As filed with the Securities and Exchange Commission on [ ]
Securities Act File No. 333-
Investment Company Act File. No. 811-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-2
|X| Registration Statement Under The Securities Act of 1933
|_| Pre-Effective Amendment No.
|_| Post-Effective Amendment No.
|X| Registration Statement Under The Investment Company Act of 1940
|_| Amendment No.
DECS TRUST VII
(Exact Name of Registrant as Specified in Charter)
c/o Salomon Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (212) 816-6000
Alan M. Rifkin
Salomon Smith Barney Inc.
390 Greenwich Street
New York, New York 10013
(Name and Address of Agent for Service)
With copies to
Raymond B. Check, Esq.
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
(212) 225-2000
Approximate Date of Proposed Public Offering: As soon as practicable after
the effective date of this Registration Statement.
If any securities being registered on this form will be offered on a
delayed or continuous basis in reliance on Rule 415 under the Securities Act of
1933, as amended, other than securities offered in connection with a dividend
reinvestment plan, check the following box [ ]
<TABLE>
CALCULATION OF REGISTRATION FEE
UNDER THE SECURITIES ACT OF 1933
Proposed Proposed Maximum
Maximum Aggregate
Title of Securities Amount being Offering Price Offering Amount of
Being Registered Registered(l) Per DECS(2) Price(2) Registration Fee
<S> <C> <C> <C> <C>
DECS representing shares of beneficial
Interest............................... 115 DECS $10.00 $1,150 $0.32
(1) Includes a total of 15 DECS that may be issued in connection with the
exercise of an over-allotment option.
(2) Estimated solely for the purpose of calculating the registration fee.
</TABLE>
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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DECS TRUST VII
Cross-Reference Sheet
Parts A and B of Prospectus*
Item
No. Caption Prospectus Caption
----- ------- ------------------
1. Outside Front Cover............................... Front Cover Page
2. Inside Front and
Outside Back Cover Page .......................... Front Cover Page;
Inside Front Cover
Page
3. Fee Table and Synopsis............................ Prospectus Summary;
Fees and Expenses
4. Financial Highlights.............................. Not Applicable
5. Plan of Distribution.............................. Front Cover Page;
Prospectus Summary;
Underwriting
6. Seller Not Applicable............................. Not Applicable
7. Use of Proceeds................................... Use of Proceeds;
Investment Objectives
and Policies
8. General Description of the Registrant............. Front Cover Page;
Prospectus Summary;
The Trust; Investment
Restrictions;
Investment Objectives
and Policies;
Risk Factors for DECS
9. Management........................................ Management and
Administration of the
Trust
10. Capital Stock, Long-Term Debt and
Other Securities; Federal
Income Tax Considerations......................... Description of the DECS
11. Defaults and Arrears
on Senior Securities ............................. Not Applicable
12. Legal Proceedings................................. Not Applicable
13. Table of Contents of the Statement of
Additional Information............................ Not Applicable
14. Cover Page........................................ Not Applicable
15. Table of Contents................................. Not Applicable
16. General Information and History................... The Trust
17. Investment Objective and Policies................. Investment Objectives
and Policies;
Investment Restrictions
18. Management........................................ Management and
Administration of the
Trust
19. Control Persons and Principal
Holders of Management and
Administration of the Securities.................. The Trust
20. Investment Advisory and Other Services............ Management and
Administration of the
Trust
21. Brokerage Allocation and Other Practices.......... Investment Objectives
and Policies
22. Tax Status........................................ Certain United States
Federal Income
Tax Considerations
23. Financial Statements.............................. Statement of Assets,
Liabilities and
Capital
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* Pursuant to the General Instructions to Form N-2, all information required
to be set forth in Part B: Statement of Additional Information has been
included in Part A: The Prospectus. Information required to be included in
Part C is set forth under the appropriate item, so numbered, in Part C of
the N-2 Registration Statement.
<PAGE>
SUBJECT TO COMPLETION, DATED [ ]
PROSPECTUS
100 DECSSM
DECS Trust VII
(Subject to Exchange into Common Stock of o)
--------------------------------
DECS Trust VII 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 one prepaid
forward contract for the purchase of o common stock. For each DECS that you buy,
you will receive a cash distribution of $o on each o, o, o and o starting on o,
o and ending on o, o. Those payments will be made from the U.S. treasury
securities that the trust acquires when it issues the DECS.
The trust will hold one prepaid forward contract, which will entitle the
trust to receive o common stock or cash from one stockholder of o. We refer to
the one stockholder as the seller. On or shortly after o, o, the seller will
deliver, at its option, either cash or o common stock to the trust. The trust
will then deliver this cash or o common stock to you. Under the circumstances
described in this prospectus, the seller will have the option to deliver cash to
the trust between o, o and o, o. After the trust has delivered to you the cash
or the o common stock delivered to the trust by the seller, the trust will
terminate. The amount of cash or number of shares of o common stock the seller
will deliver and you will receive will depend on the price of o common stock
shortly before the date the seller delivers the cash or o common stock to the
trust. If the price of o common stock is:
o more than $o per share, you will receive 0. o shares of o common
stock, or the cash equivalent, for each DECS you own.
o more than $o per share but less than or equal to $o per share, you
will receive o common stock worth $o, or the cash equivalent, for each
DECS you own.
o $o per share or less, you will receive one share of o common stock, or
the cash equivalent, for each
DECS you own.
The last reported sale price of o common stock on o, o was $o 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 24.
-----------------------------
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.
-----------------------------
Per DECS Total
Public Offering Price $ $
Sales Load $ -- $ --
Proceeds to the trust before expenses $ $
The underwriters are offering the DECS subject to various conditions. The
underwriters expect to deliver the DECS to purchasers on o, 2000.
-----------------------------
<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
Page
----
Prospectus Summary............................... 3
Fees and Expenses................................ 8
The Trust........................................ 9
Use of Proceeds.................................. 9
Investment Objectives and Policies............... 9
Investment Restrictions.......................... 23
Risk Factors for DECS............................ 24
Net Asset Value.................................. 27
Description of the DECS.......................... 27
Management and Administration of the Trust....... 29
Certain United States Federal Income Tax
Considerations................................... 32
Underwriting..................................... 38
Legal Matters.................................... 40
Experts.......................................... 40
Where You Can Find More Information.............. 40
Report of Independent Accountants................ 41
Statement of Assets, Liabilities
and Capital, o, o................................ 42
Notes to Statement of Assets, Liabilities
and Capital, o, o................................ 43
Until o, 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 risk of investing in the
DECS discussed under "Risk Factors for DECS."
The Trust
DECS Trust VII is a recently created Delaware business trust. The trust
will terminate on or shortly after o, o, which is referred to in this summary as
the "exchange date" because that is when the shares of o common stock or their
value in cash are expected to be delivered under all of the prepaid forward
contract the trust has with the seller. In some limited circumstances, the o
common stock or its value in cash may be delivered and the trust terminated
sooner than that date. In other limited circumstances, the seller may elect to
deliver cash and may extend the exchange date, for purposes of the contract, to
o, o, and may subsequently accelerate the extended exchange date if it wishes.
If the exchange date under the seller's contract is extended in this way, the
trust will terminate on or shortly after the date all of the o common stock or
cash has been delivered under the prepaid forward contract.
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 $o per DECS, which is the same as the closing bid price of a
share of o common stock on the [o], on o, o. The underwriters also may purchase
up to 15 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 Common Stock, while also
giving you the chance to share in the increased value of o common stock if its
price goes up. [o does not currently pay dividends on its common stock and has
stated that it does not intend to do so, but in the future o 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 o 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 $o per share shortly before
the exchange date.
