
your interest in the treasury securities we hold and will not result in a
separate income inclusion in addition to the recognition of original issue
discount on your interest in the treasury securities we hold. 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% if the price
of the SanDisk common stock rises.
What about federal income taxes?
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 proportionate share of the U.S. Treasury securities and the forward
purchase contract. Any income including original issue discount 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. 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. However, each quarterly
cash distribution to you will be treated as a return of your basis in the
treasury securities and therefore will not result in a separate or additional
income inclusion. We anticipate that the amount of original issue discount
accrued by you will be substantially less than the amount of cash distributions
to you and expect that the amount of original issue discount you recognize will
decrease during the life of the 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 treatment is
respected, you will have a basis in the SanDisk common stock or other
securities received equal to your proportionate share of the 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 proportionate share of the
forward purchase contract prior to the settlement of the forward purchase
contract, there are alternative
4
<PAGE>
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."
Will the PEPS be listed on a stock exchange?
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."
What are the risks associated with my investments?
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 PEPS. In
addition, even if it does appreciate by more than o%, you are entitled to
receive only o% of the 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. SanDisk is vulnerable to significant fluctuations in its
operating results due to unpredictable demand for its products, adverse changes
in product and customer ____, difficulty in estimating its silicon wafer needs,
growing expenses, variability of average selling prices, gross margins and
license fees and royalties, among other factors. SanDisk must transition to new
processes and products in order to remain competitive, but faces production and
market acceptance risks in doing so. SanDisk is entirely dependent on third
party foundaries for the silicon wafers used in all of its products. The
success of SanDisk's business depends on emerging markets and new products and
SanDisk may not be able to maintain its market share if it cannot increase its
production volumes accordingly. SanDisk's international operations also make it
vulnerable to changing conditions and currency fluctuations. See "Risk Factors"
in the accompanying prospectus of SanDisk.
5
<PAGE>
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 purchase 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 more complete description of these and other risk factors that
should be considered prior to investing in the PEPS, see "Risk Factors"
beginning on p. 20.
How will the Trust be managed?
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's 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."
Will I have 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."
6
<PAGE>
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 underwriter 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 (1) the sales load payable by Seagate
Technology with respect to your PEPS and (2) 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.
SEC regulations also require that closed-end investment companies present
an illustration of cumulative expenses (both direct and indirect) that you
would bear. Our term is three years; we have therefore not provided such
information on a 5- or 10-year basis.
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. We were created on February 23, 1999 pursuant
to a Trust Agreement dated as of the same date and as amended and restated as
of August 17, 1999, and as subsequently amended and restated as of September ,
1999. 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
7
<PAGE>
"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, or approximately $ o if the underwriter
exercises its over-allotment option in full, from the offering of PEPS. We will
use the proceeds immediately to purchase a series of zero-coupon U.S. 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 payable
under the forward purchase contract to Seagate Technology at the same time as
the closing of this offering of PEPS. We generally refer to the forward
purchase contract as the "contract," the amount payable under the contract as
the "purchase price" and Seagate Technology as 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, 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
the portfolio's initial total assets 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.
The Contract
General.
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 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 "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;
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(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 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
(e) 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 of SanDisk including rights or
warrants, 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, 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. If the contracting stockholder
elects to finance the cash settlement of the contract with the
proceeds of a rollover offering, however, then the then-current
value of a reference security will be determined in a different
matter, as described below under "--Rollover Offering"; and
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(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 %
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 on the exchange date.
The contracting stockholder has the option to deliver cash instead of some or
all of this reference property. We refer to this option as 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 proportionate 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, if the
PEPS are then held in book-entry form, and issue a press release to Reuters
Economic and Bloomberg Business News you will receive reference property or
cash, or a combination of reference property and cash, in exchange for your
PEPS. At the time the press release is issued, 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, the press release will only provide 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
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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, if the
contracting stockholder elects the cash settlement option, the following amount
of cash per PEPS:
<TABLE>
Number of Shares of SanDisk
Reference Property Value per PEPS common stock OR Amount of Cash
- --------------------------------- --------------------------- --------------
<S> <C>
$ $
$ $
$ $
$ $
$ $
$ $
$ $
</TABLE>
The table above 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 30
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 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,
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the contracting stockholder will be required to deliver to the collateral agent
additional treasury securities sufficient to fund the additional distribution.
If the contracting stockholder has elected to extend the exchange date, 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 issue a press release to Reuters Economic Service and
Bloomberg Business News stating this fact.
