<PAGE>
PROSPECTUS
10,000,000 DECS(SM)
DECS TRUST VI
(SUBJECT TO EXCHANGE INTO CLASS A COMMON STOCK OF METROMEDIA FIBER NETWORK,
INC.)
---------------------
DECS Trust VI is a recently created Delaware business trust. The DECS are
securities that represent all of the beneficial interest in the trust. When the
trust issues the DECS, it will acquire U.S. treasury securities and three
prepaid forward contracts for the purchase of Metromedia Fiber Network, Inc.
class A common stock. For each DECS that you buy, you will receive a cash
distribution of $0.6162 on each February 15, May 15, August 15 and November 15
starting on February 15, 2000 and ending on November 15, 2002. Those payments
will be made from the U.S. treasury securities that the trust acquires when it
issues the DECS.
The trust will hold three prepaid forward contracts, each of which will
entitle the trust to receive class A common stock, cash or a combination thereof
from one of three stockholders of Metromedia Fiber Network, Inc. We refer to
those three stockholders as the sellers. On or shortly after November 15, 2002,
each seller will deliver, at its option, either cash or class A common stock or
a combination thereof to the trust. The trust will then deliver this cash and/or
class A common stock to you. Under the circumstances described in this
prospectus, each seller will have the option to deliver cash to the trust
between November 15, 2002 and February 15, 2003. After the trust has delivered
to you the cash and/or the class A common stock delivered to the trust by all of
the sellers, the trust will terminate. The amount of cash or number of shares of
class A common stock each seller will deliver and you will receive will depend
on the price of class A common stock shortly before the date the seller delivers
the cash or class A common stock to the trust. If the price of the class A
common stock is:
- more than $46.5339 per share, you will receive 0.8475 shares of class A
common stock, or the cash equivalent, for each DECS you own.
- more than $39.4375 per share but less than or equal to $46.5339 per share,
you will receive
class A common stock worth $39.4375, or the cash equivalent, for each DECS
you own.
- $39.4375 per share or less, you will receive one share of class A common
stock, or the cash equivalent, for each DECS you own.
The last reported sale price of class A common stock on November 11, 1999
was $39 1/4 per share.
The trust's securities have no history of public trading. Typical closed-end
fund shares frequently trade at a discount from net asset value. This
characteristic of investments in a closed-end investment company is a risk
separate and distinct from the risk that the trust's net asset value will
decrease. The trust cannot predict whether the DECS will trade at, below or
above net asset value. The risk of purchasing investments in a closed-end
company that might trade at a discount is more pronounced for investors who wish
to sell their investments soon after completion of a public offering.
------------------------
INVESTING IN THE DECS INVOLVES CERTAIN RISKS. SEE "RISK FACTORS FOR DECS"
BEGINNING ON PAGE 23.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
------------------------
<TABLE>
<CAPTION>
PER DECS TOTAL
------------------- -------------------
<S> <C> <C>
Public Offering Price $39.4375 $394,375,000
Sales Load $ -- $ --
Proceeds to the trust before expenses $39.4375 $394,375,000
</TABLE>
The underwriters are offering the DECS subject to various conditions. The
underwriters expect to deliver the DECS to purchasers on November 17, 1999.
------------------------
SALOMON SMITH BARNEY
CREDIT SUISSE FIRST BOSTON
DEUTSCHE BANC ALEX. BROWN
DONALDSON, LUFKIN & JENRETTE
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
November 12, 1999
<PAGE>
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS. THE TRUST HAS NOT AUTHORIZED ANYONE TO PROVIDE YOU
WITH DIFFERENT INFORMATION. THE TRUST IS NOT MAKING AN OFFER OF THESE SECURITIES
IN ANY STATE WHERE THE OFFER IS NOT PERMITTED. YOU SHOULD NOT ASSUME THAT THE
INFORMATION CONTAINED IN OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS IS
ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE FRONT OF THIS PROSPECTUS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Prospectus Summary.......................................... 3
Fees and Expenses........................................... 7
The Trust................................................... 8
Use of Proceeds............................................. 8
Investment Objectives and Policies.......................... 8
Investment Restrictions..................................... 22
Risk Factors for DECS....................................... 23
Net Asset Value............................................. 26
Description of the DECS..................................... 26
Management and Administration of the Trust.................. 28
Certain United States Federal Income Tax Considerations..... 31
Underwriting................................................ 36
Legal Matters............................................... 38
Experts..................................................... 38
Where You Can Find More Information......................... 38
Report of Independent Accountants........................... 39
Statement of Assets, Liabilities and Capital................ 40
</TABLE>
UNTIL JANUARY 10, 2000, ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS SECURITIES OFFERING, MAY BE
REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION
TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTION.
------------------------
"DECS" IS A SERVICE MARK OF SALOMON SMITH BARNEY INC.
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS CERTAIN INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS. THIS SUMMARY IS NOT COMPLETE AND DOES NOT CONTAIN ALL OF THE
INFORMATION THAT YOU SHOULD CONSIDER BEFORE INVESTING IN THE DECS. YOU SHOULD
READ THE ENTIRE PROSPECTUS CAREFULLY, ESPECIALLY THE RISKS OF INVESTING IN THE
DECS DISCUSSED UNDER "RISK FACTORS FOR DECS."
THE TRUST
DECS Trust VI is a recently created Delaware business trust. The trust will
terminate on or shortly after November 15, 2002, which is referred to in this
summary as the "exchange date" because that is when the class A shares of
Metromedia Fiber common stock or their value in cash are expected to be
delivered under all of the prepaid forward contracts the trust has with the
sellers. In some limited circumstances, the class A common stock or its value in
cash may be delivered and the trust terminated sooner than that date. In other
limited circumstances, one or more sellers who elect to deliver cash may extend
the exchange date, for purposes of their respective contracts only, to
February 15, 2003, and may subsequently accelerate the extended exchange date if
they wish. If the exchange date under any of the sellers' contracts is extended
in this way, the trust will terminate on or shortly after the date all of the
class A common stock or cash has been delivered under all of the prepaid forward
contracts.
THE DECS
The DECS are securities that represent all of the beneficial interest in the
trust. The underwriters named in this prospectus are offering the DECS for sale
at a price of $39.4375 per DECS. The last sale price of a share of the class A
common stock on The Nasdaq Stock Market's National Market on November 11, 1999
was $39 1/4. The underwriters also may purchase up to 1,500,000 additional DECS
from the trust to cover over-allotments.
PURPOSE OF THE TRUST
The trust was created to issue the DECS and to carry out the transactions
described in this prospectus. The terms of the DECS are designed to give you a
higher yield than the current dividend yield on the class A common stock, while
also giving you the chance to share in the increased value of class A common
stock if its price goes up. Metromedia Fiber does not currently pay dividends on
its common stock and has stated that it does not intend to do so, but in the
future Metromedia Fiber might pay dividends that are higher than the
distributions that you will receive from the trust. Also, you will receive less
than you paid for your DECS if the price of the class A common stock goes down,
but you will receive only part of the increased value if the price goes up, and
then only if the price is above $46.5339 per share shortly before the exchange
date.
QUARTERLY DISTRIBUTIONS
For each DECS that you buy, you will receive a cash distribution of $0.6162
on each February 15, May 15, August 15 and November 15, starting on
February 15, 2000 and ending on November 15, 2002. Those payments will be made
from the U.S. treasury securities that the trust acquires when it issues the
DECS.
DISTRIBUTIONS ON THE EXCHANGE DATE
On the exchange date, you will receive between 0.8475 and 1.0 shares of
class A common stock for each DECS you own. Those amounts will be adjusted if
Metromedia Fiber splits its stock, pays a stock dividend, issues warrants or
distributes certain types of assets or if certain other events occur that are
described in detail later in this prospectus. Under its prepaid forward contract
with the trust, each seller has the option to deliver cash to the trust instead
of shares of class A common stock. If a seller decides to deliver cash, you will
receive the cash value of the class A common stock you would have received under
that seller's contract instead of the shares themselves. If Metromedia Fiber
merges into
3
<PAGE>
another company or liquidates, you may receive shares of the other company or
cash instead of class A common stock on the exchange date. And if a seller
defaults under its prepaid forward contract with the trust, the obligations of
that seller under its contract will be accelerated, and the trust will
immediately distribute to you the class A common stock or cash received by the
trust under the relevant prepaid forward contract, plus a proportionate amount
of the U.S. treasury securities then held by the trust.
In addition, each seller may elect to deliver cash instead of all or a
portion of the class A common stock subject to its contract by completing an
offering of securities to refinance the DECS. We refer to such an offering as a
rollover offering. Each seller may extend the exchange date under its prepaid
forward contract to February 15, 2003, but only in connection with a rollover
offering. If any seller completes a rollover offering and has extended the
exchange date, that seller will deliver the cash due under its prepaid forward
contract by the fifth business day after the extended exchange date. Any sellers
that have elected to extend the exchange date to February 15, 2003 will also
have the option of later accelerating the exchange date to between November 15,
2002 and February 15, 2003, in which case such sellers will deliver the cash due
under their prepaid forward contracts by the fifth business day after the
accelerated exchange date.
In addition, any seller that has extended the exchange date will deliver
cash to be distributed as an additional partial distribution for the period
beginning on November 15, 2002 and ending on the date the seller delivers the
cash value of the class A common stock under its prepaid forward contract.
VOTING RIGHTS
You will not have the right to vote any class A common stock unless and
until it is delivered to the trust by the sellers and distributed to you by the
trust. You will have the right to vote on matters that affect the trust.
ASSETS OF THE TRUST; INVESTMENT OBJECTIVES AND POLICIES
The trust will own the following assets:
- zero-coupon U.S. treasury securities that will mature every quarter during
the term of the trust, and which will provide cash to pay the quarterly
distributions on the DECS
- a prepaid forward contract with each of the sellers under which each
relevant seller has the right to deliver class A common stock and/or cash
to the trust on the exchange date, which the trust will then distribute to
you
The U.S. treasury securities initially will represent approximately 17% of
the trust's assets and the prepaid forward contracts initially will represent
approximately 83%.
The trust's investment objective is to provide you with (1) a quarterly
distribution of $0.6162 per DECS over the term of the trust and (2) class A
common stock on the exchange date in an amount equal to:
- 0.8475 shares of class A common stock per DECS if the average price of
class A common stock shortly before the exchange date is more than
$46.5339 per share
- shares of class A common stock worth $39.4375 per DECS (the issue price of
the DECS) if the average price of class A common stock shortly before the
exchange date is more than $39.4375 per share but less than or equal to
$46.5339 per share
- one share of class A common stock per DECS if the average price of class A
common stock shortly before the exchange date is $39.4375 or less per
share
The trust will not deliver fractions of a share of class A common stock. If
you would receive a fraction of a share of class A common stock under this
formula (based on all DECS owned), you will receive cash instead.
4
<PAGE>
At the closing of the sale of the DECS, the trust will enter into prepaid
forward contracts with each of the sellers. The prepaid forward contracts will
require the sellers to deliver to the trust up to a total of 11,500,000 shares
of class A common stock on the exchange date for all of the contracts together.
The purchase price for the class A common stock under each prepaid forward
contract will be $32.6969 per share or $326,968,960 in total for all of the
contracts together. The trust will pay the sellers the purchase price for the
class A common stock on the date the DECS are issued.
Each seller will secure its obligations to deliver class A common stock to
the trust on the exchange date by pledging stock to the trust on the date the
DECS are issued. During the term of the DECS, the sellers will have the right to
substitute U.S. treasury securities or other cash equivalents as collateral for
their pledged common stock.
Any seller electing to extend the exchange date under its contract to
February 15, 2003 will secure its obligation to pay interest accruing during the
period beginning on November 15, 2002 and ending on the extended (or
accelerated) exchange date by pledging U.S. treasury securities or other cash
equivalents to the trust.
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
For U.S. federal income tax purposes, the trust and owners of DECS agree to
treat the owners of DECS as owning all of the beneficial interests in the U.S.
treasury securities and the prepaid forward contracts held by the trust. In
addition, the sellers, the trust and owners of DECS agree to treat a portion of
the amount invested by you as a cash deposit that will be used to satisfy your
obligation to make payment under the prepaid forward contracts for the purchase
of class A common stock on the exchange date. Under this treatment, if you are a
U.S. individual or taxable entity, you generally will be required to pay taxes
on only a relatively small portion of each quarterly cash distribution you
receive from the trust, which will be ordinary income. If you hold the DECS
until they mature, you will not be subject to tax on the receipt of class A
common stock. If you sell your DECS or receive cash on the exchange date, you
will have a capital gain or loss equal to the difference between your tax basis
in the DECS and the cash you receive. In addition, it is possible that you will
have a capital gain on a deemed exchange of a portion of your DECS during the
term of the DECS. You should refer to the section "Certain United States Federal
Income Tax Considerations" in this prospectus for more information.
METROMEDIA FIBER
A prospectus and a prospectus supplement that describe Metromedia Fiber and
the class A common stock that you may receive are attached to this prospectus.
Metromedia Fiber is not affiliated with the trust, will not receive any of the
proceeds from the sale of the DECS by the trust and will not have any obligation
under the DECS or the prepaid forward contracts between the trust and the
sellers. The sellers did not prepare, and are not responsible for, the
Metromedia Fiber prospectus or prospectus supplement. The Metromedia Fiber
prospectus and prospectus supplement are attached to this prospectus only for
your convenience. The Metromedia Fiber prospectus and prospectus supplement are
not part of this prospectus and are not incorporated by reference into this
prospectus.
MANAGEMENT AND ADMINISTRATION OF THE TRUST
The internal operations of the trust will be managed by three trustees; the
trust will not have an investment advisor. The Bank of New York (or its
successor) will act as trust administrator to carry out the day-to-day
administration of the trust, and will also be the custodian for the trust's
assets, its paying agent, registrar and transfer agent for the DECS and the
collateral agent for the sellers' pledges of common stock or U.S. treasury
securities or other cash equivalents to the trust. The Bank of New York will not
have any other affiliation with the trust.
5
<PAGE>
TERM OF THE TRUST
The trust will terminate automatically on or shortly after the date on which
the trust distributes to you the class A common stock or cash that the trust
receives on the exchange date under its prepaid forward contracts with the
sellers. Under most circumstances, this will be on or shortly after
November 15, 2002 or February 15, 2003 if any seller has elected to extend the
exchange date under its contract.
RISK FACTORS
- The trust will not dispose of its prepaid forward contracts for class A
common stock during the term of the trust even if the value of class A
common stock declines or Metromedia Fiber's financial condition changes
for the worse.
- During the term of the trust, Metromedia Fiber could start paying
dividends that would provide investors in its stock with a higher yield
than you will receive on the DECS.
- You will bear the entire risk of declines in the value of the class A
common stock between the closing date and the exchange date. The amount of
class A common stock or cash that you will receive on the exchange date is
not fixed, but is based on the market price of class A common stock
shortly before the exchange date. If the market price of class A common
stock declines, the stock or cash that you receive will be less than what
you paid for your DECS and you will lose money. If Metromedia Fiber
becomes bankrupt or insolvent, you could lose everything you paid for your
DECS.