Quarterly Distributions
For each DECS that you buy, you will receive a cash distribution of $o on
each o, o, o and o, starting on o, o and ending on o, o. 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. o and 1.0 shares of o
common stock for each DECS you own. Those amounts will be adjusted if o 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, the seller
has the option to deliver cash to the trust instead of shares of o common stock.
If the seller decides to deliver cash, you will receive the cash value of the o
common stock you would have received under the seller's contract instead of the
shares themselves. If o merges into another company or liquidates, you may
receive shares of the other company or cash instead of o common stock on the
exchange date. And if the seller defaults under its prepaid forward contract
with the trust, the obligations of the seller under its contract will be
accelerated, and the trust will immediately distribute to you the o common stock
or cash received by the trust under the prepaid forward contract, plus the
amount of the U.S. treasury securities then held by the trust.
In addition, the seller may elect to deliver cash instead of o 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. The seller may extend
the exchange date under its prepaid forward contract to o, o but only in
connection with a rollover offering. If the seller completes a rollover offering
and has extended the exchange date, the seller will deliver the cash due under
its prepaid forward contract by the fifth business day after the extended
exchange date. If the seller has elected to extend the exchange date to o, o,
the seller will also have the option of later accelerating the exchange date to
between o, o and o, o, in which case the seller will deliver the cash due under
its prepaid forward contract by the fifth business day after the accelerated
exchange date.
In addition, if the seller has extended the exchange date the seller will
deliver cash to be distributed as an additional partial distribution for the
period beginning on o, o and ending on the date the seller delivers the cash
value of the o common stock under its prepaid forward contract.
Voting Rights
You will not have the right to vote any o common stock unless and until it
is delivered to the trust by the seller 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:
o 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.
o a prepaid forward contract with the seller under which the seller has
the right to deliver o common stock or cash to the trust on the
exchange date, which the trust will then distribute to you.
The U.S. treasury securities initially will represent approximately o% of
the trust's assets and the prepaid forward contract initially will represent
approximately o%.
The trust's investment objective is to provide you with (1) a quarterly
distribution of $0. o per DECS over the term of the trust and (2) o common stock
on the exchange date in an amount equal to:
o 0. o shares of o common stock per DECS if the average price of o
common stock shortly before the exchange date is more than $o per
share.
o shares of o common stock worth $o per DECS (the issue price of the
DECS) if the average price of o common stock shortly before the
exchange date is more than $o per share but less than or equal to $o
per share.
o one share of o common stock per DECS if the average price of o common
stock shortly before the exchange date is $o or less per share.
The trust will not deliver fractions of a share of o common stock. If you
would receive a fraction of a share of o common stock under this formula (based
on all DECS owned), you will receive cash instead.
At the closing of the sale of the DECS, the trust will enter into a prepaid
forward contract with the seller. The prepaid forward contract will require the
seller to deliver to the trust up to a total of o shares of o common stock on
the exchange date for the contract. The purchase price for the o common stock
under the prepaid forward contract will be $o per share or $o in total. The
trust will pay the seller the purchase price for the o common stock on the date
of the DECS are issued.
The seller will secure its obligations to deliver o 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 seller will have the right to
substitute U.S. treasury securities as collateral for the pledged o common
stock.
If the seller elects to extend the exchange date under its contract to o,
o, the seller will secure its obligation to pay interest accruing during the
period beginning on o, o and ending on the extended (or accelerated) exchange
date by pledging U.S. treasury securities 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 contract held by the trust. In
addition, the seller, 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 contract for the purchase
of o 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 o 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.
[o]
A prospectus and a prospectus supplement that describe o and the o common
stock that you may receive are attached to this prospectus. o 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 contract between the trust and the seller. The seller did not prepare,
and is not responsible for, the o prospectus or prospectus supplement. The o
prospectus and prospectus supplement are attached to this prospectus only for
your convenience. The o 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
assets, its paying agent, registrar and transfer agent for the DECS and the
collateral agent for the seller's pledge of o common stock or U.S. treasury
securities to the trust. The Bank of New York will not have any other
affiliation with the trust.
Term of the Trust
The trust will terminate automatically on or shortly after the date on
which the trust distributes to you the o common stock or cash that the trust
receives on the exchange date under its prepaid forward contract with the
seller. Under most circumstances, this will be on or shortly after the o, o or
o, o if the seller has elected to extend the exchange date under its contract.
Risk Factors
o The trust will not dispose of its prepaid forward contract for o
common stock during the term of the trust even if the value of o
common stock declines or o's financial condition changes for the
worse.
o During the term of the trust, o could start paying dividends that
would provide investors in its stock with a higher yield than you will
receive on the DECS.
o You will bear the entire risk of declines in the value of the o common
stock between the closing date and the exchange date. The amount of o
common stock or cash that you will receive on the exchange date is not
fixed, but is based on the market price of o common stock shortly
before the exchange date. If the market price of o 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 o becomes bankrupt
or insolvent, you could lose everything you paid for your DECS.
o You will have less opportunity for gains if the value of o common
stock increases than you would have if you purchased o common stock
directly. You will realize a gain only if the value of o Common Stock
increases by approximately o% between the closing date and the
exchange date, and then you will only receive o% of the increase in
the o common stock price above that level.
o Because the trust will determine the value of the o 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.
o Because the trust will own only U.S. treasury securities and the
prepaid forward contract, an investment in the DECS may be riskier
than an investment in an investment company with more diversified
assets.
o The trading price of o common stock will directly affect the trading
price of the DECS in the secondary market. The trading price of o
common stock will be influenced by o's operating results and
prospects, by economic, financial and other factors and by general
market conditions.
o You will not have any right to vote the o 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
seller delivers the stock to the trust under its prepaid forward
contract and the trust distributes the stock to you.
o A bankruptcy of the seller 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 o under the
symbol "o." o common stock is quoted on o under the symbol "o." The last
reported sale price of o common stock on o, o was $o per share.
FEES AND EXPENSES
Because the trust will use proceeds from the sale of the DECS to purchase
the forward contract from the seller, the seller has agreed in the underwriting
agreement to pay to the underwriters as compensation $o per DECS. See
"Underwriting." Salomon Smith Barney Inc. ("Salomon Smith Barney") will pay
estimated organization costs of the trust in the aggregate amount of $o and
estimated costs of the trust in connection with the initial registration and
public offering of the DECS in the aggregate amount of approximately $o 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 it ongoing fees and,
in the case of the Administrator, anticipated expenses of the trust (estimated
to be $o in the aggregate) over the term of the trust. Salomon Smith Barney has
agreed to pay 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 seller will reimburse Salomon Smith Barney for all expenses of the
trust and reimbursements of indemnifications paid by it. See "Management and
Administration of the Trust-Estimated Expenses."
Regulations of the Securities and Exchange Commission require the
presentation of trust expenses in the following format in order to assist
investors in understanding the costs and expenses that an investor will bear
directly or indirectly. Because the trust will not bear any ongoing fees or
expenses, investors will not bear any direct expenses. The only expenses that an
investor might be considered to bear indirectly are (a) the underwriters'
compensation payable by the seller 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 $o per year in the
aggregate, which Salomon Smith Barney will pay at the closing of the offering.
Investor transaction expenses
Sales Load (as a percentage of offering price)............%
==
Annual Expenses
Management Fees..........................................0%
Other Expenses (after reimbursement by the seller)*......0%
Total Annual Expenses*..........................0%
==
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* Without this reimbursement, the trust's "total annual expenses" would be
equal to approximately o% 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.