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, which we refer to
as a "dilution event".
(1) If the "issuer" of any reference security 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 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.
(2) 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
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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.
(3) 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 (2) above or distributed in connection with a reorganization
event) (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 (3) shall be made for (a) any cash
dividend on any reference security consisting of capital stock, which
dividend is required by the terms of such security or 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 (1) or (2) above.
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, which we refer to as a "reorganization
event," shall occur:
(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),
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(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 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.
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,
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% of the aggregate then-current value of each type of reference
property that would otherwise be pledged. From and after any insufficiency
determination (as defined
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below), the contracting stockholder must use the deficiency by 4:00 P.M., New
York City time, on the fifth business day following the day on which notice
thereof is given.
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 makes 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 fifth 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 "default, " which means a collateral event of default or the bankruptcy
or insolvency of the contracting stockholder, 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 property, allocated as proportionately as
practicable, with an aggregate then-current value as of the acceleration date
equal to the aggregate acceleration value, 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
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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 proportionately, 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 proportionately, 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 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.
Purchase Price. The purchase price under the contract is equal to $o , or
$o if the underwriter exercises its 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.
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, transportation 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
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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 5/8
Fourth..................................................... 395/8 18 7/16
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 19 1/4
Third (through August 31, 1999)............................ 94 5/8 43 13/16
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 paid any dividends since its inception. 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
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
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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 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.
Cash distributions on the PEPS will be treated as a return of your basis in
your treasury securities and will not result in a separate income inclusion in
addition to the recognition of original issue discount on your treasury
securities. The PEPS will provide you with a current distribution yield that is
higher than the current dividend yield on the SanDisk common stock, which
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 % 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
proportionately, together with other amounts distributed upon acceleration.
If you acquired PEPS from the 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
Distribution 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>
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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 the preceding o, o, o, and o . 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 other than 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 proportionately 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 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 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 proportionate share 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;
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;
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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 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 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.
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<PAGE>
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;
o the volatility (frequency and magnitude of changes in price) of the
SanDisk common stock;
o the dividend rate on the SanDisk common stock;
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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."
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 30
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
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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 of shares and cash 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 of reference property and cash 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. We would be required to file a claim in bankruptcy
court in order to complete the exchange. This would delay the timing of the
exchange and may result in less stock or other property in the exchange than
you would otherwise be entitled to receive.
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.
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
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<PAGE>
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 of reference property 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, other than the contract liquidated
if: 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 underwriter has told us that it currently intends to make a market in
the PEPS, although it has no obligation to do so.
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
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<PAGE>
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 preparing this prospectus or 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 proportionate share 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 7 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
underwriter does not exercise its over-allotment option. You are entitled to
your proportionate share 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 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.
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Book-entry System
The PEPS will be issued in the form of one or more "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 underwriter 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, the underwriter, any of our
trustees, the administrator (as defined below), the paying agent (as defined
below) or the custodian 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 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.
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<PAGE>
MANAGEMENT ARRANGEMENTS
General
Our trustees consist of three individuals each of which we refer to as 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:
Principal Occupation
Name, Age and Address Title During Past Five Years
- ----------------------------------- ---------------- ----------------------
Donald J. Puglisi, 53............ Managing Trustee Professor of Finance
Department of Finance University of Delaware
University of Delaware
Newark, DE 19716
William R. Latham, 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
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, 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 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,
27
<PAGE>
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
pursuant to an administration agreement dated as of o. Under the
administration agreement, the trustees have delegated most of their
operational duties to the administrator. These include the duties to:
o receive invoices for and pay all of our expenses;
o with the approval of the trustees, engage legal and other professional
advisors (other than our independent public accountants);
o instruct the paying agent to pay any distributions on the PEPS;
o 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;
o at the direction of the trustees, institute and prosecute legal and
other appropriate proceedings to enforce our rights and remedies; and
o 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 or our assets is o pursuant to a custodian agreement dated
as of o. 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.
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Paying Agent
The transfer agent, registrar and paying agent for the PEPS is o pursuant
to a paying agent agreement dated as of o. 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.
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 the preceding o, o,
o and o.
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, which is 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
29
<PAGE>
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, 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 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 our tax 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,
o an individual citizen or resident of the United States,
o a corporation created or organized in or under the laws of the United
States or of any political subdivision thereof or
o 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,
o a nonresident alien individual,
o a foreign corporation or
o a nonresident alien fiduciary of a foreign estate or trust.
Tax Status of the Trust
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.