- You will have less opportunity for gains if the value of the class A
common stock increases than you would have if you purchased the class A
common stock directly. You will realize a gain only if the value of the
class A common stock increases by approximately 18% between the closing
date and the exchange date, and then you will only receive 84.75% of the
increase in the class A common stock price above that level.
- Because the trust will determine the value of the class A common stock
based on its average price for 20 trading days before the exchange date,
the actual value of the stock or cash that you receive on the exchange
date may be more or less than the price of the stock on the exchange date.
- Because the trust will own only U.S. treasury securities and the prepaid
forward contracts, an investment in the DECS may be riskier than an
investment in an investment company with more diversified assets.
- The trading price of the class A common stock will directly affect the
trading price of the DECS in the secondary market. The trading price of
class A common stock will be influenced by Metromedia Fiber's operating
results and prospects, by economic, financial and other factors and by
general market conditions.
- You will not have any right to vote the common stock underlying the DECS,
to receive dividends on that stock (if any are declared) or to act as an
owner of the stock in any other way unless and until the sellers deliver
the stock to the trust under their prepaid forward contracts and the trust
distributes the stock to you.
- A bankruptcy of any of the sellers could interfere with the timing of the
delivery of shares or cash under the DECS and therefore could affect the
amount you receive.
LISTING
The trust has applied to have the DECS approved for listing on The Nasdaq
Stock Market's National Market under the symbol "MFDE." The class A common stock
is quoted on The Nasdaq Stock Market's National Market under the symbol "MFNX."
The last reported sale price of the class A common stock on November 11, 1999
was $39 1/4 per share.
6
<PAGE>
FEES AND EXPENSES
Because the trust will use proceeds from the sale of the DECS to purchase
the forward contracts from the sellers, the sellers have agreed in the
underwriting agreement to pay to the underwriters as compensation $1.1831 per
DECS. See "Underwriting." Salomon Smith Barney Inc. ("Salomon Smith Barney")
will pay estimated organization costs of the trust in the aggregate amount of
$11,000 and estimated costs of the trust in connection with the initial
registration and public offering of the DECS in the aggregate amount of
approximately $314,000 at the closing of this offering. In addition, Salomon
Smith Barney will pay the Administrator, the Custodian, the Paying Agent and
each Trustee at the closing of this offering a one-time, up-front amount in
respect of its ongoing fees and, in the case of the Administrator, anticipated
expenses of the trust (estimated to be $300,000 in the aggregate) over the term
of the trust. Salomon Smith Barney has agreed to pay any on-going expenses of
the trust in excess of these estimated amounts and to reimburse the trust for
any amounts it may be required to pay as indemnification to any Trustee, the
Administrator, the Custodian or the Paying Agent. The sellers will reimburse
Salomon Smith Barney for certain expenses of the trust and reimbursements of
indemnifications paid by it. See "Management and Administration of the
Trust--Estimated Expenses."
Regulations of the Securities and Exchange Commission require the
presentation of trust expenses in the following format in order to assist
investors in understanding the costs and expenses that an investor will bear
directly or indirectly. Because the trust will not bear any ongoing fees or
expenses, investors will not bear any direct expenses. The only expenses that an
investor might be considered to bear indirectly are (a) the underwriters'
compensation payable by the sellers with respect to such investor's DECS and
(b) the ongoing expenses of the trust (including fees of the Administrator,
Custodian, Paying Agent and Trustees), estimated at $100,000 per year in the
aggregate, which Salomon Smith Barney will pay at the closing of the offering.
<TABLE>
<S> <C>
Investor transaction expenses
Sales Load (as a percentage of offering price)............ 3%
===
Annual Expenses
Management Fees........................................... 0%
Other Expenses (after reimbursement by the sellers)*...... 0%
Total Annual Expenses*................................ 0%
===
</TABLE>
- ------------------------
* Without this reimbursement, the trust's "total annual expenses" would be
equal to approximately 0.03% of the trust's average net assets.
SEC REGULATIONS ALSO REQUIRE THAT CLOSED-END INVESTMENT COMPANIES PRESENT AN
ILLUSTRATION OF CUMULATIVE EXPENSES (BOTH DIRECT AND INDIRECT) THAT AN INVESTOR
WOULD BEAR. THE REGULATIONS REQUIRE THE ILLUSTRATION TO FACTOR IN THE APPLICABLE
SALES LOAD AND TO ASSUME, IN ADDITION TO A 5% ANNUAL RETURN, THE REINVESTMENT OF
ALL DISTRIBUTIONS AT NET ASSET VALUE. INVESTORS SHOULD NOTE THAT THE ASSUMPTION
OF A 5% ANNUAL RETURN DOES NOT ACCURATELY REFLECT THE FINANCIAL TERMS OF THE
TRUST. SEE "INVESTMENT OBJECTIVES AND POLICIES--TRUST ASSETS." ADDITIONALLY, THE
TRUST DOES NOT PERMIT THE REINVESTMENT OF DISTRIBUTIONS.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
-------- --------
<S> <C> <C>
You would pay the following expenses (i.e., the applicable
sales load and allocable portion of ongoing expenses paid by
Salomon Smith Barney and the sellers) on a $1,000
investment, assuming a 5% annual return..................... $30.76 $30.76
</TABLE>
7
<PAGE>
THE TRUST
DECS Trust VI is a newly organized Delaware business trust that is
registered as a closed-end management investment company under the Investment
Company Act. The trust was formed on October 22, 1999, pursuant to a Declaration
of Trust, dated as of October 22, 1999. The term of the trust will expire on or
shortly after November 15, 2002, except that the trust may be dissolved prior to
such date under certain limited circumstances or extended under other
circumstances. The address of the trust is c/o Puglisi & Associates,
850 Library Avenue, Suite 204, Newark, DE 19711 (telephone number: (302)
738-6600).
USE OF PROCEEDS
On or shortly after the date on which it sells the DECS, the trust will use
the proceeds of this offering to purchase a fixed portfolio comprised of a
series of zero-coupon U.S. treasury securities maturing quarterly during the
term of the trust and to pay the purchase price under each prepaid forward
contract to the relevant seller.
INVESTMENT OBJECTIVES AND POLICIES
TRUST ASSETS
The trust's investment objectives are to provide investors with a quarterly
distribution of $0.6162 per DECS on each distribution date during the term of
the trust (representing the pro rata portion of the quarterly distributions in
respect of the maturing U.S. treasury securities held by the trust) and to
provide investors, on November 15, 2002 or such later date not later than
February 15, 2003 as may be elected by one or more sellers making a Rollover
Offering as described below (in each case, the "Exchange Date" under the
applicable prepaid forward contract or contracts), a number of shares of
class A common stock at the Exchange Rate (as defined below) or, to the extent
that one or more sellers elects the Cash Delivery Option (as defined below), an
amount in cash equal to the Exchange Price (as defined below) thereof. On or
prior to the 25th Business Day prior to the Exchange Date, each seller will
notify the trust concerning its exercise of the Cash Delivery Option, and the
trust in turn will notify The Depository Trust Company and publish a notice in a
daily newspaper of national circulation stating whether investors will receive
shares of class A common stock, cash or both. See "--The Forward
Contracts--General" below. "Business Day" means any day that is not a Saturday,
a Sunday or a day on which the New York Stock Exchange or banking institutions
or trust companies in The City of New York are authorized or obligated by law or
executive order to close.
The "Exchange Rate" is equal to, subject to certain adjustments,
(a) if the Exchange Price (as defined below) is greater than $46.5339 (the
"Threshold Appreciation Price"), 0.8475 shares of class A common stock
per DECS;
(b) if the Exchange Price is less than or equal to the Threshold
Appreciation Price but is greater than $39.4375 (the "Initial Price"), a
fraction, equal to the Initial Price divided by the Exchange Price, of
one share of class A common stock per DECS; and
(c) if the Exchange Price is less than or equal to the Initial Price, one
share of class A common stock per DECS.
Accordingly, the value of the class A common stock to be received by
investors (or, as discussed below, the cash equivalent to be received in lieu of
such class A common stock) at the Exchange Date will not necessarily equal the
Initial Price. The numbers of shares of class A common stock per DECS specified
in clauses (a), (b) and (c) of the Exchange Rate are hereinafter referred to as
the "Share Components." Any shares of class A common stock delivered by the
trust to investors that are not affiliated with Metromedia Fiber will be free of
any transfer restrictions and the investors will be
8
<PAGE>
responsible for the payment of all brokerage costs upon the subsequent sale of
such shares. Investors otherwise entitled to receive fractional shares in
respect of their aggregate holdings of DECS will receive cash in lieu thereof.
See "--Delivery of Common Stock and Reported Securities; No Fractional Shares of
Common Stock or Reported Securities" below. Notwithstanding the foregoing,
(1) in the case of certain dilution events, the Exchange Rate will be subject to
adjustment and (2) in the case of certain adjustment events, the consideration
received by investors at the Exchange Date will be cash or Reported Securities
(as defined below) or a combination thereof, rather than (or in addition to)
shares of class A common stock. See "--The Forward Contracts--Dilution
Adjustments" and "--The Forward Contracts--Adjustment Events" below.
The trust has adopted a fundamental policy to invest at least 65% of its
portfolio in the prepaid forward contracts. The prepaid forward contracts will
comprise approximately 83% of the trust's initial assets. The trust has also
adopted a fundamental policy that the trust may not dispose of the prepaid
forward contracts during the term of the trust and that the trust may not
dispose of the U.S. treasury securities held by the trust prior to the earlier
of their respective maturities and the termination of the trust except for the
partial liquidation of such treasury securities following acceleration of one or
more prepaid forward contracts as described below under "--The Treasury
Securities." These fundamental policies of the trust may not be changed without
the vote of a "majority in interest" of the owners of the DECS. A "majority in
interest" means the lesser of (a) 67% of the DECS represented at a meeting at
which more than 50% of the outstanding DECS are represented and (b) more than
50% of the outstanding DECS.
The "Exchange Price" under any prepaid forward contract means the average
Closing Price (as defined below) per share of class A common stock on the 20
Trading Days immediately prior to, but not including, the Exchange Date
thereunder; provided, however, that if there are not 20 Trading Days (as defined
below) for the class A common stock occurring later than the 60th calendar day
immediately prior to, but not including, the Exchange Date, the Exchange Price
will be the market value per share of the class A common stock as of the
Exchange Date as determined by a nationally recognized independent investment
banking firm that the Administrator retains for this purpose. The Exchange Price
will be calculated in a different manner if the relevant seller carries out a
Rollover Offering (as defined below), as described under "--Rollover Offerings."
The "Closing Price" of any security on any date of determination means:
(1) the closing sale price (or, if no closing price is reported, the last
reported sale price) of such security (regular way) on the NYSE on such
date,
(2) if such security is not listed for trading on the NYSE on any such date,
as reported in the composite transactions for the principal United States
securities exchange on which such security is so listed,
(3) if such security is not so listed on a United States national or
regional securities exchange, as reported by The Nasdaq Stock Market,
(4) if such security is not so reported, the last quoted bid price for such
security in the over-the-counter market as reported by the National
Quotation Bureau or similar organization, or
(5) if such security is not so quoted, the average of the mid-point of the
last bid and ask prices for such security from at least three nationally
recognized investment banking firms that the Administrator selects for
such purpose.
A "Trading Day" is defined as a day on which the security the Closing Price
of which is being determined (A) is not suspended from trading on any national
or regional securities exchange or association or over-the-counter market at the
close of business and (B) has traded at least once on the national or regional
securities exchange or association or over-the-counter market that is the
primary
9
<PAGE>
market for the trading of such security. For illustrative purposes only, the
following chart shows the number of shares of class A common stock or the amount
of cash that an investor would receive for each DECS at various Exchange Prices.
The chart assumes that there will be no adjustments to the Exchange Rate due to
any of the events described under "--The Forward Contracts--Dilution
Adjustments" and "--The Forward Contracts--Adjustment Events" below and that the
prepaid forward contracts will not be accelerated. There can be no assurance
that the Exchange Price will be within the range set forth below. Given the
Initial Price of $39.4375 per DECS and the Threshold Appreciation Price of
$46.5339, an investor would receive at the Exchange Date the following number of
shares of class A common stock or amount of cash (if all sellers exercise the
Cash Delivery Option for all of their shares of class A common stock) per DECS:
<TABLE>
<CAPTION>
EXCHANGE PRICE OF NUMBER OF SHARES OF
CLASS A CLASS A
COMMON STOCK COMMON STOCK AMOUNT OF CASH
- --------------------- ------------------- --------------
<S> <C> <C>
38.0000 1.0000 38.0000
39.4375 1.0000 39.4375
43.0000 0.9172 39.4375
46.5339 0.8475 39.4375
47.0000 0.8475 39.8325
</TABLE>
As the foregoing chart illustrates, if at the Exchange Date, the Exchange
Price is greater than $46.5339, the trust will be obligated to deliver 0.8475
shares of class A common stock per DECS, resulting in an investor receiving only
84.75% of the appreciation in market value above $46.5339. If at the Exchange
Date, the Exchange Price is greater than $39.4375 and less than or equal to
$46.5339, the trust will be obligated to deliver only a fraction of a share of
class A common stock having a value at the Exchange Price equal to $39.4375,
resulting in an investor receiving none of the appreciation in market value. If
at the Exchange Date, the Exchange Price is less than or equal to $39.4375, the
trust will be obligated to deliver one share of class A common stock per DECS,
regardless of the market price of such share, resulting in an investor realizing
the entire loss on the decline in market value of the class A common stock.
The following table sets forth information regarding the distributions to be
received on the U.S. treasury securities held by the trust, the portion of each
year's distributions that will constitute a return of capital for U.S. federal
income tax purposes and the amount of original issue discount accruing on such
treasury securities with respect to an investor who acquires its DECS at the
initial public offering price from the underwriters in the original offering.
See "Certain United States Federal Income Tax Considerations."
<TABLE>
<CAPTION>
ANNUAL GROSS ANNUAL INCLUSION OF
ANNUAL GROSS DISTRIBUTIONS FROM ORIGINAL ISSUE
DISTRIBUTIONS FROM TREASURY SECURITIES ANNUAL RETURN PER DISCOUNT IN INCOME
TREASURY SECURITIES PER DECS DECS PER DECS
------------------- ------------------- ----------------- -------------------
<S> <C> <C> <C> <C>
1999........................ $ 0 $ 0 $ -0.0457 $0.0457
2000........................ $24,511,502 $2.4512 $ 2.1273 $0.3239
2001........................ $24,648,438 $2.4648 $ 2.2625 $0.2023
2002........................ $24,648,438 $2.4648 $ 2.3954 $0.0694
</TABLE>
The trust will pay the annual distribution of $0.6162 per DECS quarterly on
each February 15, May 15, August 15 and November 15 (or, if any such date is not
a Business Day, on the next succeeding Business Day), commencing February 15,
2000. Quarterly distributions on the DECS will consist solely of the cash
received from the U.S. treasury securities held by the trust. The trust will not
be entitled to any dividends that may be declared on the class A common stock.