1 Year 3 Years
------ -------
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 seller) on a $1,000 investment,
assuming a 5% annual return.............................. $ $
THE TRUST
DECS Trust VII 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 o, o, pursuant to a Declaration of Trust,
dated as of o, o. The term of the trust will expire on or shortly after o, o
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 Salomon Smith Barney, Inc., 388 Greenwich Street, New York, New York 10013
(telephone number: (212) 816-6000).
USE OF PROCEEDS
On or shortly after the date on which it sells the DECS, the trust will use
the proceeds of this offering to purchase a fixed portfolio comprised of a
series of zero-coupon U.S. treasury securities maturing quarterly during the
term of the trust and to pay the purchase price under the prepaid forward
contract to the seller.
INVESTMENT OBJECTIVES AND POLICIES
Trust Assets
The trust's investment objectives are to provide investors with a quarterly
distribution of $0.o 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 o, o or such later date not later than o, o as may be
elected by the seller making a Rollover Offering as described below (in each
case, the "Exchange Date" under the prepaid forward contract), a number of
shares of o common stock (the "Common Stock") at the Exchange Rate (as defined
below) or, if the seller 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 30th Business Day prior to the Exchange Date, the 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 Common Stock or cash. See "--The Forward Contract--General" below.
"Business Day" means any day that is not a Saturday, a Sunday or a day on which
the New York Stock Exchange 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 $o (the
"Threshold Appreciation Price"), 0.o shares of Common Stock per DECS;
(b) if the Exchange Price is less than or equal to the Threshold
Appreciation Price but is greater than $o (the "Initial Price"), a
fraction, equal to the Initial Price divided by the Exchange Price, of
one share of Common Stock per DECS; and
(c) if the Exchange Price is less than or equal to the Initial Price, one
share of Common Stock per DECS.
Accordingly, the value of the Common Stock to be received by investors (or,
as discussed below, the cash equivalent to be received in lieu of such Common
Stock) at the Exchange Date will not necessarily equal the Initial Price. The
numbers of shares of Common Stock per DECS specified in clauses (a), (b) and (c)
of the Exchange Rate are hereinafter referred to as the "Share Components." Any
shares of Common Stock delivered by the trust to investors that are not
affiliated with o will be free of any transfer restrictions and the investors
will be responsible for the payment of all brokerage costs upon the subsequent
sale of such shares. Investors otherwise entitled to receive fractional shares
in respect of their aggregate holdings of DECS will receive cash in lieu
thereof. See "--Delivery of Common Stock and Reported Securities; No Fractional
Shares of Common Stock or Reported Securities" below. Notwithstanding the
foregoing, (1) in the case of 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 Common Stock. See "--The Forward Contract--Dilution
Adjustments" and "--The Forward Contract--Adjustment Events" below.
The trust has adopted a fundamental policy to invest at least 65% of its
portfolio in the prepaid forward contract. The prepaid forward contract will
comprise approximately o% of the trust's initial assets. The trust has also
adopted a fundamental policy that the trust may not dispose of the prepaid
forward contract 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 partial acceleration of the
prepaid forward contract as described below under "--The Treasury Securities."
These fundamental policies of the trust may not be changed without the vote of a
"majority in interest" of the owners of the DECS. A "majority in interest" means
the lesser of (a) 67% of the DECS represented at a meeting at which more than
50% of the outstanding DECS are represented and (B) more than 50% of the
outstanding DECS.
The "Exchange Price" under the prepaid forward contract means the average
Closing Price (as defined below) per share of Common Stock on the 20 Trading
Days (as defined below) immediately prior to, but not including, the Exchange
Date thereunder; provided, however, that if there are not 20 Trading Days for
the Common Stock occurring later than the 60th calendar day immediately prior
to, but not including, the Exchange Date, the Exchange Price will be the market
value per share of the 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 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 market for the trading of such security. For illustrative purposes only,
the following chart shows the number of shares of Common Stock or the amount of
cash that an investor would receive for each DECS at various Exchange Prices.
The chart assumes that there will be no adjustments to the Exchange Rate due to
any of the events described under "--The Forward Contract--Dilution Adjustments"
and "--The Forward Contract--Adjustment Events" below and that the prepaid
forward contract will not be accelerated. There can be no assurance that the
Exchange Price will be within the range set forth below. Given the Initial Price
of $o per DECS and the Threshold Appreciation Price of $o, an investor would
receive at the Exchange Date the following number of shares of Common Stock or
amount of cash (if the seller exercises the Cash Delivery Option) per DECS:
Exchange Price of Number of Shares of
Common Stock Common Stock Amount of Cash
------------ ------------ --------------
As the foregoing chart illustrates, if at the Exchange Date, the Exchange
Price is greater than $o, the trust will be obligated to deliver 0.o shares of
Common Stock per DECS, resulting in an investor receiving only o% of the
appreciation in market value above $o. If at the Exchange Date, the Exchange
Price is greater than $o and less than or equal to $o, the trust will be
obligated to deliver only a fraction of a share of Common Stock having a value
at the Exchange Price equal to $o, 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 $o, the trust will be obligated to deliver one share of
Common Stock per DECS, regardless of the market price of such share, resulting
in an investor realizing the entire loss on the decline in market value of the
Common Stock.
The following table sets forth information regarding the distributions to
be received on the 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>
<S> <C> <C> <C> <C>
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
------------------- -------- ---- --------
o.............................. $ $ $ $
o..............................
o..............................
o..............................
</TABLE>
The trust will pay the annual distribution of $o per DECS quarterly on each
o, o, o and o (or, if any such date is not a Business Day, on the next
succeeding Business Day), commencing o, o. 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 Common Stock.
Enhanced Yield; Less Potential for Equity Appreciation than Common Stock; No
Depreciation Protection
The yield on the DECS is higher than the current divided yield on the
Common Stock, [which currently does not pay dividends.] However, there is no
assurance that the yield on the DECS will be higher than the dividend yield on
the Common Stock over the term of the trust. In addition, the opportunity for
equity appreciation afforded by an investment in the DECS is less than the
opportunity for equity appreciation afforded by a direct investment in the
Common Stock because the value of the Common Stock to be received by owners of
the DECS at the Exchange Date (the "Amount Receivable at the Exchange Date")
will generally exceed the Initial Price only if the Exchange Price exceeds the
Threshold Appreciation Price (which represents an appreciation of approximately
o% over the Initial Price) and because investors will be entitled to receive at
the Exchange Date only o% (the percentage equal to the Initial Price divided by
the Threshold Appreciation Price) of any appreciation of the value of the Common
Stock in excess of the Threshold Appreciation Price. Moreover, DECS investors
will bear the entire decline in value if the Exchange Price on the Exchange Date
is less than the Initial Price. Additionally, because the Exchange Price is
generally determined based on a 20 Trading Day average, the value of a share of
Common Stock distributed on the 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 o and the 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
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 seller delivers shares of Common Stock to the trust pursuant to
the prepaid forward contract and the trust has distributed such shares to the
owners of the DECS.
The Common Stock has been quoted on o under the symbol o since o. The
following table sets forth, for the indicated periods, the high and low sales
prices of the Common Stock, as reported on o, giving effect to o's stock splits.
o has never paid cash dividends on the Common Stock and has stated that it does
not anticipate paying cash dividends on the Common Stock in the foreseeable
future. As of o 2000, there were o record holders of the Common Stock. o's
fiscal year end is o.
High Low
---- ---
Fiscal [ ].....................................
Fiscal [ ].....................................
Fiscal [ ].....................................
Fiscal [ ].....................................