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<PAGE>
Tax Consequences to United States Holders
The following section applies to you if you are a United States holder.
Tax Basis of the Treasury Securities and the Contracts. You will be
considered the owner of your proportionate share 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
proportionate share 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 proportionate share 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
proportionate share 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
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
proportionate share of the contract and, at the exchange date, as receiving a
proportionate share of the reference property or cash 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 contract, 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
proportionate share 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 proportionate share 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. For purpose of this and the preceding
paragraphs, cash received on settlement of the contract shall not include any
amount distributed on account of any extension of the exchange date. The tax
treatment of such distribution is discussed below under "Extension of the
Maturity of the Contract."
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<PAGE>
Extension of the Maturity of the Contract. If the maturity of the
contract is extended, you will be entitled to receive an additional cash
payment upon settlement. Although the tax treatment of this additional amount
is uncertain, we believe that this additional amount should be taken into
account in determining the amount of capital gain or loss you will realize
upon settlement or other disposition of the PEPS. Accordingly, we do not
currently intend to report this additional amount separately as ordinary
income to you. The IRS may seek to treat this additional amount as giving rise
to ordinary income, however.
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,
o you hold PEPS in connection with the conduct of a trade or business in
the United States,
o you own more than 10% of the combined voting power of stock of Seagate
Technology,
o you are a "controlled foreign corporation" related to Seagate
Technology, or
o 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. Notwithstanding the foregoing, the IRS may assert that any cash you
receive at maturity of the contract on account of its extension are subject to
U.S. federal withholding tax. At present, however, we do not intend to
withhold on any distributions.
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, 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
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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.
UNDERWRITER
Under the terms and subject to the conditions contained in the
underwriting agreement dated the date of this prospectus, Morgan Stanley & Co.
Incorporated has agreed to purchase, and we have agreed to sell to them, o
PEPS.
The underwriting agreement provides that the obligation of the
underwriter to pay for and accept delivery of the PEPS offered by this
prospectus is subject to the approval of certain legal matters by its counsel
and to certain other conditions. The underwriter is 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 underwriter initially proposes 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. The 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 underwriter.
We have granted to the underwriter 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 underwriter 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, the 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 the underwriter's name in the preceding
table bears to the total number of PEPS set forth next to the names of all
underwriters in the preceding table. If the underwriter exercises its
over-allotment option in full, the total price to public 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, 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:
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<PAGE>
o the sale of the PEPS to the underwriter;
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 underwriter
has been advised in writing;
o the grant by SanDisk of options or the sale or other issuance of
common stock pursuant to existing benefit plans of SanDisk;
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; or
o the sale of a total of up to 3,450,000 shares of SanDisk common
stock in a registered public offering concurrently with this
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."
In order to facilitate the offering, the underwriter may engage in
transactions that stabilize, maintain or otherwise affect the price of the
PEPS or the SanDisk common stock. Specifically, the underwriter may agree to
sell, or allot, more shares than the o PEPS we have agreed to sell to it. 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 underwriter may bid for, and
purchase, PEPS or shares of the SanDisk common stock in the open market.
Finally, the underwriter may reclaim selling concessions allowed to an
underwriter or a dealer for distributing the PEPS in the offering, if the
underwriter repurchases previously distributed PEPS in transactions to cover
syndicate short positions, in stabilization transactions or otherwise. The
underwriter has reserved the right to reclaim selling concessions in order to
encourage 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. Any
of these activities may stabilize or maintain the market price of the PEPS or
the SanDisk common stock above independent market levels. The underwriter is
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
underwriter against certain liabilities, including liabilities under the
Securities Act. The underwriter has agreed to pay any of our unanticipated
expenses and the contracting stockholder has agreed to reimburse us for such
expenses.
The underwriter has in the past performed various banking services for
SanDisk or the contracting stockholder, for which the underwriter received
customary compensation.
LEGAL MATTERS
Davis Polk & Wardwell, New York, New York will pass upon certain legal
matters for us and for the Underwriter. Richards, Layton & Finger, Wilmington,
Delaware will pass upon certain matters of Delaware law. Wilson Sonsini
Goodrich & Rosati, Professional Corporation, Palo Alto, California will pass
upon certain legal matters for Seagate Technology.
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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."
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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
F-1
<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.
F-2
<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) 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.
C-1
<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:
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 *
- -------------------
* 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.
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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.
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<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
1st day of September, 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, September 1, 1999
---------------------- Principal Accounting Officer,
and Trustee
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