10
<PAGE>
ENHANCED YIELD; LESS POTENTIAL FOR EQUITY APPRECIATION THAN CLASS A COMMON
STOCK; NO DEPRECIATION PROTECTION
The yield on the DECS is higher than the current dividend yield on the
class A common stock, which currently does not pay dividends. However, there is
no assurance that the yield on the DECS will be higher than the dividend yield
on the class A common stock over the term of the trust. In addition, the
opportunity for equity appreciation afforded by an investment in the DECS is
less than the opportunity for equity appreciation afforded by a direct
investment in the class A common stock because the value of the class A common
stock to be received by owners of the DECS at the Exchange Date (the "Amount
Receivable at the Exchange Date") will generally exceed the Initial Price only
if the Exchange Price exceeds the Threshold Appreciation Price (which represents
an appreciation of approximately 18% over the Initial Price) and because
investors will be entitled to receive at the Exchange Date only 84.75% (the
percentage equal to the Initial Price divided by the Threshold Appreciation
Price) of any appreciation of the value of the class A common stock in excess of
the Threshold Appreciation Price. Moreover, DECS investors will bear the entire
decline in value if the Exchange Price on the Exchange Date is less than the
Initial Price. Additionally, because the Exchange Price is generally determined
based on a 20 Trading Day average, the value of a share of class A common stock
distributed on the Exchange Date may be more or less than the Exchange Price
used to determine the Amount Receivable at the Exchange Date.
A prospectus and prospectus supplement that describe Metromedia Fiber and
the class A common stock that owners of DECS may receive are attached to this
prospectus.
Owners of DECS will not be entitled to any rights with respect to the
class A common stock (including, without limitation, voting rights and rights to
receive dividends or other distributions in respect thereof) unless and until
such time, if any, as the sellers deliver shares of class A common stock to the
trust pursuant to the prepaid forward contracts and the trust has distributed
such shares to the owners of the DECS.
The class A common stock has been quoted on The Nasdaq Stock Market's
National Market under the symbol "MFNX" since October 29, 1997. The following
table sets forth, for the indicated periods, the high and low sales prices of
the class A common stock, as reported on The Nasdaq Stock Market's National
Market, giving effect to Metromedia Fiber's stock splits. Metromedia Fiber has
never paid cash dividends on the class A common stock and has stated that it
does not anticipate paying cash dividends on the class A common stock in the
foreseeable future. As of October 25, 1999, there were 361 record holders of the
class A common stock. Metromedia Fiber's fiscal year end is December 31.
<TABLE>
<CAPTION>
HIGH LOW
----------- -----------
<S> <C> <C>
Fiscal 1999 Fourth Quarter (through November 11, 1999)...... 39 7/8 23 3/4
Fiscal 1999 Third Quarter................................... 41 1/4 21 1/8
Fiscal 1999 Second Quarter.................................. 47 9/16 26 9/16
Fiscal 1999 First Quarter................................... 28 5/8 16 7/8
Fiscal 1998 Fourth Quarter.................................. 19 1/16 5 7/8
Fiscal 1998 Third Quarter................................... 9 1/16 4 7/32
Fiscal 1998 Second Quarter.................................. 5 29/32 3 3/16
Fiscal 1998 First Quarter................................... 5 7/16 1 59/64
</TABLE>
Metromedia Fiber is not affiliated with the trust, will not receive any of
the proceeds from the sale of the DECS by the trust and will have no obligations
with respect to the DECS or the prepaid forward contracts. This prospectus
relates only to the DECS offered hereby and does not relate to Metromedia Fiber
or the class A common stock. Metromedia Fiber has filed a registration statement
with the SEC with respect to the shares of class A common stock that may be
delivered to the trust by the sellers, and by the trust to the owners of DECS,
at the Exchange Date or upon earlier acceleration
11
<PAGE>
of any of the prepaid forward contracts. The prospectus and prospectus
supplement of Metromedia Fiber constituting a part of such registration
statement include information relating to Metromedia Fiber and the class A
common stock, including certain risk factors relevant to an investment in the
class A common stock. The prospectus and prospectus supplement of Metromedia
Fiber are being attached hereto and delivered to prospective purchasers of DECS
together with this prospectus for convenience of reference only. The Metromedia
Fiber prospectus and prospectus supplement are not part of this prospectus, and
are not incorporated by reference into this prospectus. The sellers did not
prepare, and are not responsible for, the Metromedia Fiber prospectus or
prospectus supplement.
THE FORWARD CONTRACTS
GENERAL. The trust will enter into the prepaid forward contracts with the
sellers obligating each seller to deliver to the trust at the Exchange Date
under its prepaid forward contract a number of shares of class A common stock
equal to the initial number of shares of the class A common stock subject to the
prepaid forward contract multiplied by the Exchange Rate. The Exchange Rate is
equal to, subject to adjustment as described in "--Dilution Adjustments" and
"--Adjustment Events" below,
(1) if the Exchange Price is greater than the Threshold Appreciation Price,
0.8475;
(2) if the Exchange Price is less than or equal to the Threshold
Appreciation Price but greater than the Initial Price, the Initial Price
divided by the Exchange Price; and
(3) if the Exchange Price is less than or equal to the Initial Price, one.
The purchase price under the prepaid forward contracts is equal to $32.6969
per share of common stock and $326,968,960 in total and is payable to the
sellers by the trust on the closing of this offering. The purchase price of the
prepaid forward contracts was arrived at by arm's length negotiations between
the trust and the sellers taking into consideration factors including the price,
expected dividend level and volatility of the class A common stock, current
interest rates, the term of the prepaid forward contracts, current market
volatility generally, the collateral pledged by the sellers to secure their
obligations under their respective prepaid forward contracts, the value of other
similar instruments and the costs and anticipated proceeds of the offering of
the DECS. All matters relating to the administration of the prepaid forward
contracts will be the responsibility of either the trust's Administrator or its
Custodian.
Although each seller currently intends to deliver shares of class A common
stock at the Exchange Date, each seller may, at its option, deliver cash in lieu
of delivering all or a portion of the shares of class A common stock otherwise
deliverable by it on the Exchange Date (the "Cash Delivery Option"), except
where such delivery would violate applicable state law. The amount of cash
deliverable by any seller who exercises the Cash Delivery Option will be equal
to the product of the number of shares of class A common stock with respect to
which that seller has experienced the Cash Delivery Option on the Exchange Date
multiplied by the Exchange Price. On or prior to the 25th Business Day prior to
the Exchange Date, each seller will notify the trust concerning its exercise of
the Cash Delivery Option, and the trust in turn will notify The Depository Trust
Company and publish a notice in a daily newspaper of national circulation
stating whether the owners of DECS will receive shares of class A common stock
or cash or both.
EXTENSION AND ACCELERATION OF THE EXCHANGE DATE AT THE OPTION OF
SELLERS. Any seller that elects the Cash Delivery Option as to any of the
shares of class A common stock subject to its prepaid forward contract and is
making a Rollover Offering may extend the Exchange Date under its prepaid
forward contract to February 15, 2003. If a seller extends the Exchange Date, it
will not be required to deliver the cash value of the class A common stock under
its prepaid forward contract for which it has elected the Cash Delivery Option
until February 15, 2003. However, once the seller extends the Exchange Date,
that seller can then accelerate the Exchange Date under its prepaid forward
contract to any date between November 15, 2002 and February 15, 2003. If any
seller extends or accelerates the Exchange
12
<PAGE>
Date under its prepaid forward contract, the trust will receive the cash payable
under that contract within five Business Days after the extended or accelerated
Exchange Date, and the amount of cash will be calculated as of the extended or
accelerated Exchange Date.
Any seller extending the Exchange Date under its prepaid forward contract in
connection with a Rollover Offering must also deliver to the trust an additional
amount of cash on the extended or accelerated Exchange Date to be distributed as
an additional distribution to the holders of the DECS in respect of the period
between the originally scheduled Exchange Date and the Exchange Date as so
extended or accelerated. In addition, such seller will be required to pledge
U.S. treasury securities or other Cash Equivalents (as defined below) to secure
its obligation to deliver cash for this additional distribution. See
"--Collateral Requirements of the Forward Contracts; Acceleration." The amount
of the additional distribution that would be paid on the DECS would be equal to
a portion of the regular quarterly distribution on the DECS pro-rated to reflect
the number of days by which the Exchange Date is extended or accelerated and the
proportion of all the class A common stock covered by all of the prepaid forward
contracts that are represented by the prepaid forward contracts as to which the
Exchange Date is being extended or accelerated. For example, if the Exchange
Date under all of the prepaid forward contracts is extended to February 15, 2003
and then accelerated to January 15, 2003 (i.e., two-thirds of the time between
November 15, 2002 and February 15, 2003), the additional distribution would be
equal to two-thirds of the regular quarterly distribution. If only forward
purchase contracts representing one-half of all of the class A common stock
deliverable under the DECS are the subject of the same extension and
acceleration, then the additional distribution would be equal to one-third of
the regular quarterly distribution.
If some sellers elect to extend the Exchange Date under their prepaid
forward contracts in connection with Rollover Offerings and others do not, then
the originally scheduled Exchange Date of November 15, 2002 will remain in
effect for the sellers who do not extend, the Exchange Price under those
sellers' prepaid forward contracts will be determined as described herein
shortly before that date, and the trust will distribute the cash and/or shares
of class A common stock it receives under those prepaid forward contracts to the
holders of DECS on or shortly after that date. All sellers who do extend the
Exchange Date under their prepaid forward contracts will be required to extend
to February 15, 2003, and no seller may then accelerate the Exchange Date under
its prepaid forward contract unless all sellers who have extended their Exchange
Dates accelerate to the same date. The Exchange Price under the accelerating
sellers' prepaid forward contracts will be calculated as described below
immediately before the extended or accelerated Exchange Date, and the trust will
distribute the cash it receives under those contracts, together with the
additional cash amount described in the preceding paragraph, to holders of the
DECS on or shortly after that date. Therefore, holders of DECS may receive the
cash and/or shares to which they are entitled on two (but not more than two)
separate dates up to three months apart, and the dates and basis on which the
cash or shares to which they are entitled will not be the same for the two
distributions.
ROLLOVER OFFERINGS. Each seller has the option to deliver cash instead of
all or a portion of the class A common stock on the Exchange Date (whether or
not extended) by completing a Rollover Offering to refinance the DECS.
The term "Rollover Offering" means a reoffering or refinancing of the DECS
effected by a seller not earlier than November 15, 2002 by means of a completed
public offering or offerings or another similar offering (which may include one
or more exchange offers), by or on behalf of such seller. If a seller elects to
carry out a Rollover Offering, the "Exchange Price" will be the Closing Price
per share of the class A common stock on the Trading Day immediately preceding
the date that the Rollover Offering is priced (the "Pricing Date") or, if the
Rollover Offering is priced after 4:00 p.m. New York City time, on the Pricing
Date, the Closing Price per share on the Pricing Date.
13
<PAGE>
If a seller carries out a Rollover Offering that is consummated on or before
the Exchange Date, the cash payable by the seller will be delivered to the trust
within five Business Days after the Exchange Date (which may be extended and
accelerated as described above) instead of on the Exchange Date itself.
Accordingly, owners of the DECS may not receive a portion of the cash
deliverable in exchange for the DECS until the fifth Business Day after the
Exchange Date.
The trust will notify the owners of the DECS (1) if any seller elects to
settle with cash, and whether it elects to do so in connection with a Rollover
Offering, not less than 30 days nor more than 90 days prior to the Exchange
Date, (2) if any seller elects to extend the Exchange Date, not less than
30 days nor more than 90 days prior to the Exchange Date as in effect when the
election is made, and (3) if any seller accelerates the Exchange Date in
connection with a Rollover Offering, not later than the Exchange Date as in
effect when the election is made.
DILUTION ADJUSTMENTS. The Exchange Rate is subject to adjustment if
Metromedia Fiber:
(1) pays a stock dividend or makes a distribution, in either case, with
respect to the class A common stock in shares of such stock,
(2) subdivides or splits its outstanding shares of class A common stock into
a greater number of shares,
(3) combines its outstanding shares of class A common stock into a smaller
number of shares,
(4) issues by reclassification (other than a reclassification pursuant to
clause (2), (3), (4) or (5) of the definition of Adjustment Event below)
of its shares of class A common stock any other equity securities of
Metromedia Fiber,
(5) issues rights or warrants (other than rights to purchase class A common
stock pursuant to a plan for the reinvestment of dividends or interest)
to all holders of class A common stock entitling them to subscribe for or
purchase shares of class A common stock at a price per share less than
the Market Price (as defined below) of the class A common stock on the
Business Day next following the record date for the determination of
holders of class A common stock entitled to receive such rights or
warrants, or
(6) is acquired by, consolidates with or merges into any other entity in a
transaction in which the holders of class A common stock receive common
stock in exchange for their shares of class A common stock.
In the case of the events referred to in clauses (1), (2), (3) and
(4) above, the Exchange Rate will be adjusted by adjusting each of the Share
Components of the Exchange Rate in effect immediately prior to such event so
that the trust will be entitled under the prepaid forward contracts to receive
at the Exchange Date the number of shares of class A common stock (or, in the
case of a reclassification referred to in clause (4) above, the number of other
equity securities of Metromedia Fiber issued pursuant thereto) which it would
have owned or been entitled to receive immediately following such event had the
Exchange Date occurred immediately prior to such event or any record date with
respect thereto.
In the case of the event referred to in clause (5) above, the Exchange Rate
will be adjusted by multiplying each of the Share Components of the Exchange
Rate in effect on the record date for the issuance of the rights or warrants
referred to in clause (5) above, by a fraction. The numerator of this fraction
is
(A) the number of shares of class A common stock outstanding on the record
date for the issuance of such rights or warrants, plus
(B) the number of additional shares of class A common stock offered for
subscription or purchase pursuant to such rights or warrants.
14
<PAGE>
The denominator of this fraction is
(x) the number of shares of class A common stock outstanding on the record
date for the issuance of such rights or warrants, plus
(y) the number specified in clause (B) above multiplied by the quotient of
(I) the exercise price of such rights or warrants divided by
(II) the Market Price of the class A common stock on the Business Day
next following the record date for the determination of holders of
class A common stock entitled to receive such rights or warrants.
To the extent that such rights or warrants expire prior to the Exchange Date
and shares of class A common stock are not delivered pursuant to such rights or
warrants prior to such expiration, the Exchange Rate will be readjusted to the
Exchange Rate which would then be in effect had such adjustments for the
issuance of such rights or warrants been made upon the basis of delivery of only
the number of shares of class A common stock actually delivered pursuant to such
rights or warrants. For purposes of this paragraph, dividends will be deemed to
be paid as of the record date for such dividend.
In the case of the the event referred to in clause (6) above, the Exchange
Rate will be adjusted on the Exchange Date (but not above one share of class A
common stock per DECS prior to the application of all other adjustments to the
Exchange Rate or the Share Components) by adjusting the Exchange Rate so that
the trust will be entitled under the prepaid forward contracts to receive at the
Exchange Date, in addition to the number of shares otherwise deliverable,
additional shares of class A common stock with a Closing Price as of the date of
such acquisition, consolidation or merger equal to 0.8475 times the amount of
dividends, if any, that would have been paid on the number of shares of such
common stock received per share of common stock in connection with such
transaction, for the period from the date of such acquisition, consolidation or
merger to the Exchange Date, at the announced dividend rate for the stock
received in such transaction at the date of consummation of such transaction.