Fiscal [ ].....................................
Fiscal [ ].....................................
Fiscal [ ].....................................
Fiscal [ ].....................................
o 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 contract. This prospectus relates only to the
DECS offered hereby and does not relate to o or the Common Stock. o has filed a
registration statement with the SEC with respect to the shares of Common Stock
that may be delivered to the trust by the seller, and by the trust to the owners
of DECS, at the Exchange Date or upon earlier acceleration of the prepaid
forward contract. The prospectus and prospectus supplement of o constituting a
part of such registration statement include information relating to o and the
Common Stock, including certain risk factors relevant to an investment in the
Common Stock. The prospectus and prospectus supplement of o are being attached
hereto and delivered to prospective purchasers of DECS together with this
prospectus for convenience of reference only. The o prospectus and prospectus
supplement are not part of this prospectus, and are not incorporated by
reference into this prospectus. The seller did not prepare, and is not
responsible for, the o prospectus or prospectus supplement.
The Forward Contract
General. The trust will enter into the prepaid forward contract with the
seller obligating the seller to deliver to the trust at the Exchange Date under
its prepaid forward contract a number of shares of Common Stock equal to the
initial number of shares of the 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, o;
(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 contract is equal to $o per
share of Common Stock and $o in total and is payable to the seller by the trust
on the closing of this offering. The purchase price of the prepaid forward
contract was arrived at by arm's length negotiations between the trust and the
seller taking into consideration factors including the price, expected dividend
level and volatility of the Common Stock, current interest rates, the term of
the prepaid forward contract, current market volatility generally, the
collateral pledged by the seller to secure its obligations under its prepaid
forward contract, the value of other similar instruments and the costs and
anticipated proceeds of the offering of the DECS. All matters relating to the
administration of the prepaid forward contract will be the responsibility of
either the trust's Administrator or its Custodian.
Although the seller currently intends to deliver shares of Common Stock at
the Exchange Date, the seller may, at its option, deliver cash in lieu of
delivering all, but not less than all, of the shares of Common Stock otherwise
deliverable by it on the Exchange Date (the "Cash Delivery Option"), except
where such delivery would violate applicable state law. The amount of cash
deliverable by the seller upon exercise of the Cash Delivery Option will be
equal to the product of the number of shares of Common Stock otherwise
deliverable by the seller on the Exchange Date multiplied by the Exchange Price.
On or prior to the 30th Business Day prior to the Exchange Date, the 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 Common Stock or cash.
Extension and Acceleration of the Exchange Date at the Option of Seller. If
the seller elects the Cash Delivery Option and is making a Rollover Offering (as
defined below), the seller may extend the Exchange Date under its prepaid
forward contract to o, o. If the seller extends the Exchange Date, it will not
be required to deliver the cash value of the Common Stock under its prepaid
forward contract until o, o. However, once the seller extends the Exchange Date,
the seller can then accelerate the Exchange Date under its prepaid forward
contract to any date between o, o and o, o.
If the seller extends the Exchange Date under its prepaid forward contract
in connection with a Rollover Offering, the seller 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, the seller will be
required to pledge U.S. treasury securities to secure its obligation to deliver
cash for this additional distribution. See "--Collateral Requirements of the
Forward Contract; 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. For example, if the Exchange Date
under the prepaid forward contract is extended to o, o and then accelerated to
o, o (i.e., two-thirds of the time between o, o and o, o), the additional
distribution would be equal to two-thirds of the regular quarterly distribution.
If the seller extends or accelerates the Exchange Date under its prepaid forward
contract, the trust will receive the cash payable under that contract within
five Business Day after the extended or accelerated Exchange Date, and the
amount of cash will be calculated as of the extended or accelerated Exchange
Date.
Rollover Offerings. The seller has the option to deliver cash instead of
all, but not less than all, of the 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 the seller not earlier than o, o 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 the seller. If the seller elects to carry
out a Rollover Offering, the "Exchange Price" will be the Closing Price per
share of the 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.
If the 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 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 the seller elects to
settle with cash in connection with a Rollover Offering, not less than 30 days
nor more than 90 days prior to the Exchange Date, (2) if the seller elects to
extend the Exchange Date in connection with a Rollover Offering, not less than
30 days or more than 90 days prior to the Exchange Date as in effect when the
election is made and (3) if the seller accelerates the Exchange Date in
connection with a Rollover Offering, not less than five Trading Days prior to
the Pricing Date.
Dilution Adjustments. The Exchange Rate is subject to adjustment if o:
(1) pays a stock dividend or makes a distribution, in either case, with
respect to the Common Stock in shares of such stock,
(2) subdivides or splits its outstanding shares of Common Stock into a
greater number of shares,
(3) combines its outstanding shares of Common Stock into a smaller number
of shares,
(4) issues by reclassification (other than a reclassification pursuant to
clause (2), (3), (4) or (5) of the definition of Adjustment Event
below) of its shares of Common Stock any other equity securities of o,
(5) issues rights or warrants (other than rights to purchase Common Stock
pursuant to a plan for the reinvestment of dividends or interest) to
all holders of Common Stock entitling them to subscribe for or
purchase shares of Common Stock at a price per share less than the
Market Price (as defined below) of the Common Stock on the Business
Day next following the record date for the determination of holders of
Common Stock entitled to receive such rights or warrants, or
(6) is acquired by, consolidates with or merges into any other entity in a
transaction in which the holders of Common Stock receive common stock
in exchange for their shares of 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 contract to receive at
the Exchange Date the number of shares of Common Stock (or, in the case of a
reclassification referred to in clause (4) above, the number of other equity
securities of o issued pursuant thereto) which it would have owned or been
entitled to receive immediately following such event had the Exchange Date
occurred immediately prior to such event or any record date with respect
thereto.
In the case of the event referred to in clause (5) above, the Exchange Rate
will be adjusted by multiplying each of the Share Components of the Exchange
Rate in effect on the record date for the issuance of the rights or warrants
referred to in clause (5) above, by a fraction. The numerator of this fraction
is
(A) the number of shares of Common Stock outstanding on the record date
for the issuance of such rights or warrants, plus
(B) the number of additional shares of Common Stock offered for
subscription or purchase pursuant to such rights or warrants.
The denominator of this fraction is
(x) the number of shares of Common Stock outstanding on the record date
for the issuance of such rights or warrants, plus
(y) the number specified in clause (B) above multiplied by the quotient of
(I) the exercise price of such rights or warrants divided by
(II) the Market Price of the Common Stock on the Business Day next
following the record date for the determination of holders of
Common Stock entitled to receive such rights or warrants.
To the extent that such rights or warrants expire prior to the Exchange
Date and shares of Common Stock are not delivered pursuant to such rights or
warrants prior to such expiration, the Exchange Rate will be readjusted to the
Exchange Rate which would then be in effect had such adjustments for the
issuance of such rights or warrants been made upon the basis of delivery of only
the number of shares of Common Stock actually delivered pursuant to such rights
or warrants. For purposes of this paragraph, dividends will be deemed to be paid
as of the record date for such dividend.
[In the case of the event referred to in clause (6) above, the Exchange
Rate will be adjusted on the Exchange Date (but not above one share of 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 contract to receive at the Exchange
Date, in addition to the number of shares otherwise deliverable, additional
shares of Common Stock with a Closing Price as of the date of such acquisition,
consolidation or merger equal to 0.o 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 Common Stock occurring later than the 60th calendar
day immediately prior to, but not including, such date, the Market Price will be
determined as the market value per share of Common Stock as of such date as
determined by a nationally recognized investment banking firm that the
Administrator retains for such purpose.
All adjustments to the Exchange Rate will be calculated to the nearest
1/10,000th of a share of Common Stock (or, if there is not a nearest 1/10,000th
of a share, to the next higher 1/10,000th of a share). No adjustment in the
Exchange Rate will be made unless such adjustment would require an increase or
decrease of at least one percent therein; provided, however, that any
adjustments which by reason of the foregoing are not required to be made will be
carried forward and taken into account in any subsequent adjustment. If an
adjustment is made to the Exchange Rate pursuant to clauses (1), (2), (3), (4),
(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 Common Stock into any equity securities
of o other than the Common Stock, such equity securities will be deemed shares
of Common Stock for all purposes. Each such adjustment to the Exchange Rate and
the Exchange Price will be made successively.
Adjustment Events. Each of the following events are called "Adjustment
Events":
(1) any dividend or distribution by o to all holders of Common Stock of
evidences of its indebtedness or other assets (excluding any dividends
or distributions referred to in clause (1) of the first paragraph
under the caption "--Dilution Adjustments" above, any equity
securities issued pursuant to a reclassification referred to in clause
(4) of such paragraph and any Ordinary Cash Dividends (as defined
below)) or any issuance by o to all holders of Common Stock of rights
or warrants to subscribe for or purchase any of its securities (other
than rights or warrants referred to in clause (5) of the first
paragraph under the caption "--Dilution Adjustments" above),
(2) any consolidation or merger of o with or into another entity (other
than a merger or consolidation in which o is the continuing
corporation and in which the Common Stock outstanding immediately
prior to the merger or consolidation is not exchanged for cash,
securities or other property of o or another corporation),
(3) any sale, transfer, lease or conveyance to another corporation of the
property of o as an entirety or substantially as an entirety,
(4) any statutory exchange of securities of o with another corporation
(other than in connection with a merger or acquisition), and
(5) any liquidation, dissolution or winding up of o.
After the occurrence of any Adjustment Event, the 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 Common Stock as described above,
cash in an amount equal to:
(A) if the Exchange Price is greater than the Threshold Appreciation
Price, 0.o 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 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) the seller's
delivery obligations under its prepaid forward contract will be accelerated and
promptly upon consummation of the Adjustment Event the 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.o 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 seller as described in (a) above and the proceeds of such liquidation will
be distributed to the owners of the DECS.
If the consideration received by holders of Common Stock in an Adjustment
Event includes Reported Securities and, to any extent, consideration other than
Reported Securities, then (a) the seller's delivery obligations under its
prepaid forward contract will be accelerated to the extent that the value of the
consideration received in such Adjustment Event does not derive from Reported
Securities and promptly upon consummation of the Adjustment Event the 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.o multiplied by (i)
the Transaction Value and (ii) the percentage of the value of the consideration
received in connection with the Adjustment Event that does not derive from
Reported Securities, (y) if the Transaction Value is less than or equal to the
Threshold Appreciation Price but greater than the Initial Price, the Initial
Price multiplied by the percentage of the value of the consideration received in
connection with the Adjustment Event that does not derive from Reported
Securities, and (z) if the Transaction Value is less than or equal to the
Initial Price, the Transaction Value multiplied by the percentage of the value
of the consideration received in connection with the Adjustment Event that does
not derive from Reported Securities; (b) the Custodian will liquidate an amount
of the U.S. treasury securities then held by the trust, based on the face value
of such U.S. treasury securities, equal to the value of the consideration
received in connection with the Adjustment Event that does not derive from
Reported Securities; and (c) the amount delivered by the seller as described in
(a) above and the proceeds of the liquidation of the U.S. treasury securities
described in (b) above 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 Common Stock are outstanding at
the Exchange Date, the Exchange Price of the Common Stock, as adjusted pursuant
to the method described above under "--Dilution Adjustments," otherwise zero,
plus (B) the Transaction Value.
Notwithstanding the foregoing, with respect to any securities received by
holders of Common Stock in an Adjustment Event that
(1) are
(a) listed on a United States national securities exchange,
(b) reported on a United States national securities system subject to
last sale reporting,
(c) traded in the over-the-counter market and reported on the
National Quotation Bureau or similar organization, or
(d) for which bid and ask prices are available from at least three
nationally recognized investment banking firms, and
(2) are either (x) perpetual equity securities or (y) non-perpetual equity
or debt securities with a stated maturity after the Exchange Date of
the DECS;
("Reported Securities"), the 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 the 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 the 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 Common Stock or other assets delivered by the seller
pursuant to the prepaid forward contract, the amount of cash and/or the kind and
number of securities which the owners of DECS are entitled to receive after an
Adjustment Event will be adjusted following the date of such Adjustment Event in
the same manner and upon the occurrence of the same type of events as described
under the captions "--Dilution Adjustments" and "--Adjustment Events" with
respect to Common Stock and o.
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
Common Stock paid in cash to the extent that the amount of such dividend,
together with the total amount of all other dividends on the Common Stock paid
in cash during such 365-day period, does not exceed on a per share basis 10% of
the average of the Closing Prices of the Common Stock over such 365-day period.
The term "Transaction Value" means
(1) for any cash received in any Adjustment Event, the amount of cash
received per share of Common Stock,
(2) for any Reported Securities received in any Adjustment Event, an
amount equal to (x) the average Closing Price per unit of such
Reported Securities on the 20 Trading Days immediately prior to, but
not including, the Exchange Date multiplied by (y) the number of such
Reported Securities (as adjusted pursuant to the methods described
above under "--Dilution Adjustments" and "--Adjustment Events")
received per share of Common Stock, and
(3) for any property received in any Adjustment Event other than cash or
such Reported Securities, an amount equal to the fair market value of
the property received per share of Common Stock on the date such
property is received, as determined by a nationally recognized
investment banking firm that the Administrator retains for this
purpose;
provided, however, that in the case of clause (2),
(x) with respect to securities that are Reported Securities by virtue of
only clause (d) of the definition of Reported Securities above,
Transaction Value with respect to any such Reported Security means the
average of the mid-point of the last bid and ask prices for such
Reported Security as of the Exchange Date from each of at least three
nationally recognized investment banking firms that the Administrator
retains for such purpose multiplied by the number of such Reported
Securities (as adjusted pursuant to the methods described above under
"--Dilution Adjustments" and "--Adjustment Events") received per share
of Common Stock, and
(y) with respect to all other Reported Securities, if there are not 20
Trading Days for any particular Reported Security occurring after the
60th calendar day immediately prior to, but not including, the
Exchange Date, Transaction Value with respect to such Reported
Security means the market value per security of such Reported Security
as of the Exchange Date as determined by a nationally recognized
investment banking firm that the Administrator retains for such
purpose multiplied by the number of such Reported Securities (as
adjusted pursuant to the methods described above under "--Dilution
Adjustments" and "--Adjustment Events") received per share of Common
Stock.
For purposes of calculating the Transaction Value, any cash, Reported
Securities or other property receivable in an Adjustment Event will be deemed to
have been received immediately prior to the close of business on the record date
for such Adjustment Event or, if there is no record date for such Adjustment
Event, immediately prior to the close of business on the effective date of such
Adjustment Event.
No adjustments will be made for certain other events, such as offerings of
Common Stock by o for cash or in connection with acquisitions. Likewise, no
adjustments will be made for any sales of Common Stock by the seller.
The seller is required under its prepaid forward contract to notify the
trust promptly upon o 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 Contract; Acceleration. The seller's
obligations under its prepaid forward contract will be secured by a pledge of
one share of Common Stock for each share of 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 the 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.