"Market Price" means, as of any date of determination, the average Closing
Price per share of common stock on the 20 Trading Days immediately prior to,
but not including, the date of determination; provided, however, that if there
are not 20 Trading Days for the class A common stock occurring later than the
60th calendar day immediately prior to, but not including, such date, the Market
Price will be determined as the market value per share of class A common stock
as of such date as determined by a nationally recognized investment banking firm
that the Administrator retains for such purpose.
All adjustments to the Exchange Rate will be calculated to the nearest
1/10,000th of a share of common stock (or, if there is not a nearest
1/10,000th of a share, to the next higher 1/10,000th of a share). No adjustment
in the Exchange Rate will be made unless such adjustment would require an
increase or decrease of at least one percent therein; provided, however, that
any adjustments which by reason of the foregoing are not required to be made
will be carried forward and taken into account in any subsequent adjustment. If
an adjustment is made to the Exchange Rate pursuant to clauses (1), (2), (3),
(4), (5) or (6) above, an adjustment will also be made to the Exchange Price as
such term is used throughout the definition of Exchange Rate. The required
adjustment to the Exchange Price will be made at the Exchange Date by
multiplying the Exchange Price by the cumulative number or fraction determined
pursuant to the Exchange Rate adjustment procedure described above. In the case
of the reclassification of any shares of class A common stock into any equity
securities of Metromedia Fiber other than the class A common stock, such equity
securities will be deemed shares of class A common stock for all purposes. Each
such adjustment to the Exchange Rate and the Exchange Price will be made
successively.
15
<PAGE>
ADJUSTMENT EVENTS. Each of the following events are called "Adjustment
Events":
(1) any dividend or distribution by Metromedia Fiber to all holders of
class A common stock of evidences of its indebtedness or other assets
(excluding any dividends or distributions referred to in clause (1) of
the first paragraph under the caption "--Dilution Adjustments" above, any
equity securities issued pursuant to a reclassification referred to in
clause (4) of such paragraph and any Ordinary Cash Dividends (as defined
below)) or any issuance by Metromedia Fiber to all holders of class A
common stock of rights or warrants to subscribe for or purchase any of
its securities (other than rights or warrants referred to in clause (5)
of the first paragraph under the caption "--Dilution Adjustments" above),
(2) any consolidation or merger of Metromedia Fiber with or into another
entity (other than a merger or consolidation in which Metromedia Fiber is
the continuing corporation and in which the class A common stock
outstanding immediately prior to the merger or consolidation is not
exchanged for cash, securities or other property of Metromedia Fiber or
another corporation),
(3) any sale, transfer, lease or conveyance to another corporation of the
property of Metromedia Fiber as an entirety or substantially as an
entirety,
(4) any statutory exchange of securities of Metromedia Fiber with another
corporation (other than in connection with a merger or acquisition), and
(5) any liquidation, dissolution or winding up of Metromedia Fiber.
After the occurrence of any Adjustment Event, each seller will deliver at
the Exchange Date, in lieu of or (in the case of an Adjustment Event described
in clause (1) above) in addition to, shares of class A common stock as described
above, cash in an amount equal to:
(A) if the Exchange Price is greater than the Threshold Appreciation Price,
0.8475 multiplied by the Transaction Value (as defined below);
(B) if the Exchange Price is less than or equal to the Threshold
Appreciation Price but greater than the Initial Price, the product of
(x) the Initial Price divided by the Exchange Price multiplied by
(y) the Transaction Value; and
(C) if the Exchange Price is less than or equal to the Initial Price, the
Transaction Value;
provided, however, that if the consideration received by holders of class A
common stock in such Adjustment Event does not and may not at the option of such
holders include Reported Securities (as defined below), then (except in the case
of an Adjustment Event solely of the type described in (1) above) (a) each
seller's delivery obligations under its prepaid forward contract will be
accelerated and promptly upon consummation of the Adjustment Event each seller
will be required to deliver cash in an amount equal to (x) if the Transaction
Value is greater than the Threshold Appreciation Price, 0.8475 multiplied by the
Transaction Value, (y) if the Transaction Value is less than or equal to the
Threshold Appreciation Price but greater than Initial Price, the Initial Price,
and (z) if the Transaction Value is less than or equal to the Initial Price, the
Transaction Value; (b) the Custodian will liquidate the U.S. treasury securities
acquired by the trust at closing and then held by the trust; and (c) the amount
delivered by the sellers as described in (a) above and the proceeds of such
liquidation will be distributed to the owners of the DECS.
Following an Adjustment Event, the Exchange Price, as such term is used in
the formula in the preceding paragraph and throughout the definition of Exchange
Rate, will be deemed to equal (A) if shares of class A common stock are
outstanding at the Exchange Date, the Exchange Price of the
class A common stock, as adjusted pursuant to the method described above under
"--Dilution Adjustments," otherwise zero, plus (B) the Transaction Value.
16
<PAGE>
Notwithstanding the foregoing, with respect to any securities received by
holders of class A common stock in an Adjustment Event that
(1) are
(a) listed on a United States national securities exchange,
(b) reported on a United States national securities system subject to
last sale reporting,
(c) traded in the over-the-counter market and reported on the National
Quotation Bureau or similar organization,
(d) for which bid and ask prices are available from at least three
nationally recognized investment banking firms, or
(e) are immediately convertible or exchangeable on a one-for-one basis
during the term of the trust without any requirement of payment of
consideration for any of the securities specified in clauses (a)-(d);
and
(2) are either (x) perpetual equity securities or (y) non-perpetual equity
or debt securities with a stated maturity after the Exchange Date of the
DECS;
("Reported Securities"), each seller will, in lieu of delivering cash in respect
of such Reported Securities received in an Adjustment Event, deliver a number of
such Reported Securities with a value equal to all cash amounts that would
otherwise be deliverable in respect of Reported Securities received in such
Adjustment Event, as determined in accordance with clause (2) of the definition
of Transaction Value, unless such seller has made an election to exercise the
Cash Delivery Option or such Reported Securities have not yet been delivered to
the holders entitled thereto following such Adjustment Event or any record date
with respect thereto. If a seller delivers any Reported Securities, upon
distribution thereof by the trust to owners of DECS, each owner of a DECS will
be responsible for the payment of any and all brokerage and other transaction
costs upon the sale of such Reported Securities. If, following any Adjustment
Event, any Reported Security ceases to qualify as a Reported Security, then
(x) the seller will not deliver such Reported Security but instead will deliver
an equivalent amount of cash and (y) notwithstanding clause (2) of the
definition of Transaction Value, the Transaction Value of such Reported Security
will mean the fair market value of such Reported Security on the date such
security ceases to qualify as a Reported Security, as determined by a nationally
recognized investment banking firm that the Administrator retains for this
purpose.
Because each DECS represents the right of the owner of the DECS to receive a
PRO RATA portion of the class A common stock or other assets delivered by the
sellers pursuant to the prepaid forward contracts, the amount of cash and/or the
kind and number of securities which the owners of DECS are entitled to receive
after an Adjustment Event will be adjusted following the date of such Adjustment
Event in the same manner and upon the occurrence of the same type of events as
described under the captions "--Dilution Adjustments" and "--Adjustment Events"
with respect to class A common stock and Metromedia Fiber.
For purposes of the foregoing, the term "Ordinary Cash Dividend" means, with
respect to any consecutive 365-day period, any dividend with respect to the
class A common stock paid in cash to the extent that the amount of such
dividend, together with the total amount of all other dividends on the class A
common stock paid in cash during such 365-day period, does not exceed on a per
share basis 10% of the average of the Closing Prices of the class A common stock
over such 365-day period.
The term "Transaction Value" means
(1) for any cash received in any Adjustment Event, the amount of cash
received per share of class A common stock,
(2) for any Reported Securities received in any Adjustment Event, an amount
equal to (x) the average Closing Price per security of such Reported
Securities on the 20 Trading Days
17
<PAGE>
immediately prior to, but not including, the Exchange Date multiplied by
(y) the number of such Reported Securities (as adjusted pursuant to the
methods described above under "--Dilution Adjustments" and "--Adjustment
Events") received per share of class A common stock, and
(3) for any property received in any Adjustment Event other than cash or
such Reported Securities, an amount equal to the fair market value of the
property received per share of class A common stock on the date such
property is received, as determined by a nationally recognized investment
banking firm that the Administrator retains for this purpose;
provided, however, that in the case of clause (2),
(x) with respect to securities that are Reported Securities by virtue of
only clause (d) of the definition of Reported Securities above,
Transaction Value with respect to any such Reported Security means the
average of the mid-point of the last bid and ask prices for such Reported
Security as of the Exchange Date from each of at least three nationally
recognized investment banking firms that the Administrator retains for
such purpose multiplied by the number of such Reported Securities (as
adjusted pursuant to the methods described above under "--Dilution
Adjustments" and "--Adjustment Events") received per share of class A
common stock, and
(y) with respect to all other Reported Securities, if there are not 20
Trading Days for any particular Reported Security occurring after the
60th calendar day immediately prior to, but not including, the Exchange
Date, Transaction Value with respect to such Reported Security means the
market value per security of such Reported Security as of the Exchange
Date as determined by a nationally recognized investment banking firm
that the Administrator retains for such purpose multiplied by the number
of such Reported Securities (as adjusted pursuant to the methods
described above under "--Dilution Adjustments" and "--Adjustment Events")
received per share of class A common stock.
For purposes of calculating the Transaction Value, any cash, Reported
Securities or other property receivable in an Adjustment Event will be deemed to
have been received immediately prior to the close of business on the record date
for such Adjustment Event or, if there is no record date for such Adjustment
Event, immediately prior to the close of business on the effective date of such
Adjustment Event.
No adjustments will be made for certain other events, such as offerings of
class A common stock by Metromedia Fiber for cash or in connection with
acquisitions. Likewise, no adjustments will be made for any sales of class A
common stock by the sellers.
Each seller is required under its prepaid forward contract to notify the
trust promptly upon becoming aware that an event requiring an adjustment to the
Exchange Rate or which is an Adjustment Event is pending or has occurred. The
trust will, within ten Business Days following the occurrence of an event that
requires an adjustment to the Exchange Rate or the occurrence of an Adjustment
Event (or, in either case, if the trust is not aware of such occurrence, as soon
as practicable after becoming so aware), notify each owner of DECS in writing of
the occurrence of such event including a statement in reasonable detail setting
forth the method by which the adjustment to the Exchange Rate or change in the
consideration to be received by owners of DECS following the Adjustment Event
was determined and setting forth the revised Exchange Rate or consideration, as
the case may be. However, for any adjustment to the Exchange Price, this notice
will only disclose the factor by which the Exchange Price is to be multiplied in
order to determine which clause of the Exchange Rate definition will apply at
the Exchange Date.
COLLATERAL REQUIREMENTS OF THE FORWARD CONTRACTS; ACCELERATION. Each
seller's obligations under its prepaid forward contract will be secured by a
pledge of one share of Metromedia Fiber common stock
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for each share of class A common stock subject to the prepaid forward contract
(subject to adjustment in accordance with the dilution provisions of the prepaid
forward contract), pursuant to a Collateral Agreement among the seller, the
trust and The Bank of New York, as collateral agent (the "Collateral Agent"). In
addition, the obligation of any seller to pay an additional amount in connection
with the extension or acceleration of the Exchange Date will be secured by a
pledge of U.S. treasury securities or other Cash Equivalents.
Unless they are in default in their obligations under their respective
Collateral Agreements, the sellers under each of the prepaid forward contracts
will be permitted to substitute for the pledged shares of Metromedia Fiber
common stock collateral consisting of short-term, direct obligations of the U.S.
Government or other Cash Equivalents. Any U.S. Government obligations or other
Cash Equivalents pledged as substitute collateral for shares of Metromedia Fiber
common stock must have an aggregate market value at the time of substitution and
at daily mark-to-market valuations thereafter of not less than 150% (or, from
and after any Insufficiency Determination (as defined below) that is not cured
by the close of business on the next Business Day thereafter, as described
below, 200%) of the product of the market price of the class A common stock at
the time of each valuation times the number of shares of Metromedia Fiber common
stock for which such obligations are being substituted. Each of the Collateral
Agreements provides that, after an Adjustment Event, the relevant seller will
pledge as alternative collateral any Reported Securities, plus cash in an amount
at least equal to the Transaction Value of any consideration other than Reported
Securities, received by it in respect of the maximum number of shares of class A
common stock subject to its prepaid forward contract at the time of the
Adjustment Event. The number of Reported Securities required to be pledged will
be adjusted if any event requiring a dilution adjustment under the prepaid
forward contracts occurs. Each seller will be permitted to substitute U.S.
Government obligations or other Cash Equivalents for Reported Securities or cash
pledged after any Adjustment Event. Any U.S. Government obligations or other
Cash Equivalents so substituted must have an aggregate market value at the time
of substitution and at daily mark-to-market valuations thereafter of:
(A) in the case of obligations substituted for pledged Reported Securities,
not less than 150% (or, from and after any Insufficiency Determination
that is not cured by the close of business on the next Business Day
thereafter, as described below, 200%) of the product of the market price
per security of Reported Securities at the time of each valuation times
the number of Reported Securities for which such obligations are being
substituted; and
(B) in the case of obligations substituted for pledged cash, not less than
105% of the amount of cash for which such obligations are being
substituted.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by (a) the United States government
or any agency or instrumentality thereof (provided that the full faith and
credit of the United States is pledged in support thereof) having maturities of
not more than six months from the date of acquisition, (iii) certificates of
deposit with maturities of six months or less from the date of acquisition,
bankers' acceptances with maturities not exceeding six months and overnight bank
deposits, in each case with any domestic commercial bank having capital and
surplus in excess of $500 million and a Thompson Bank Watch Rating of "B" or
better, (iv) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clause (ii) above entered into
with any financial institution meeting the qualifications specified in
clause (iii) above, (v) commercial paper having the highest rating obtainable
from Moody's Investors Service, Inc. or Standard & Poor's Ratings Group and in
each case maturing within six months after the date of acquisition and
(vi) money market funds at least 95% of the assets of which constitute Cash
Equivalents of the kinds described in clauses (i)-(v) of this definition.
The Collateral Agent will promptly pay over to the relevant seller any
dividends, interest, principal or other payments received by the Collateral
Agent in respect of any collateral, including any substitute collateral, unless
the seller is in default of its obligations under its Collateral Agreement, or
unless the
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payment of such amount to the seller would cause the seller's collateral to
become insufficient under its Collateral Agreement.
If the Collateral Agent determines (an "Insufficiency Determination") that
U.S. Government obligations or other Cash Equivalents pledged by a seller as
substitute collateral fail to meet the foregoing requirements at any valuation,
or that a seller has failed to pledge additional collateral required as a result
of a dilution adjustment increasing the maximum number of shares of class A
common stock or Reported Securities subject to its prepaid forward contract, and
such failure is not cured by the close of business on the next Business Day
after such determination, then, unless a Collateral Event of Default (as defined
below) under the relevant Collateral Agreement has occurred and is continuing,
the Collateral Agent will commence (1) sales of the collateral consisting of
U.S. Government obligations or other Cash Equivalents and (2) purchases, using
the proceeds of such sales, of shares of class A common stock or Reported
Securities in an amount sufficient to cause the collateral to meet the
requirements under the relevant Collateral Agreement. The Collateral Agent will
discontinue such sales and purchases if at any time a Collateral Event of
Default under the relevant Collateral Agreement has occurred and is continuing.