Unless it is in default of its obligations under its respective Collateral
Agreement, the seller under the prepaid forward contract will be permitted to
substitute for the pledged shares of Common Stock collateral consisting of
short-term, direct obligations of the U.S. Government. Any U.S. Government
obligations pledged as substitute collateral for shares of Common Stock must
have an aggregate market value at the time of substitution and at daily
mark-to-market valuations thereafter of not less than 150% (or, from and after
any Insufficiency Determination (as defined below) that is not cured by the
close of business on the next Business Day thereafter, as described below, 200%)
of the product of the market price of the Common Stock at the time of each
valuation times the number of shares of Common Stock for which such obligations
are being substituted. The Collateral Agreement provides that, after an
Adjustment Event, the 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 --OUT?], received by it in
respect of the maximum number of shares of 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 contract occurs. The seller will
be permitted to substitute U.S. Government obligations for Reported Securities.
Any U.S. Government obligations so substituted must have an aggregate market
value at the time of substitution and at daily mark-to-market valuations
thereafter of, 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.
The Collateral Agent will promptly pay over to the 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 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 pledged by the seller as substitute collateral fail
to meet the foregoing requirements at any valuation, or that the seller has
failed to pledge additional collateral required as a result of a dilution
adjustment increasing the maximum number of shares of Common Stock or 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 Collateral Agreement has occurred and is continuing, the Collateral
Agent will commence (1) sales of the collateral consisting of U.S. Government
obligations and (2) purchases, using the proceeds of such sales, of shares of
Common Stock or Reported Securities in an amount sufficient to cause the
collateral to meet the requirements under the Collateral Agreement. The
Collateral Agent will discontinue such sales and purchases if at any time a
Collateral Event of Default under the Collateral Agreement has occurred and is
continuing.
The occurrence of a Collateral Event of Default under the seller's
Collateral Agreement, or the bankruptcy or insolvency of the seller, will cause
an automatic acceleration of the seller's obligations under its prepaid forward
contract. A "Collateral Event of Default" under the Collateral Agreement means,
at any time,
(A) if no U.S. Government obligations are pledged as substitute collateral
at such time, failure of the collateral to consist of at least the
maximum number of shares of Common Stock subject to the 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 and the maximum number of any Reported Securities required to
be pledged by the seller as described above);
(B) if any U.S. Government obligations are pledged as substitute
collateral for shares of Common Stock (or Reported Securities) under
the Collateral Agreement at such time, failure of such U.S. Government
obligations to have a market value at such time of at least 105% of
the market price of the Common Stock (or the then-current market price
per unit of Reported Securities, as the case may be) times the
difference between
(x) the maximum number of shares of Common Stock (or Reported
Securities) subject to the seller's prepaid forward contract at
such time, and
(y) the number of shares of Common Stock (or Reported Securities)
pledged as collateral by the seller at such time; and
(C) if any U.S. Government obligations are pledged as substitute
collateral for any cash under the Collateral Agreement at such time,
failure of such U.S. Government obligations to have a market value at
such time of at least 105% of such cash, if such failure is not cured
within one Business Day after notice thereof is delivered to the
seller.
Except as described below, upon acceleration of the seller's prepaid
forward contract, the Collateral Agent will to the extent permitted by law
distribute to the trust for distribution pro rata to the investors the maximum
number of shares of Common Stock subject to the prepaid forward contract, in the
form of the shares of Common Stock then pledged by the seller, or cash generated
from the liquidation of U.S. Government obligations then pledged by the seller,
or a combination thereof (or, after an Adjustment Event, in the form of Reported
Securities then pledged, cash generated from the liquidation of U.S. Government
obligations then pledged, or a combination thereof). In addition, if by the
Exchange Date any substitute collateral has not been replaced by shares of
Common Stock (or, after an Adjustment Event, Reported Securities) sufficient to
meet the obligations under the seller's prepaid forward contract, the Collateral
Agent will distribute to the trust for distribution pro rata to the investors
the market value of the shares of Common Stock required to be delivered
thereunder, in the form of any shares of Common Stock then pledged by the seller
plus cash generated from the liquidation of U.S. Government obligations then
pledged by the 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 cash generated from the liquidation
of U.S. Government obligations then pledged).
If upon acceleration of the seller's prepaid forward contract, the 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 Common Stock, in the form of the shares of
Common Stock then pledged by the seller, or cash generated from the liquidation
of U.S. Government obligations then pledged by the seller, or a combination
thereof (or, after an Adjustment Event, in the form of Reported Securities then
pledged, cash generated from the liquidation of U.S. Government obligations then
pledged, or a combination thereof), with an aggregate value equal to the
"Acceleration Value." The Administrator will determine the Acceleration Value on
the basis of quotations from independent dealers. Each quotation will be for an
amount that would be paid to the relevant dealer in consideration of an
agreement that would have the effect of preserving the trust's rights to receive
the number of shares of Common Stock (or, after an Adjustment Event, Reported
Securities) subject to the 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 Common Stock (or, after an Adjustment Event, Reported
Securities) that would be required to be delivered under the seller's prepaid
forward contract on the date of acceleration if the Exchange Date were redefined
to be the date of acceleration.
Description of the Seller. Specific information on the holdings of the
seller, as required by the Securities Act of 1933, as amended (the "Securities
Act"), is included in the prospectus and prospectus supplement of o 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.o per DECS on each Distribution
Date during the term of the trust. The trust may invest up to 35% of its total
assets in these treasury securities. If the prepaid forward contract is
partially accelerated pursuant to an Adjustment Event in connection with which
holders of Common Stock receive, to any extent, consideration other than
Reported Securities, the Administrator will liquidate an amount of the U.S.
treasury securities then held in the trust proportionate to the percentage of
consideration received in such Adjustment event that does not consist of
Reported Securities and will distribute the proceeds thereof pro rata to
investors, together with proceeds from the partialacceleration of the prepaid
forward contract. See "--The Forward Contract--Collateral Requirements of the
Forward Contract; Acceleration" above and "--Trust Termination" below.
If the seller extends the Exchange Date under its prepaid forward contract,
it will be required to pledge U.S. treasury securities to the trust as
collateral securing its obligation to pay the additional amount described above
under "--The Forward Contract--Extension and Acceleration of the Exchange Date
at the Option of the Seller."
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 Exchange
Date or following the distribution of all trust assets to investors, if earlier.
If the prepaid forward contract is 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 Common Stock subject to the prepaid forward contract that is pledged
by the seller, or cash generated from the liquidation of U.S. Government
obligations then pledged by the seller, or a combination thereof (or, after an
Adjustment Event, in the form of Reported Securities 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 contract. After this distribution, the term of the trust will expire.
See "--The Forward Contract--Collateral Requirements of the Forward Contract;
Acceleration."
Delivery of Common Stock and Reported Securities; No Fractional Shares of Common
Stock or Reported Securities
The Common Stock and Reported Securities delivered under the prepaid
forward contract at the Exchange Date are expected to be distributed by the
trust to the investors pro rata shortly after the Exchange Date, except that no
fractional shares of Common Stock or Reported Securities will be distributed. If
more than one DECS is surrendered at one time by the same investor, the number
of full shares of Common Stock or Reported Securities to be delivered upon
termination of the trust 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 contract and the Common Stock or other assets received pursuant
to the prepaid forward contract and, for cash management purposes, short-term
obligations of the U.S. Government; issue any securities or instruments except
for the DECS; make short sales or purchase securities on margin; write put or
call options; borrow money; underwrite securities; purchase or sell real estate,
commodities or commodities contracts; or make loans. The trust has also adopted
a fundamental policy that the trust may not dispose of the prepaid forward
contract during the term of the trust and [(except for a partial liquidation of
U.S. treasury securities following partial acceleration of the prepaid forward
contract as described above under "Investment Objectives and Policies--The U.S.