The occurrence of a Collateral Event of Default under any seller's
Collateral Agreement, or the bankruptcy or insolvency of a seller, will cause an
automatic acceleration of that seller's obligations under its prepaid forward
contract. A "Collateral Event of Default" under a Collateral Agreement means, at
any time,
(A) if no U.S. Government obligations or other Cash Equivalents are pledged
as substitute collateral at such time, failure of the collateral to
consist of at least the maximum number of shares of class A common stock
subject to the relevant seller's prepaid forward contract at such time
(or, if an Adjustment Event has occurred at or prior to such time,
failure of the collateral to include the amount of cash and the maximum
number of any Reported Securities required to be pledged by that seller
as described above);
(B) if any U.S. Government obligations or other Cash Equivalents are pledged
as substitute collateral for shares of Metromedia Fiber common stock (or
Reported Securities) under that Collateral Agreement at such time,
failure of such U.S. Government obligations or other Cash Equivalents to
have a market value at such time of at least 105% of the market price of
the class A common stock (or the then-current market price per security
of Reported Securities, as the case may be) times the difference between
(x) the maximum number of shares of class A common stock (or Reported
Securities) subject to the relevant seller's prepaid forward contract
at such time, and
(y) the number of shares of Metromedia Fiber common stock (or Reported
Securities) pledged as collateral by that seller at such time; and
(C) if any U.S. Government obligations or other Cash Equivalents are pledged
as substitute collateral for any cash under that Collateral Agreement at
such time, failure of such U.S. Government obligations or other Cash
Equivalents to have a market value at such time of at least 105% of such
cash, if such failure is not cured within one Business Day after notice
thereof is delivered to the relevant seller.
Except as described below, upon acceleration of any seller's prepaid forward
contract, the Collateral Agent will to the extent permitted by law distribute to
the trust for distribution PRO RATA to investors the maximum number of shares of
class A common stock subject to such prepaid forward contract, in the form of
the shares of Metromedia Fiber common stock then pledged by that seller, or cash
generated from the liquidation of U.S. Government obligations or other Cash
Equivalents then pledged by that seller, or a combination thereof (or, after an
Adjustment Event, in the form of Reported Securities then pledged, cash then
pledged, cash generated from the liquidation of U.S. Government obligations or
other Cash Equivalents then pledged, or a combination thereof). In
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addition, if by the Exchange Date any substitute collateral has not been
replaced by shares of Metromedia Fiber common stock (or, after an Adjustment
Event, cash or Reported Securities) sufficient to meet the obligations under a
seller's prepaid forward contract, the Collateral Agent will distribute to the
trust for distribution pro rata to investors the market value of the shares of
class A common stock required to be delivered thereunder, in the form of any
shares of Metromedia Fiber common stock then pledged by that seller plus cash
generated from the liquidation of U.S. Government obligations or other Cash
Equivalents then pledged by that seller (or, after an Adjustment Event, the
market value of the alternative consideration required to be delivered
thereunder, in the form of any Reported Securities then pledged, plus any cash
then pledged, plus cash generated from the liquidation of U.S. Government
obligations or other Cash Equivalents then pledged).
If upon acceleration of a seller's prepaid forward contract, that seller is
subject to a bankruptcy or similar proceeding, the Collateral Agent will to the
extent permitted by law distribute to the trust for distribution PRO RATA to the
investors a number of shares of class A common stock, in the form of the shares
of Metromedia Fiber common stock then pledged by that seller, or cash generated
from the liquidation of U.S. Government obligations or other Cash Equivalents
then pledged by that seller, or a combination thereof (or, after an Adjustment
Event, in the form of Reported Securities then pledged, cash then pledged, cash
generated from the liquidation of U.S. Government obligations or other Cash
Equivalents then pledged, or a combination thereof), with an aggregate value
equal to the "Acceleration Value." The Administrator will determine the
Acceleration Value on the basis of quotations from independent dealers. Each
quotation will be for an amount that would be paid to the relevant dealer in
consideration of an agreement that would have the effect of preserving the
trust's rights to receive the number of shares of class A common stock (or,
after an Adjustment Event, Reported Securities, cash or a combination thereof)
subject to the relevant seller's prepaid forward contract on the Exchange Date.
The Administrator will request quotations from four nationally recognized
independent dealers on or as soon as reasonably practicable following the date
of acceleration. If four quotations are provided, the Acceleration Value will be
the arithmetic mean of the two quotations remaining after disregarding the
highest and lowest quotations. If two or three quotations are provided, the
Acceleration Value will be the arithmetic mean of such quotations. If one
quotation is provided, the Acceleration Value will be such quotation. If no
quotations are provided, the Acceleration Value will be the aggregate value of
the number of shares of class A common stock (or, after an Adjustment Event,
Reported Securities, cash or a combination thereof) that would be required to be
delivered under the relevant seller's prepaid forward contract on the date of
acceleration if the Exchange Date were redefined to be the date of acceleration.
Each seller will be permitted to pledge class B common stock (which is
convertible into class A common stock on a one-for-one basis) under such
seller's collateral agreement instead of class A common stock, in which case the
collateral agent will convert such class B common stock into shares of class A
common stock if such seller's prepaid forward contract is accelerated.
DESCRIPTION OF THE SELLERS. Specific information on the holdings of the
sellers, as required by the Securities Act of 1933, as amended (the "Securities
Act"), is included in the prospectus and prospectus supplement of Metromedia
Fiber attached hereto.
THE U.S. TREASURY SECURITIES
The trust will purchase and hold a series of zero-coupon ("stripped") U.S.
treasury securities with such face amounts and maturities as will provide
investors with a quarterly distribution of $0.6162 per DECS on each Distribution
Date during the term of the trust. The trust may invest up to 35% of its total
assets in these treasury securities. If any prepaid forward contract is
accelerated, the Administrator will liquidate a proportionate amount of the U.S.
treasury securities then held in the trust and will distribute the proceeds
thereof PRO RATA to investors, together with proceeds from the
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acceleration of the prepaid forward contract. See "--The Forward
Contracts--Collateral Requirements of the Forward Contract; Acceleration" above
and "--Trust Termination" below.
If a seller extends the Exchange Date under its prepaid forward contract, it
will be required to pledge U.S. treasury securities or other Cash Equivalents to
the trust as collateral securing its obligation to pay the additional amount
described above under "--The Forward Contracts--Extension and Acceleration of
the Exchange Date at the Option of the Sellers."
TEMPORARY INVESTMENTS
For cash management purposes, the trust may invest the proceeds of the U.S.
treasury securities held by the trust and any other cash held by the trust in
short-term obligations of the U.S. Government maturing no later than the
Business Day preceding the next distribution date.
TRUST TERMINATION
The trust will terminate automatically on or shortly after the latest
Exchange Date or following the distribution of all trust assets to investors, if
earlier.
If all of the prepaid forward contracts are accelerated, the Administrator
will liquidate any U.S. treasury securities then held by the trust and will
distribute the proceeds thereof PRO RATA to the investors, together with all
shares of class A common stock subject to the prepaid forward contracts that are
pledged by the sellers, or cash generated from the liquidation of U.S.
Government obligations then pledged by the sellers, or a combination thereof
(or, after an Adjustment Event, in the form of Reported Securities then pledged,
cash then pledged, cash generated from the liquidation of U.S. Government
obligations then pledged, or a combination thereof) or in certain cases, the
Acceleration Value of the prepaid forward contracts. After this distribution,
the term of the trust will expire. See "--The Forward Contracts--Collateral
Requirements of the Forward Contracts; Acceleration."
DELIVERY OF CLASS A COMMON STOCK AND REPORTED SECURITIES; NO FRACTIONAL SHARES
OF CLASS A COMMON STOCK OR REPORTED SECURITIES
The class A common stock and Reported Securities delivered under the prepaid
forward contracts at the Exchange Date are expected to be distributed by the
trust to the investors PRO RATA shortly after the Exchange Date, except that no
fractional shares of class A common stock or Reported Securities will be
distributed. If more than one DECS is surrendered at one time by the same
investor, the number of full shares of class A common stock or Reported
Securities to be delivered upon termination of the trust, in whole or in part,
as the case may be, will be computed on the basis of the total number of DECS so
surrendered at the Exchange Date. Instead of delivering any fractional share or
security, the trust will sell a number of shares or securities equal to the
total of all fractional shares or securities that would otherwise be delivered
to investors of all DECS, and each such investor will be entitled to receive an
amount in cash equal to the PRO RATA portion of the proceeds of such sale (which
may be at a price lower than the Exchange Price).
INVESTMENT RESTRICTIONS
The trust has adopted a fundamental policy that the trust may not purchase
any securities or instruments other than the U.S. treasury securities, the
prepaid forward contracts and the class A common stock or other assets received
pursuant to the prepaid forward contracts and, for cash management purposes,
short-term obligations of the U.S. Government; issue any securities or
instruments except for the DECS; make short sales or purchase securities on
margin; write put or call options; borrow money; underwrite securities; purchase
or sell real estate, commodities or commodities contracts; or make loans. The
trust has also adopted a fundamental policy that the trust may not dispose of
the prepaid forward contracts during the term of the trust and (except for a
partial liquidation of U.S. treasury securities following acceleration of any
prepaid forward contract as described above under "Investment Objectives and
Policies--The Treasury Securities") the trust may not dispose of the U.S.
treasury securities prior to the earlier of their respective maturities and the
termination of the trust.
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RISK FACTORS FOR DECS
The DECS may trade at widely different prices before maturity depending upon
factors such as changes in the market price of the class A common stock and
other events that the trust cannot predict and are beyond the trust's control.
The text describes this in more detail below.
INTERNAL MANAGEMENT; NO PORTFOLIO MANAGEMENT
The internal operations of the trust will be managed by its trustees; the
trust will not have any separate investment advisor. The trust has adopted a
fundamental policy that the trust may not dispose of the prepaid forward
contracts during the term of the trust and the trust may not dispose of the U.S.
treasury securities held by the trust prior to the earlier of their maturities
and the termination of the trust, except for a partial liquidation of U.S.
treasury securities following acceleration of a prepaid forward contract. As a
result, the trust will continue to hold the prepaid forward contracts even if
there is a significant decline in the market price of the class A common stock
or adverse changes in the financial condition of Metromedia Fiber (or, after an
Adjustment Event, comparable developments affecting any Reported Securities or
the issuer of such securities). The trust will not be managed like a typical
closed-end investment company.
COMPARISON TO OTHER SECURITIES; RELATIONSHIP TO METROMEDIA FIBER SHARES
The DECS are different from ordinary securities because the value of the
class A common stock, cash or other securities you will receive on termination
of the trust may be more or less than the initial price of the DECS. If the
value of a share of class A common stock shortly before the exchange date is
less than the price you paid for each of your DECS, you will suffer a loss on
your investment in the DECS. If Metromedia Fiber is insolvent or bankrupt when
the DECS mature, you might lose your entire investment. You take all the risk of
a fall in the value of the class A common stock before the Exchange Date.
In addition, you have less opportunity to make money from an increase in the
price of the class A common stock by investing in the DECS than by investing
directly in the class A common stock. The value of what you receive when the
trust is terminated will be greater than the initial price of the DECS only if
the value of the class A common stock exceeds $46.5339 per share. This is an
increase of about 18% over the price of the class A common stock when the DECS
were first offered for sale. In addition, you will receive only about 84.75% of
any increase in the value of the class A common stock above $46.5339 per share.
In return, you will receive annual distributions on the DECS at a rate of
6.25%, which is more than the historical annual dividend on the class A common
stock, which currently pay no dividends. However, Metromedia Fiber could pay
dividends in the future that are higher than the distributions that you receive
from the trust.
The trust cannot predict whether the price of a share of class A common
stock will rise or fall. However, the following factors may affect the trading
price of class A common stock:
- whether Metromedia Fiber makes a profit and what its future prospects are;
- trading in the capital markets generally;
- trading on The Nasdaq Stock Market's National Market, where the class A
common stock is traded;
- the health of the communications infrastructure industry; and
- whether Metromedia Fiber issues securities like the DECS, or Metromedia
Fiber or another person in the market transfers a large amount of class A
common stock.
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As of the date of this prospectus, the sellers beneficially owned a total of
83,320,784 shares of class A common stock and class B common stock, which is
convertible into class A common stock on a one-for-one basis, of which the
sellers may deliver up to 10,000,000 shares of class A common stock (or
11,500,000 shares if the underwriters' over-allotment option is exercised in
full) to the trust at the Exchange Date.
Please refer to the attached prospectus and prospectus supplement for
information about Metromedia Fiber and the class A common stock.
IMPACT OF THE DECS ON THE MARKET FOR THE METROMEDIA FIBER SHARES
The trust cannot predict accurately how or whether investors will resell the
DECS and how easy it will be to resell them. Any market that develops for the
DECS is likely to influence and be influenced by the market for the class A
common stock. For example, investors' anticipation that the sellers may deliver
class A common stock that represents approximately 5% of the currently
outstanding class A common stock when the DECS mature could cause the price of
the class A common stock to be unstable or fall. The following factors could
also affect the price of class A common stock:
- sales of class A common stock by investors who prefer to invest in
Metromedia Fiber by investing in the DECS;
- hedging of investments in the DECS by selling class A common stock (called
"selling short"); and
- arbitrage trading activity between the DECS and class A common stock.
DILUTION OF METROMEDIA FIBER SHARES; LACK OF STOCKHOLDER RIGHTS
The terms of the DECS include some protections so you will receive
equivalent value when the DECS mature even if Metromedia Fiber splits or
combines its shares, pays stock dividends or does other similar things that
change the amount of class A common stock currently outstanding. However, these
terms will not protect you against all events. For example, the amount you
receive when the DECS mature may not change if Metromedia Fiber offers shares
for cash or in an acquisition, even if the price of class A common stock falls
and this causes the price of the DECS to fall. The trust has no control over
whether Metromedia Fiber will offer shares or do something similar in the future
or the amount of any offering.
In addition, unless and until a seller decides to deliver class A common
stock to the trust when the DECS mature and until the trust distributes the
class A common stock to you, you will have no voting, dividend or other similar
rights associated with the class A common stock.
METROMEDIA FIBER NOT RESPONSIBLE FOR THE DECS
Metromedia Fiber has no obligation to make any payments on the DECS.
Metromedia Fiber also does not have to take the trust's needs or your needs into
consideration for any reason. Metromedia Fiber will not receive any money from
the sale of the DECS and did not decide to issue the DECS. Metromedia Fiber did
not determine when the trust will issue the DECS, how much the trust will sell
them for or how many the trust will sell. Metromedia Fiber is not involved in
managing or trading the DECS or determining or calculating the amount you will
receive when the DECS mature.