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.
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 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
contract 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 partial acceleration of a prepaid forward
contract. As a result, the trust will continue to hold the prepaid forward
contract even if there is a significant decline in the market price of the
Common Stock or adverse changes in the financial condition of o (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 o Shares
The DECS are different from ordinary securities because the value of the
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 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 o 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 Common
Stock before the Exchange Date.
In addition, you have less opportunity to make money from an increase in
the price of the Common Stock by investing in the DECS than by investing
directly in the 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 Common Stock exceeds $o per share. This is an increase of about o% over
the price of the Common Stock when the DECS were first offered for sale. In
addition, you will receive only about o% of any increase in the value of the
Common Stock above $o per share.
In return, you will receive annual distributions on the DECS at a rate of
o%, which is more than the historical annual dividend on the Common Stock, which
currently pay no dividends. However, o 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 Common Stock will
rise or fall. However, the following factors may affect the trading price of
Common Stock:
o whether o makes a profit and what its future prospects are;
o trading in the capital markets generally;
o trading on o, where the Common Stock is traded;
o the health of the o industry; and
o whether o issues securities like the DECS, or o or another person in
the market transfers a large amount of Common Stock.
As of the date of this prospectus, the seller beneficially owned a total of
o shares of Common Stock, of which the seller may deliver up to o shares of
Common Stock (or o 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 o and the Common Stock.
Impact of the DECS on the Market for the o 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 Common
Stock. For example, investors' anticipation that the seller may deliver Common
Stock that represents approximately o% of the currently outstanding Common Stock
when the DECS mature could cause the price of the Common Stock to be unstable or
fall. The following factors could also affect the price of Common Stock:
o sales of Common Stock by investors who prefer to invest in o by
investing in the DECS;
o hedging of investments in the DECS by selling Common Stock (called
"selling short"); and
o arbitrage trading activity between the DECS and Common Stock.
Dilution of o 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 o splits or combines its shares,
pays stock dividends or does other similar things that change the amount of
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 o offers shares for cash or in an acquisition, even if the price
of Common Stock falls and this causes the price of the DECS to fall. The trust
has no control over whether o 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 Common Stock to
the trust when the DECS mature and until the trust distributes the Common Stock
to you, you will have no voting, dividend or other similar rights associated
with the Common Stock.
o not Responsible for the DECS
o has no obligation to make any payments on the DECS. o also does not have
to take the trust's needs or your needs into consideration for any reason. o
will not receive any money from the sale of the DECS and did not decide to issue
the DECS. o 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. o is not involved in
managing or trading the DECS or determining or calculating the amount you will
receive when the DECS mature.
DECS May be Difficult to Resell
The DECS are new and innovative securities, and there is currently no
market in which to resell them. The underwriters currently intend, but are not
obligated, to buy and sell the DECS. A resale market might not develop or, if it
does, might not give you the opportunity to resell your DECS and may not
continue until the DECS mature.
The trust has applied to have the DECS approved for listing on the o.
Nonetheless, o might not approve the application or if approved, could revoke
the listing after approval or stop trading of the DECS at any time. If o 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 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 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 contract or other assets subject to the
prepaid forward contract, the DECS may be a riskier investment than would be the
case for an investment company with more diversified investments.
Tax Treatment of DECS Uncertain
No statutory, judicial or administrative authority directly addresses the
characterization of the DECS or instruments similar to the DECS for U.S. federal
income tax purposes. As a result, significant aspects of the U.S. federal income
tax consequences of an investment in the DECS are not certain. There is no
ruling from the Internal Revenue Service with respect to the DECS and the
Internal Revenue Service might not agree with the conclusions expressed under
the section "Certain United States Federal Income Tax Considerations" in this
prospectus.
Risk Factors for o
You should carefully consider the information in the attached prospectus
and prospectus supplement of o, including the risk factors for o.
Risk Relating to Bankruptcy of the Seller
It is possible that the seller may be the subject of proceedings under the
U.S. Bankruptcy Code. The trust believes that the prepaid forward contract
constitutes a "securities contract" for purposes of the U.S. Bankruptcy Code,
liquidation of which would not be subject to the automatic stay provisions of
the U.S. Bankruptcy Code in the event of the bankruptcy of the seller. It is,
however, possible that a prepaid forward contract could be determined not to
qualify as a "securities contract" for this purpose.
Proceedings under the U.S. Bankruptcy Code in respect of the seller may
thus cause a delay in settlement of the 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 Common Stock or other assets subject to the
prepaid forward contract and the 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. The prepaid
forward contract will be valued at the mean of the bid prices the trust receives
from at least three independent broker-dealer firms unaffiliated with the trust
who are in the business of making bids on financial instruments similar to the
prepaid forward contract 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 contract will be
valued at the median of bid prices received from two such broker-dealer firms.
If the trust (acting through the Administrator) is unable to obtain a valuation
for the prepaid forward contract 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 contract will be established at a level deemed to be fair
and reflective of the market value for the prepaid forward contract based on all
appropriate factors relevant to the value of the prepaid forward contract 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 o.
The trustees may call special meetings of investors for action by investor
vote as may be required by either the Investment Company Act or the Declaration
of Trust. Investors have the right, upon the declaration in writing or vote of
more than two-thirds of the outstanding DECS, to remove a Trustee. The Trustees
will call a meeting of investors to vote on the removal of a Trustee upon the
written request of the record owners of 10% of the DECS or to vote on other
matters upon the written request of the record owners of 51% of the DECS (unless
substantially the same matter was voted on during the preceding 12 months). The
Trustees shall establish, and notify the investors in writing of, the record
date for each such meeting, which shall be not less than 10 nor more than 50
days before the meeting date. Owners at the close of business on the record date
will be entitled to vote at the meeting. The trust will also assist in
communications with other owners as required by the Investment Company Act.
Book-Entry System
The DECS will be issued in the form of one or more global securities (the
"Global Security") deposited with The Depository Trust Company (the
"Depositary") and registered in the name of a nominee of the Depositary.
The Depositary has advised the trust and the underwriters as follows: The
Depositary is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code and a
"clearing agency" registered pursuant to Section 17A of the Securities Exchange
Act of 1934, as amended. The Depositary was created to hold securities of
persons who have accounts with the Depositary ("participants") and to facilitate
the clearance and settlement of securities transactions among its participants
in such securities through electronic book-entry changes in accounts of the
participants, thereby eliminating the need for physical movement of
certificates. Such participants include securities brokers and dealers, banks,
trust companies and clearing corporations. Indirect access to the Depositary's
book-entry system is also available to others, such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with
a participant, either directly or indirectly.
Upon the issuance of a Global Security, the Depositary or its nominee will
credit the respective DECS represented by such Global Security to the accounts
of participants. The accounts to be credited will be designated by the
underwriters. Ownership of beneficial interests in such Global Security will be
limited to participants or persons that may hold interests through participants.
Ownership of beneficial interests by participants in such Global Security will
be shown on, and the transfer of those ownership interests will be effected only
through, records maintained by the Depositary or its nominee for such Global
Security. Ownership of beneficial interests in such Global Security by persons
that hold through participants will be shown on, and the transfer of that
ownership interest within such participant will be effected only through,
records maintained by such participant. The laws of some jurisdictions require
that certain purchasers of securities take physical delivery of such securities
in definitive form. Such limits and such laws may impair the ability to transfer
beneficial interests in a Global Security.