DECS MAY BE DIFFICULT TO RESELL
The DECS are new and innovative securities, and there is currently no market
in which to resell them. The underwriters currently intend, but are not
obligated, to buy and sell the DECS. A resale
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market might not develop or, if it does, might not give you the opportunity to
resell your DECS and may not continue until the DECS mature.
The trust has applied to have the DECS approved for listing on The Nasdaq
Stock Market's National Market. Nonetheless, The Nasdaq Stock Market might not
approve the application or if approved, could revoke the listing after approval
or stop trading of the DECS at any time. If The Nasdaq Stock Market will no
longer quote the DECS or stops trading them, the trust will ask another national
securities exchange to list the DECS or another trading market to quote them. If
the DECS are no longer listed or traded on any securities exchange or trading
market, or if a securities exchange or trading market stops trading of the DECS,
you may have difficulty getting price information and it may be more difficult
to resell the DECS.
NET ASSET VALUE OF THE TRUST
The trust is a newly organized closed-end investment company with no
previous operating history. Shares of closed-end investment companies frequently
trade at a discount from their net asset value, which is a risk separate and
distinct from the risk that the trust's net asset value will decrease. The trust
cannot predict whether the DECS will trade at, below or above their net asset
value. For investors who wish to sell the DECS in a relatively short period of
time after the DECS offering, the risk of the DECS trading at a discount is more
pronounced because the gain or loss that such investors realize on their
investment is likely to be depend more on whether the DECS are trading at a
discount or premium than upon the value of the trust's assets. The trust will
not redeem any DECS prior to the exchange date of the class A common stock or
the earlier termination of the trust.
NON-DIVERSIFIED STATUS
The trust is considered non-diversified under the Investment Company Act of
1940, which means that the trust is not limited in the proportion of its assets
that may be invested in one security. Because the trust will only own the U.S.
treasury securities, the prepaid forward contracts or other assets subject to
the prepaid forward contracts, the DECS may be a riskier investment than would
be the case for an investment company with more diversified investments.
TAX TREATMENT OF DECS UNCERTAIN
No statutory, judicial or administrative authority directly addresses the
characterization of the DECS or instruments similar to the DECS for U.S. federal
income tax purposes. As a result, significant aspects of the U.S. federal income
tax consequences of an investment in the DECS are not certain. There is no
ruling from the Internal Revenue Service with respect to the DECS and the
Internal Revenue Service might not agree with the conclusions expressed under
the section "Certain United States Federal Income Tax Considerations" in this
prospectus.
RISK FACTORS FOR METROMEDIA FIBER
You should carefully consider the information in the attached prospectus and
prospectus supplement of Metromedia Fiber, including the risk factors for
Metromedia Fiber.
RISK RELATING TO BANKRUPTCY OF THE SELLERS
It is possible that one or more of the sellers may be the subject of
proceedings under the U.S. Bankruptcy Code. The trust believes that each prepaid
forward contract constitutes a "securities contract" for purposes of the U.S.
Bankruptcy Code, liquidation of which would not be subject to the automatic stay
provisions of the U.S. Bankruptcy Code in the event of the bankruptcy of the
relevant seller. It is, however, possible that a prepaid forward contract could
be determined not to qualify as a "securities contract" for this purpose.
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Proceedings under the U.S. Bankruptcy Code in respect of any seller may thus
cause a delay in settlement of that seller's prepaid forward contract, or
otherwise subject the prepaid forward contract to such proceedings. In turn,
this could adversely affect the timing of settlement and could impair the
trust's ability to distribute the class A common stock or other assets subject
to that prepaid forward contract and the related Collateral Agreement to you on
a timely basis and, as a result, could adversely affect the amount received by
you in respect of the DECS and/or the timing of such receipt.
NET ASSET VALUE
The Administrator will calculate the net asset value of the portfolio at
least quarterly by dividing the value of the net assets of the trust (the value
of its assets less its liabilities) by the total number of DECS outstanding. The
trust's net asset value will be published semi-annually as part of the trust's
semi-annual report to investors and at such other times as the trust may
determine. The U.S. treasury securities held by the trust will be valued at the
mean between the last current bid and asked prices or, if quotations are not
available, as determined in good faith by the trustees. Short-term investments
having a maturity of 60 days or less will be valued at cost with accrued
interest or discount earned included in interest to be received. Each of the
prepaid forward contracts will be valued at the mean of the bid prices the trust
receives from at least three independent broker-dealer firms unaffiliated with
the trust who are in the business of making bids on financial instruments
similar to the prepaid forward contracts and with terms comparable thereto. If
the trust (acting through the Administrator) is unable to obtain valuations from
three independent broker-dealer firms, as required by the preceding sentence, on
a timely basis or without unreasonable effort or expense, the prepaid forward
contracts will be valued at the median of bid prices received from two such
broker-dealer firms. If the trust (acting through the Administrator) is unable
to obtain a valuation for the prepaid forward contracts that it believes to be
reasonable through the above method on a timely basis or without unreasonable
effort or expense, the value of the prepaid forward contracts will be
established at a level deemed to be fair and reflective of the market value for
the prepaid forward contracts based on all appropriate factors relevant to the
value of the prepaid forward contracts as determined by an independent expert or
appraiser retained by the Trustees (as defined below) or the Administrator (as
defined below) on their behalf.
DESCRIPTION OF THE DECS
Each DECS represents an equal proportional interest in the trust. Upon
liquidation of the trust, investors are entitled to share PRO RATA in the net
assets of the trust available for distribution. DECS have no preemptive,
redemption or conversion rights. The DECS, when issued and outstanding, will be
fully paid and non-assessable. The only securities that the trust is authorized
to issue are the DECS offered hereby and those sold to the initial investor
referred to below. See "Underwriting."
Owners of DECS are entitled to one vote for each DECS held on all matters to
be voted on by investors and are not able to vote cumulatively in the election
of Trustees. The trustees of the trust have been selected initially by Salomon
Smith Barney as the initial investor in the trust. The trust intends to hold
annual meetings as required by the rules of The Nasdaq Stock Market.
The trustees may call special meetings of investors for action by investor
vote as may be required by either the Investment Company Act or the Declaration
of Trust. Investors have the right, upon the declaration in writing or vote of
more than two-thirds of the outstanding DECS, to remove a Trustee. The Trustees
will call a meeting of investors to vote on the removal of a Trustee upon the
written request of the record owners of 10% of the DECS or to vote on other
matters upon the written request of the record owners of 51% of the DECS (unless
substantially the same matter was voted on during the preceding 12 months). The
Trustees shall establish, and notify the investors in writing of, the record
date for each such meeting, which shall be not less than 10 nor more than
50 days before the meeting date. Owners at the close of business on the record
date will be entitled to vote at the
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meeting. The trust will also assist in communications with other owners as
required by the Investment Company Act.
BOOK-ENTRY SYSTEM
The DECS will be issued in the form of one or more global securities (the
"Global Security") deposited with The Depository Trust Company (the
"Depositary") and registered in the name of a nominee of the Depositary.
The Depositary has advised the trust and the underwriters as follows: The
Depositary is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code and a
"clearing agency" registered pursuant to Section 17A of the Securities Exchange
Act of 1934, as amended. The Depositary was created to hold securities of
persons who have accounts with the Depositary ("participants") and to facilitate
the clearance and settlement of securities transactions among its participants
in such securities through electronic book-entry changes in accounts of the
participants, thereby eliminating the need for physical movement of
certificates. Such participants include securities brokers and dealers, banks,
trust companies and clearing corporations. Indirect access to the Depositary's
book-entry system is also available to others, such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with
a participant, either directly or indirectly.
Upon the issuance of a Global Security, the Depositary or its nominee will
credit the respective DECS represented by such Global Security to the accounts
of participants. The accounts to be credited will be designated by the
underwriters. Ownership of beneficial interests in such Global Security will be
limited to participants or persons that may hold interests through participants.
Ownership of beneficial interests by participants in such Global Security will
be shown on, and the transfer of those ownership interests will be effected only
through, records maintained by the Depositary or its nominee for such Global
Security. Ownership of beneficial interests in such Global Security by persons
that hold through participants will be shown on, and the transfer of that
ownership interest within such participant will be effected only through,
records maintained by such participant. The laws of some jurisdictions require
that certain purchasers of securities take physical delivery of such securities
in definitive form. Such limits and such laws may impair the ability to transfer
beneficial interests in a Global Security.
So long as the Depositary for a Global Security, or its nominee, is the
registered owner of such Global Security, such Depositary or such nominee, as
the case may be, will be considered the sole owner or holder of the DECS. Except
as set forth below, owners of beneficial interests in such Global Security will
not be entitled to have the DECS registered in their names and will not receive
or be entitled to receive physical delivery of the DECS in definitive form and
will not be considered the owners or holders thereof.
Shares of class A common stock or other assets deliverable in respect of,
and any quarterly distributions on, DECS registered in the name of or held by
the Depositary or its nominee will be made to the Depositary or its nominee, as
the case may be, as the registered owner or the holder of the Global Security.
None of the trust, any Trustee, the Paying Agent, the Administrator or the
Custodian for the DECS will have any responsibility or liability for any aspect
of the records relating to, or payments made on account of, beneficial ownership
interests in a Global Security or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
The trust expects that the Depositary, upon receipt of any payment in
respect of a permanent Global Security, will credit immediately participants'
accounts with payments in amounts proportionate to their respective beneficial
interests in the principal amount of such Global Security as shown on the
records of the Depositary. The trust also expects that payments by participants
to owners of beneficial interests in such Global Security held through such
participants will be governed by standing
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instructions and customary practices, as is now the case with securities held
for the accounts of customers in bearer form or registered in "street name," and
will be the responsibility of such participants.
A Global Security may not be transferred except as a whole by the Depositary
to a nominee or a successor of the Depositary. If the Depositary is at any time
unwilling or unable to continue as depositary and a successor depositary is not
appointed by the trust within 90 days, the trust will issue DECS in definitive
registered form in exchange for the Global Security representing such DECS. In
that event, an owner of a beneficial interest in a Global Security will be
entitled to physical delivery in definitive form of DECS represented by such
Global Security equal in number to that represented by such beneficial interest
and to have such DECS registered in its name.
MANAGEMENT AND ADMINISTRATION OF THE TRUST
TRUSTEES
The internal operations of the trust will be managed by three Trustees, none
of whom is an "interested person" of the trust as defined in the Investment
Company Act; the trust will not have an investment adviser. Under the provisions
of the Internal Revenue Code of 1986, as amended (the "Code"), applicable to
grantor trusts, the Trustees will not have the power to vary the investments
held by the trust.
The names of the persons who have been elected by Salomon Smith Barney, the
sponsor/initial investor of the trust, to serve as the Trustees are set forth
below. The positions and the principal occupations of the individual Trustees
during the past five years are also set forth below.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME, AGE AND ADDRESS TITLE DURING PAST FIVE YEARS
- --------------------- ----- ----------------------
<S> <C> <C>
Donald J. Puglisi, 52........................... Managing Trustee Professor of Finance
Department of Finance University of Delaware
University of Delaware
Newark, DE 19716
William R. Latham, III, 53...................... Trustee Professor of Economics
Department of Economics University of Delaware
University of Delaware
Newark, DE 19716
James B. O'Neill, 58............................ Trustee Professor of Economics
Center for Economic University of Delaware
Education and
Entrepreneurship
University of Delaware
Newark, DE 19716
</TABLE>
Salomon Smith Barney will pay each Trustee who is not a director, officer or
employee of either the underwriters or the Administrator, or of any affiliate
thereof, in respect of his annual fee and anticipated out-of-pocket expenses, a
one-time, up-front fee of $10,800 in the aggregate. The trust's Managing Trustee
will also receive an additional up-front fee of $3,600 in the aggregate for
serving in that capacity. The sellers will reimburse Salomon Smith Barney for
any of these payments as part of the expenses of the trust. The Trustees will
not receive, either directly or indirectly, any compensation, including any
pension or retirement benefits, from the trust. None of the Trustees receives
any compensation for serving as a trustee or director of any other affiliated
investment company.
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ADMINISTRATOR
The day-to-day affairs of the trust will be managed by The Bank of New York,
as Trust Administrator pursuant to an administration agreement. Under the
administration agreement, the Trustees have delegated most of their operational
duties to the Administrator, including without limitation, their duties to:
(1) receive invoices for and pay, or cause to be paid, all expenses incurred
by the trust;
(2) with the approval of the Trustees, engage legal and other professional
advisors (other than the independent public accountants for the trust);
(3) instruct the Paying Agent to pay distributions on DECS as described
herein;
(4) prepare and mail, file or publish all notices, proxies, reports, tax
returns and other communications and documents, and keep all books and
records, for the trust;
(5) at the direction of the Trustees, institute and prosecute legal and
other appropriate proceedings to enforce the rights and remedies of the
trust; and
(6) make all necessary arrangements with respect to meetings of Trustees and
any meetings of holders of DECS.
The Administrator will not, however, select the independent public
accountants for the trust or sell or otherwise dispose of the trust's assets
(except in connection with an acceleration of a prepaid forward contract, or the
settlement of the prepaid forward contracts at the Exchange Date, and upon
termination of the trust).
Either the trust or the Administrator may terminate the Administration
Agreement upon 60 days' prior written notice, except that no termination shall
become effective until a successor Administrator has been chosen and has
accepted the duties of the Administrator.
Except for its roles as Administrator, Custodian (as defined below), Paying
Agent (as defined below), registrar and transfer agent of the trust, and except
for its role as Collateral Agent under the Collateral Agreements, The Bank of
New York has no other affiliation with, and is not engaged in any other
transactions with, the trust.
The address of the Administrator is 101 Barclay Street, New York, New York
10286.
CUSTODIAN
The trust's custodian (the "Custodian") is The Bank of New York pursuant to
a custodian agreement. In the event of any termination of the custodian
agreement by the trust or the resignation of the Custodian, the trust must
engage a new Custodian to carry out the duties of the Custodian as set forth in
the custodian agreement. Pursuant to the custodian agreement, the Custodian will
invest all net cash received by the trust in short-term U.S. Government
securities maturing on or shortly before the next quarterly distribution date.
The Custodian will also act as Collateral Agent under the Collateral Agreements
and will hold a perfected security interest in the Metromedia Fiber common stock
and U.S. Government obligations or other assets consistent with the terms of the
prepaid forward contracts.
PAYING AGENT
The transfer agent, registrar and paying agent (the "Paying Agent") for the
DECS is The Bank of New York pursuant to a paying agent agreement. In the event
of any termination of the paying agent agreement by the trust or the resignation
of the Paying Agent, the trust will use its best efforts to engage a new Paying
Agent to carry out the duties of the Paying Agent.
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INDEMNIFICATION
The trust will indemnify each Trustee, the Administrator, the Custodian and
the Paying Agent with respect to any claim, liability, loss or expense
(including the costs and expenses of the defense against any claim or liability)
which it may incur in acting as Trustee, Administrator, Custodian or Paying
Agent, as the case may be, except in the case of willful misfeasance, bad faith,
gross negligence or reckless disregard of their respective duties or where
applicable law prohibits such indemnification. Salomon Smith Barney has agreed
to reimburse the trust for any amounts it may be required to pay as
indemnification to any Trustee, the Administrator, the Custodian or the Paying
Agent. The sellers in turn will reimburse Salomon Smith Barney for certain of
such reimbursements paid by it as part of the expenses of the trust.
DISTRIBUTIONS
The trust intends to distribute to investors on a quarterly basis the
proceeds of the U.S. treasury securities held by the trust. The first
distribution, reflecting the trust's operations from the date of this offering,
will be made on February 15, 2000 to owners of record as of February 1, 2000.
Thereafter, the trust will make distributions on May 15, August 15, November 15
and February 15 or, if any such date is not a Business Day, on the next
succeeding Business Day, of each year to owners of record as of each May 1,
August 1, November 1 and February 1, respectively. A portion of each such
distribution should be treated as a tax-free return of the investor's
investment. See "Investment Objective and Policies--Trust Assets" and "Certain
United States Federal Income Tax Considerations." If any prepaid forward
contract is accelerated as described in "Investment Objectives and Policies--The
Forward Contracts--Collateral Requirements of the Contract; Acceleration," each
investor will receive its PRO RATA share of the proceeds from the acceleration
of that prepaid forward contract and from the liquidation of a proportionate
share of the Treasury Securities then held in the trust. Upon termination of the
trust as described in "Investment Objectives and Policies--Trust Termination,"
each investor will receive its PRO RATA share of any remaining net assets of the
trust.
The trust does not permit the reinvestment of distributions.
ESTIMATED EXPENSES
At the closing of this offering, Salomon Smith Barney will pay to each of
the Administrator, the Custodian and the Paying Agent, and to each Trustee, a
one-time, up-front amount in respect of such party's ongoing fees and, in the
case of the Administrator, anticipated expenses of the trust over the term of
the trust. The anticipated trust expenses to be borne by the Administrator
include, among other things, expenses for legal and independent accountants'
services, costs of printing proxies, DECS certificates and investor reports,
expenses of the trustees, fidelity bond coverage, stock exchange listing fees
and expenses of qualifying the DECS for sale in the various states. The
one-time, up-front payments described above total approximately $300,000.
Salomon Smith Barney also will pay estimated organization costs of the trust in
the amount of $11,000 and estimated costs of the trust in connection with the
initial registration and public offering of the DECS in the amount of $314,000
at the closing of the offering.
The amount payable to the Administrator in respect of ongoing expenses of
the trust was determined based on estimates made in good faith on the basis of
information currently available to the trust, including estimates furnished by
the trust's agents. Actual operating expenses of the trust may be substantially
more than this amount. Any additional expenses will be paid by Salomon Smith
Barney or, in the event of its failure to pay such amounts, the sellers, or, in
the event of the failure of either of Salomon Smith Barney or the sellers to pay
such amounts, the trust. The sellers will reimburse Salomon Smith Barney for
certain of the expenses of the trust paid by it.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the principal U.S. federal income tax
consequences that may be relevant to an owner of a DECS that is a "U.S. Holder."
A DECS owner will be treated as a U.S. Holder for U.S. federal income tax
purposes if the owner is:
- an individual who is a citizen or resident of the United States,
- a U.S. domestic corporation, or
- any other person that is subject to U.S. federal income taxation on a net
income basis in respect of its investment in DECS.
This summary is based on the U.S. federal income tax laws, regulations,
rulings and decisions now in effect, all of which are subject to change,
possibly on a retroactive basis. Except to the extent discussed below under
"Non-U.S. Holders," this summary applies only to U.S. Holders that will hold
DECS as capital assets, and only if the investor purchased the DECS in their
initial offering. This summary does not address all aspects of U.S. federal
income taxation that may be relevant to an investor in light of the investor's
individual investment circumstances, and does not address tax considerations
applicable to investors that may be subject to special tax rules, such as
dealers in securities or foreign currencies, traders in securities or
commodities electing to mark to market, financial institutions, insurance
companies, tax-exempt organizations, persons that will hold DECS as a position
in a "straddle" for tax purposes or as a part of a "synthetic security" or a
"conversion transaction" or other integrated investment comprised of a DECS and
one or more other investments, or persons that have a functional currency other
than the U.S. dollar.
This summary does not include any description of the tax laws of any state
or local governments or of any foreign government that may be applicable to the
DECS or to the owners thereof. It also does not discuss the tax consequences of
the ownership of the class A common stock or Reported Securities. Investors
should consult their own tax advisors in determining the tax consequences to
them of holding DECS, including the application to their particular situation of
the U.S. federal income tax considerations discussed below, as well as the
application of state, local or other tax laws.
There are no regulations, published rulings or judicial decisions addressing
the characterization for federal income tax purposes of securities with terms
substantially the same as the DECS. Pursuant to the terms of the Declaration of
Trust, the trust and every holder of the DECS agree to treat a DECS for U.S.
federal income tax purposes as a beneficial interest in a trust that holds
zero-coupon U.S. treasury securities and the prepaid forward contracts. The
trust intends to report holders' income to the Internal Revenue Service in
accordance with this treatment. In addition, pursuant to the terms of the
prepaid forward contracts and the Declaration of Trust, the sellers, the trust
and every holder of a DECS will be obligated (in the absence of an
administrative determination or judicial ruling to the contrary) to characterize
the prepaid forward contracts for all tax purposes as forward purchase contracts
to purchase class A common stock at the Exchange Date (including as a result of
acceleration or otherwise), under the terms of which contract:
(a) at the time of issuance of the DECS the holder is required to deposit
irrevocably with the sellers a fixed amount of cash equal to the purchase
price of the DECS, less the purchase price of the U.S. treasury
securities, to assure the fulfillment of the obligation described in
clause (b) below, and
(b) at maturity such cash deposit unconditionally and irrevocably will be
applied by the sellers in full satisfaction of the holder's payment
obligation under the forward contracts, and the sellers will deliver to
the holder the number of shares of class A common stock that the holder
is entitled to receive at that time pursuant to the terms of the DECS
(subject to the right of each seller to deliver cash in lieu of the
class A common stock).
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Under this approach, the tax consequences of holding a DECS will be as
described below. However, prospective investors in the DECS should be aware that
no ruling is being requested from the Internal Revenue Service with regard to
the DECS and that the Internal Revenue Service might take a different view as to
the proper characterization of the DECS or of the prepaid forward contracts and
of the tax consequences to an investor.
TAX STATUS OF THE TRUST
The trust will be taxable as a grantor trust owned solely by the present and
future holders of DECS for federal income tax purposes, and income received by
the trust will be treated as income of the holders in the manner set forth
below.
TAX CONSEQUENCES TO U.S. HOLDERS
TAX BASIS OF THE TREASURY SECURITIES AND THE FORWARD CONTRACTS. Each
investor will be considered to be the owner of its PRO RATA portion of the U.S.
treasury securities and the prepaid forward contracts in the trust. The cost to
the investor of the DECS will be allocated among the investor's PRO RATA portion
of the U.S. treasury securities and the prepaid forward contracts (in proportion
to the fair market values thereof on the date on which the investor acquired the
DECS) in order to determine the investor's tax basis in its PRO RATA portion of
the U.S. treasury securities and the prepaid forward contracts. It is currently
anticipated that 17% and 83% of the net proceeds of the offering will be used by
the trust to purchase the U.S. treasury securities and as a payment to the
sellers under the prepaid forward contracts, respectively.
RECOGNITION OF ORIGINAL ISSUE DISCOUNT ON THE TREASURY SECURITIES. The
treasury securities in the trust will consist of zero-coupon U.S. treasury
securities. An investor will be required to treat its PRO RATA portion of each
U.S. treasury security in the trust as a bond that was originally issued on the
date the investor purchased its DECS and at an original issue discount equal to
the excess of the investor's PRO RATA portion of the amounts payable on such
U.S. treasury security over the investor's tax basis for the U.S. treasury
security as discussed above. The investor (whether on the cash or accrual method
of tax accounting) is required to include original issue discount (other than
original issue discount on short-term treasury securities as described below) in
income for federal income tax purposes as it accrues, in accordance with a
constant yield method, prior to the receipt of cash attributable to such income.
Because it is expected that more than 20% of the holders of DECS will be accrual
basis taxpayers, the investor will be required to include in income original
issue discount on any short-term U.S. treasury security (i.e., any U.S. treasury
security with a maturity of one year or less from the date it is purchased) held
by the trust as that original issue discount accrues. Unless an investor elects
to accrue the original issue discount on a short-term U.S. treasury security
according to a constant yield method based on daily compounding, the original
issue discount will be accrued on a straight-line basis. The investor's tax
basis in a U.S. treasury security will be increased by the amount of any
original issue discount included in income by the investor with respect to such
U.S treasury security.
TREATMENT OF THE FORWARD CONTRACTS. Each investor will be treated as having
entered into a PRO RATA portion of the prepaid forward contracts and, at the
Exchange Date, as having received a PRO RATA portion of the class A common stock
(or cash, Reported Securities or combination thereof) delivered to the trust.
Under existing law, an investor will not recognize income, gain or loss upon
entry into the prepaid forward contracts. An investor should not be required
under existing law to include in income additional amounts over the term of the
prepaid forward contracts. See "--Possible Alternative Treatment," however.
SALE OF THE DECS. Upon a sale of all or some of an investor's DECS, an
investor will be treated as having sold its PRO RATA portion of the U.S.
treasury securities and prepaid forward contracts underlying the DECS. The
selling investor will recognize gain or loss equal to the difference between
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the amount realized and the investor's aggregate tax bases in its PRO RATA
portion of the treasury securities and the prepaid forward contracts. Any gain
or loss generally will be long-term capital gain or loss if the investor has
held the DECS for more than one year. The distinction between capital gain or
loss and ordinary income or loss is important for purposes of the limitations on
an investor's ability to offset capital losses against ordinary income. In
addition, individuals generally are subject to taxation at a reduced rate on
long-term capital gains.
DISTRIBUTION OF THE COMMON STOCK. The delivery of class A common stock to
the trust pursuant to the prepaid forward contracts will not be taxable to the
investors. The distribution of class A common stock upon the termination of the
trust will not be taxable to the investors. An investor will have taxable gain
or loss (which will be short-term capital gain or loss) upon receipt of cash in
lieu of fractional shares of class A common stock distributed upon termination
of the trust, in an amount equal to the difference between the cash received and
the portion of the basis of the prepaid forward contracts allocable to
fractional shares (based on the relative number of fractional shares and full
shares delivered to the investor). Each investor's aggregate basis in its shares
of class A common stock will be equal to its basis in its PRO RATA portion of
the prepaid forward contracts less the portion of such basis allocable to any
fractional shares of class A common stock for which cash is received.
DISTRIBUTION OF CASH. If an investor receives cash upon dissolution of the
trust or as a result of a seller's election to deliver cash, the investor will
recognize capital gain or loss equal to any difference between the amount of
cash received and its tax basis in the DECS at that time. Such gain or loss
generally will be long-term capital gain or loss if the investor has held the
DECS for more than one year at the Exchange Date.
DISTRIBUTION OF CASH OR REPORTED SECURITIES AS A RESULT OF AN ADJUSTMENT
EVENT. If as a result of an Adjustment Event, cash, Reported Securities, or any
combination of cash, Reported Securities and class A common stock is delivered
pursuant to the prepaid forward contracts, an investor will have taxable gain or
loss upon receipt equal to the difference between the amount of cash received
and its basis in its PRO RATA portion of the prepaid forward contracts for which
such cash was received. In addition, if as a result of an Adjustment Event the
Custodian liquidates U.S. treasury securities, an investor will have taxable
gain or loss upon receipt of cash allocable to the liquidated U.S. treasury
securities equal to the difference between the amount of such cash and the
investor's basis in its PRO RATA portion of the U.S. treasury securities. Any
gain or loss will be capital gain or loss, and if the investor has held the DECS
for more than one year, such gain or loss generally will be long-term capital
gain or loss (except with respect to any cash received in lieu of a fractional
interest in Reported Securities or class A common stock). An investor's basis in
any Reported Securities received will be equal to its basis in its PRO RATA
portion of the prepaid forward contracts for which such Reported Securities were
received. See "Investment Objectives and Policies--The Forward Contracts."
EXTENSION OF EXCHANGE DATE. While not free from doubt, an extension of the
Exchange Date under a prepaid forward contract should not be a taxable event and
an investor therefore should not recognize gain upon such an extension. Although
there is no authority addressing the treatment of the cash distribution paid on
the extended Exchange Date (whether or not later accelerated), the trust intends
to file information returns with the Internal Revenue Service on the basis that
the cash distribution is ordinary income to the investors. Investors should
consult their own tax advisors concerning the consequences of extending the
Exchange Date, including the possibility that an investor may be treated as
realizing gain as a result of the extension and the possibility that the cash
distribution may be treated as a reduction in an investor's tax basis in the
DECS by analogy to the treatment of rebates or of option premiums.
POSSIBLE ALTERNATIVE TREATMENT. The Internal Revenue Service may contend
that a DECS should be characterized for federal income tax purposes in a manner
different from the approach described above. For example, the Internal Revenue
Service might assert that the prepaid forward contracts
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should be treated as contingent debt obligations of the sellers that are subject
to Treasury regulations governing contingent payment debt instruments. If the
Internal Revenue Service were to prevail in making such an assertion, original
issue discount would accrue with respect to the prepaid forward contracts at a
"comparable yield" for the sellers under the prepaid forward contracts,
determined at the time the prepaid forward contracts are entered into. An
investor's PRO RATA portion of original issue discount in respect of the prepaid
forward contracts and original issue discount in respect of the U.S. treasury
securities might exceed the aggregate amount of the quarterly cash distributions
to the investor. In addition, under this treatment, the investor would be
required to treat any gain realized on the sale, exchange or redemption of the
DECS as ordinary income to the extent that such gain is allocable to the prepaid
forward contracts. Any loss realized on such sale, exchange or redemption that
is allocable to the prepaid forward contracts would be treated as an ordinary
loss to the extent of the investor's original issue discount inclusions with
respect to the prepaid forward contracts, and as capital loss to the extent of
loss in excess of such inclusions. It is also possible that the Internal Revenue
Service could take the view that an investor should include in income the amount
of cash actually received each year in respect of the DECS, or that the DECS as
a whole constitute a contingent payment debt instrument subject to the rules
described above.
FEES AND EXPENSES OF THE TRUST. An investor's PRO RATA portion of the
expenses in connection with the organization of the trust, underwriting
discounts and commissions and other offering expenses should be includible in
the cost to the owner of the DECS. However, there can be no assurance that the
Internal Revenue Service will not take a contrary view. If the Internal Revenue
Service were to prevail in treating such expenses as excludable from the
investor's cost of the DECS, such expenses would not be includible in the basis
of the assets of the trust and should instead be amortizable and deductible over
the term of the trust. If such expenses were treated as amortizable and
deductible, an individual investor who itemizes deductions would be entitled to
amortize and deduct (subject to any other applicable limitations on itemized
deductions) such expenses over the term of the trust only to the extent that
such amortized annual expenses together with the investor's other miscellaneous
deductions exceed 2% of such investor's adjusted gross income.
PROPOSED LEGISLATION. Proposed legislation currently under consideration in
Congress would (if enacted into law in its current form) recharacterize some or
all of the net long-term capital gain arising from certain "constructive
ownership" transactions entered into after July 11, 1999 as ordinary income, and
would impose an interest charge on any such ordinary income. The proposed
legislation would have no immediate application to forward contracts in respect
of the stock of a domestic operating company, including the DECS transaction.
The proposed legislation would, however, grant discretionary authority to the
U.S. Treasury Department to promulgate regulations to expand the scope of
"constructive ownership" transactions to include forward contracts in respect of
the stock of all corporations. It is not possible to predict whether legislation
addressing constructive ownership transactions will be enacted by Congress, the
form or effective date of any such legislation, or the form or effective date
that any Treasury regulations promulgated thereunder might take.
NON-U.S. HOLDERS
In the case of an investor that is a non-resident alien individual or
foreign corporation (a "Non-U.S. Holder"), payments made with respect to the
DECS should not be subject to U.S. withholding tax, provided that the investor
complies with applicable certification requirements (including in general the
furnishing of an Internal Revenue Service Form W-8 or a substitute form). Any
capital gain realized upon the sale or other disposition of the DECS by a
Non-U.S. Holder generally will not be subject to U.S. federal income tax if
(a) such gain is not effectively connected with a U.S. trade or business and
(b) in the case of an individual, (i) the individual is not present in the
United States for 183 days or more in the taxable year of the sale or other
disposition, and (ii) the gain is not attributable to a fixed place of business
maintained by the individual in the United States.
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A Non-U.S. Holder of the DECS that is subject to U.S. federal income
taxation on a net income basis with respect to the DECS should see the
discussion in "--Tax Consequences to U.S. Holders."
BACKUP WITHHOLDING TAX AND INFORMATION REPORTING
An investor in a DECS may be subject to information reporting and to backup
withholding tax at a rate of 31% of certain amounts paid to the investor unless
the investor (a) is a corporation or comes within certain other exempt
categories and, when required, provides proof of such exemption or (b) provides
a correct taxpayer identification number, certifies as to no loss of exemption
from backup withholding tax and otherwise complies with applicable requirements
of the backup withholding tax rules. Information reporting and backup
withholding tax will not apply to payments made to an owner of a DECS that is a
Non-U.S. Holder if such owner (a) is the beneficial owner of the DECS and
certifies as to its non-U.S. status, (b) is not the beneficial owner of the
DECS, but the beneficial owner of the DECS certifies as to its non-U.S. status,
or (c) otherwise establishes an exemption, provided that the trust or its agent
does not have actual knowledge that the investor or the beneficial owner is a
U.S. person.
Payment of the proceeds from the sale of a DECS to or through a foreign
office of a broker will not be subject to information reporting or backup
withholding tax, except that if the broker is (1) a U.S. person for U.S. federal
income tax purposes, (2) a controlled foreign corporation for U.S. tax purposes,
(3) a foreign person 50% or more of whose gross income from all sources for the
three-year period ending with the close of its taxable year preceding the
payment was effectively connected with a U.S. trade or business or (4) with
respect to payments made after December 31, 2000, a foreign partnership that, at
any time during its taxable year is 50% or more (by income or capital interest)
owned by U.S. persons or is engaged in the conduct of U.S. trade or business,
information reporting may apply to such payments. Payment of the proceeds from a
sale of a DECS to or through the U.S. office of a broker is subject to
information reporting and backup withholding tax unless the investor or
beneficial owner certifies as to its non-U.S. status or otherwise establishes an
exemption from information reporting and backup withholding.
Any amounts withheld under the backup withholding tax rules are not an
additional tax and may be credited against a U.S. Holder's U.S. federal income
tax liability, provided that the required information is furnished to the
Internal Revenue Service.
Recently issued Treasury regulations may change the certification procedures
relating to withholding and backup withholding on certain amounts paid to
Non-U.S. Holders after December 31, 2000. Prospective investors should consult
their tax advisors regarding the effect, if any, of such new Treasury
regulations on an investment in the DECS.
35
<PAGE>
UNDERWRITING
Subject to the terms and conditions stated in the underwriting agreement
dated the date hereof, each underwriter named below has severally agreed to
purchase, and the trust has agreed to sell to such underwriter, the number of
DECS set forth opposite the name of such underwriter.
<TABLE>
<CAPTION>
NAME NUMBER OF DECS
- ---- --------------
<S> <C>
Salomon Smith Barney Inc.................................... 5,000,000
Credit Suisse First Boston Corporation...................... 2,000,000
Deutsche Bank Securities Inc. .............................. 2,000,000
Donaldson, Lufkin & Jenrette Securities Corporation......... 500,000
Goldman, Sachs & Co. ....................................... 250,000
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................................... 250,000
----------
Total................................................... 10,000,000
==========
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase the DECS included in this offering are subject to
approval of certain legal matters by counsel and to certain other conditions.
The underwriters are obligated to purchase all the DECS (other than those
covered by the over-allotment option described below) if they purchase any of
the DECS.
The underwriters, for whom Salomon Smith Barney is acting as representative,
propose to offer some of the DECS directly to the public at the public offering
price set forth on the cover page of this prospectus and some of the DECS to
certain dealers at the public offering price less a concession not in excess of
$0.71 per DECS. After the initial offering of the DECS to the public, the public
offering price and such concession may be changed by the representative. The
sales load of $1.1831 per DECS is equal to 3% of the initial public offering
price.
Because proceeds from the sale of the DECS will be used by the trust to
purchase the prepaid forward contracts from the sellers, the underwriting
agreement provides that the sellers will pay to the underwriters as compensation
$1.1831 per DECS.
The trust has granted to the underwriters an option, exercisable for
30 days from the date of this prospectus, to purchase up to 1,500,000 additional
DECS at the same price per DECS as the initial DECS purchased by the
underwriters. The underwriters may exercise such option solely for the purpose
of covering over-allotments, if any, in connection with this offering. To the
extent such option is exercised, each underwriter will be obligated, subject to
certain conditions, to purchase a number of additional DECS approximately
proportionate to such underwriter's initial purchase commitment. In addition,
Salomon Smith Barney purchased 2 DECS in connection with the organization of the
trust.
Metromedia Fiber, its executive officers and the sellers have agreed that,
for a period of 90 days from the date of this prospectus, they will not, without
the prior written consent of Salomon Smith Barney, as representative of the
underwriters, offer, sell, contract to sell, or otherwise dispose of, any shares
of common stock of Metromedia Fiber or any securities convertible into, or
exercisable or exchangeable for, such common stock. Salomon Smith Barney in its
sole discretion may release any of the securities subject to these lock-up
agreements at any time without notice. However, this agreement will not restrict
the ability of Metromedia Fiber and the sellers to take any of the actions
listed above in connection with the offering by the trust of the DECS or any
delivery of shares of class A common stock pursuant to the terms of the DECS.
The DECS will be a new issue of securities with no established trading
market. The trust has applied to have the DECS approved for listing on The
Nasdaq Stock Market's National Market under the symbol "MFDE." The underwriters
intend to make a market in the DECS, subject to applicable laws and regulations.
However, the underwriters are not obligated to do so and any such market-making
may be discontinued at any time at the sole discretion of the underwriters
without notice. Accordingly, no assurance can be given as to the liquidity of
such market.
36
<PAGE>
In connection with the formation of the trust, Salomon Smith Barney
subscribed for and purchased 2 DECS for a purchase price of $100. Under the
prepaid forward contracts, the sellers will be obligated to deliver to the trust
class A common stock in respect of such DECS on the same terms as the DECS
offered hereby. Salomon Smith Barney sponsored the formation of the trust for
purposes of this offering, including selecting its initial Trustees.
Pursuant to the prepaid forward contracts, the trust has agreed, subject to
the terms and conditions set forth therein, to purchase from the sellers a
number of shares of class A common stock equal to the total number of DECS to be
purchased by the underwriters from the trust pursuant to the underwriting
agreement (including any DECS to be purchased by the underwriters upon exercise
of the over-allotment option plus the number of DECS purchased by Salomon Smith
Barney in connection with the organization of the trust). Pursuant to the terms
of the prepaid forward contracts, each seller will deliver to the trust at the
Exchange Date a number of shares of class A common stock (or, at the option of
each seller, the cash equivalent) and/or such other consideration as permitted
or required by the terms of the prepaid forward contracts, that are expected to
have the same value as the shares of class A common stock delivered pursuant to
the DECS. The closing of the offering of the DECS is conditioned upon execution
of the prepaid forward contracts by the sellers and the trust.
In connection with the DECS offering, the underwriters may over-allot, or
engage in syndicate covering transactions, stabilizing transactions and penalty
bids. Over-allotment involves syndicate sales of DECS or class A common stock in
excess of the number of DECS to be purchased by the underwriters in the
offering, which creates a syndicate short position. Syndicate covering
transactions involve purchases of the DECS or the class A common stock in the
open market after the distribution has been completed in order to cover
syndicate short positions. Stabilizing transactions consist of certain bids or
purchases of DECS or common stock made for the purpose of preventing or
retarding a decline in the market price of the DECS or class A common stock
while the offering is in progress. Penalty bids permit the underwriters to
reclaim a selling concession from a syndicate member when an underwriter, in
covering syndicate short positions or making stabilizing purchases, repurchases
DECS or class A common stock originally sold by the syndicate member. These
activities may cause the price of DECS or class A common stock to be higher than
the price that otherwise would exist in the open market in the absence of such
transactions. These transactions may be effected on The Nasdaq Stock Market's
National Market or in the over-the-counter market, or otherwise and, if
commenced, may be discontinued at any time.
In addition, in connection with this offering, certain of the underwriters
(and selling group members) may engage in passive market making transactions in
the DECS or class A common stock on The Nasdaq Stock Market's National Market,
prior to the pricing and completion of the DECS offering. Passive market making
consists of displaying bids on The Nasdaq Stock Market's National Market no
higher than the bid prices of independent market makers and making purchases at
prices no higher than those independent bids and effected in response to order
flow. Net purchases by a passive market on each day are limited to a specified
percentage of the passive market maker's average daily trading volume in the
class A common stock during a specified period and must be discontinued when
such limit is reached. Passive market making may cause the price of the class A
common stock to be higher than the price that otherwise would exist in the open
market in the absence of such transactions. If passive market making is
commenced, it may be discontinued at any time.
The underwriters have performed certain investment banking and advisory
services for Metromedia Fiber from time to time for which they have received
customary fees and expenses. The underwriters may, from time to time, engage in
transactions with and perform services for Metromedia Fiber in the ordinary
course of its business.
Metromedia Fiber and the sellers have agreed to indemnify the underwriters
against certain liabilities, including liabilities under the Securities Act of
1933, or to contribute to payments the underwriters may be required to make in
respect of any of those liabilities. Metromedia Fiber has agreed to pay certain
amounts on behalf of the sellers in respect of fees, expenses and other
compensation in connection with the DECS offering.
37
<PAGE>
LEGAL MATTERS
Certain legal matters will be passed upon for the trust and the underwriters
by Cleary, Gottlieb, Steen & Hamilton, New York, New York. Certain matters of
Delaware law will be passed upon for the trust by Richards, Layton & Finger,
Wilmington, Delaware. Certain legal matters will be passed upon for the sellers
by Paul, Weiss, Rifkind, Wharton & Garrison, New York, New York.
EXPERTS
The statement of assets, liabilities and capital included in this prospectus
has been audited by PricewaterhouseCoopers LLP, independent accountants, as
stated in their report appearing herein, and is included in reliance upon the
report of such firm given upon their authority as experts in auditing and
accounting.
WHERE YOU CAN FIND MORE INFORMATION
The trust has filed a registration statement for the DECS with the SEC.
Information about the DECS and the trust may be found in that registration
statement. You may read and copy the registration statement at the public
reference facilities of the SEC in Washington, D.C., Chicago, Illinois and New
York, New York. Please call the SEC at 1-800-SEC-0330 for further information on
the public reference rooms. The Registration Statement is also available to the
public from the SEC's web site at http:\\www.sec.gov.
38
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustee and Securityholders
of DECS Trust VI:
In our opinion, the accompanying statement of assets, liabilities and capital
presents fairly, in all material respects, the financial position of DECS TRUST
VI (THE "TRUST") as of October 26, 1999, in conformity with accounting
principles generally accepted in the United States. 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 of this financial statement in accordance with auditing standards
generally accepted in the United States which 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, assessing the accounting principles used and
significant estimates made by the Trust's management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
October 26, 1999
39
<PAGE>
DECS TRUST VI
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL, OCTOBER 26, 1999
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Cash........................................................ $ 100
---------
Total Assets................................................ $ 100
=========
LIABILITIES
Total Liabilities........................................... $
---------
NET ASSETS.................................................. $ 100
=========
CAPITAL
DECS, one DECS issued and outstanding....................... $ 100
=========
</TABLE>
The accompanying notes are an integral part of this statement.
40
<PAGE>
DECS TRUST VI
NOTES TO STATEMENT OF ASSETS, LIABILITIES AND CAPITAL, OCTOBER 26, 1999
I. ORGANIZATION
DECS Trust VI, organized as a Delaware business trust on October 22, 1999,
is a closed-end management investment company registered under the Investment
Company Act of 1940. The term of the trust is anticipated to expire in the year
2002; however, the exact date will be determined in the future. The trust may be
dissolved prior to its planned termination date under certain circumstances as
outlined in the registration statement.
The trust has registered 11,500,000 DECS representing shares of beneficial
interest in the trust. The only securities that the trust is authorized to issue
are the DECS. Each of the DECS represents the right to receive (a) quarterly
distributions during the term of the trust, and (b) upon the conclusion of the
term of the trust (the "Exchange Date"), certain shares of common stock (the
"Common Stock") or cash with an equivalent value (such amounts determined as
described in the registration statement). The DECS are not subject to redemption
prior to the Exchange Date or the earlier termination of the trust. The trust
will hold a series of zero-coupon U.S. treasury securities and one or more
prepaid forward contracts relating to the class A common stock. The business
activities of the trust are limited to the matters discussed above. The trust
will be treated as a grantor trust for U.S. federal income tax purposes.
On October 26, 1999, the trust issued one DECS to Salomon Smith Barney Inc.
in consideration for a purchase price of $100.
II. ORGANIZATIONAL COSTS AND FEES
Organizational costs and ongoing fees of the trust will be borne by Salomon
Smith Barney Inc.
III. MANAGEMENT AND ADMINISTRATION OF TRUST
The internal operation of the trust will be managed by its trustees; the
trust will not have a separate investment adviser. The trust will be overseen by
three trustees, and its daily administration will be carried out by The Bank of
New York as the administrator. The Bank of New York will also serve as the
trust's custodian, paying agent, registrar and transfer agent with respect to
the DECS.
41
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
10,000,000 DECS(SM)
DECS TRUST VI
(SUBJECT TO EXCHANGE INTO CLASS A COMMON STOCK OF METROMEDIA FIBER NETWORK,
INC.)
-----------------
PROSPECTUS
NOVEMBER 12, 1999
-------------------
SALOMON SMITH BARNEY
CREDIT SUISSE FIRST BOSTON
DEUTSCHE BANC ALEX. BROWN
DONALDSON, LUFKIN & JENRETTE
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
- ---------------------------------------------------------
- ---------------------------------------------------------