So long as the Depositary for a Global Security, or its nominee, is the
registered owner of such Global Security, such Depositary or such nominee, as
the case may be, will be considered the sole owner or holder of the DECS. Except
as set forth below, owners of beneficial interests in such Global Security will
not be entitled to have the DECS registered in their names and will not receive
or be entitled to receive physical delivery of the DECS in definitive form and
will not be considered the owners or holders thereof.
Shares of Common Stock or other assets deliverable in respect of, and any
quarterly distributions on, DECS registered in the name of or held by the
Depositary or its nominee will be made to the Depositary or its nominee, as the
case may be, as the registered owner or the holder of the Global Security. None
of the trust, any trustee, the Paying Agent, the Administrator or the Custodian
for the DECS will have any responsibility or liability for any aspect of the
records relating to, or payments made on account of, beneficial ownership
interests in a Global Security or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
The trust expects that the Depositary, upon receipt of any payment in
respect of a 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 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 will be an "interested person" of the trust as defined in the
Investment Company Act; the trust will not have an investment adviser. Under the
provisions of the Internal Revenue Code of 1986, as amended (the "Code"),
applicable to grantor trusts, the Trustees will not have the power to vary the
investments held by the trust.
The names of the persons who will be elected by Salomon Smith Barney, the
sponsor/initial investor of the trust, to serve as the Trustees are set forth
below. The positions and the principal occupations of the individual Trustees
during the past five years are also set forth below.
Principal Occupation
Name, Age and Address Title During Past Five Years
- --------------------- ----- ----------------------
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 $o in the aggregate. The trust's Managing Trustee will
also receive an additional up-front fee of $o in the aggregate for serving in
that capacity. The seller will reimburse Salomon Smith Barney for 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.
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 contract at the Exchange Date, and upon
termination of the trust).
Either the trust or the Administrator may terminate the Administration
Agreement upon 60 days' prior written notice, except that no termination shall
become effective until a successor Administrator has been chosen and has
accepted the duties of the Administrator.
Except for its roles as Administrator, Custodian (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 Agreement, The Bank of New
York has no other affiliation with, and is not engaged in any other transactions
with, the trust.
The address of the Administrator is 101 Barclay Street, New York, New York
10286.
Custodian
The trust's custodian (the "Custodian") is The Bank of New York pursuant to
a custodian agreement. In the event of any termination of the custodian
agreement by the trust or the resignation of the Custodian, the trust must
engage a new Custodian to carry out the duties of the Custodian as set forth in
the custodian agreement. Pursuant to the custodian agreement, the Custodian will
invest all net cash received by the trust in short-term U.S. Government
securities maturing on or shortly before the next quarterly distribution date.
The Custodian will also act as Collateral Agent under the Collateral Agreements
and will hold a perfected security interest in the Common Stock and U.S.
Government obligations or other assets consistent with the terms of the prepaid
forward contract.
Paying Agent
The transfer agent, registrar and paying agent (the "Paying Agent") for the
DECS is The Bank of New York pursuant to a paying agent agreement. In the event
of any termination of the paying agent agreement by the trust or the resignation
of the Paying Agent, the trust will use its best efforts to engage a new Paying
Agent to carry out the duties of the Paying Agent.
Indemnification
The trust will indemnify each Trustee, the Administrator, the Custodian and
the Paying Agent with respect to any claim, liability, loss or expense
(including the costs and expenses of the defense against any claim or liability)
which it may incur in acting as Trustee, Administrator, Custodian or Paying
Agent, as the case may be, except in the case of willful misfeasance, bad faith,
gross negligence or reckless disregard of their respective duties or where
applicable law prohibits such indemnification. Salomon Smith Barney has agreed
to reimburse the trust for any amounts it may be required to pay as
indemnification to any Trustee, the Administrator, the Custodian or the Paying
Agent. The seller in turn will reimburse Salomon Smith Barney for all 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 o, o to owners of record as of o, o. Thereafter, the trust will
make distributions on o, o, o and o 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
o, o, o and o, respectively. A portion of each such distribution should be
treated as a tax-free return of the investor's investment. See "Investment
Objective and Policies--Trust Assets" and "Certain United States Federal Income
Tax Considerations." If the prepaid forward contract is accelerated as described
in "Investment Objectives and Policies--The Forward Contract--Collateral
Requirements of the Forward Contract; Acceleration," each investor will receive
its pro rata share of the proceeds from the acceleration of the 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 accountant
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 $o. Salomon
Smith Barney also will pay estimated organization costs of the trust in the
amount of $o and estimated costs of the trust in connection with the initial
registration and public offering of the DECS in the amount of $o 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 seller, or, in
the event of the failure of either of Salomon Smith Barney or the seller to pay
such amounts, the trust. The seller will reimburse Salomon Smith Barney for all
of the expenses of the trust paid by it.
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:
o an individual who is a citizen or resident of the United States,
o a U.S. domestic corporation, or
o any other person that is subject to U.S. federal income taxation on a
net income basis in respect of its investment in DECS.
This summary is based on the U.S. federal income tax laws, regulations,
rulings and decisions now in effect, all of which are subject to change,
possibly on a retroactive basis. Except to the extent discussed below under
"Non-U.S. Holders," this summary applies only to U.S. Holders that will hold
DECS as capital assets, and only if the investor purchased the DECS in their
initial offering. This summary does not address all aspects of U.S. federal
income taxation that may be relevant to an investor in light of the investor's
individual investment circumstances, and does not address tax considerations
applicable to investors that may be subject to special tax rules, such as
dealers in securities or foreign currencies, traders in securities or
commodities electing to mark to market, financial institutions, insurance
companies, tax-exempt organizations, persons that will hold DECS as a position
in a "straddle" for tax purposes or as a part of a "synthetic security" or a
"conversion transaction" or other integrated investment comprised of a DECS and
one or more other investments, or persons that have a functional currency other
than the U.S. dollar.
This summary does not include any description of the tax laws of any state
or local governments or of any foreign government that may be applicable to the
DECS or to the owners thereof. It also does not discuss the tax consequences of
the ownership of the Common Stock or Reported Securities. Investors should
consult their own tax advisors in determining the tax consequences to them of
holding DECS, including the application to their particular situation of the
U.S. federal income tax considerations discussed below, as well as the
application of state, local or other tax laws.
There are no regulations, published rulings or judicial decisions
addressing the characterization for federal income tax purposes of securities
with terms substantially the same as the DECS. Pursuant to the terms of the
Declaration of Trust, the trust and every holder of the DECS agree to treat a
DECS for U.S. federal income tax purposes as a beneficial interest in a trust
that holds zero-coupon U.S. treasury securities and the prepaid forward
contract. The trust intends to report holders' income to the Internal Revenue
Service in accordance with this treatment. In addition, pursuant to the terms of
the prepaid forward contract and the Declaration of Trust, the seller, 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 contract for all tax purposes as a forward purchase contract
to purchase Common Stock at the Exchange Date (including as a result of
acceleration or otherwise), under the terms of which contract:
(a) at the time of issuance of the DECS the holder is required to deposit
irrevocably with the seller 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 seller in full satisfaction of the holder's payment
obligation under the forward contract, and the seller will deliver to
the holder the number of shares of Common Stock that the holder is
entitled to receive at that time pursuant to the terms of the DECS
(subject to the right of the seller to deliver cash in lieu of the
Common Stock).
Under this approach, the tax consequences of holding a DECS will be as
described below. However, prospective investors in the DECS should be aware that
no ruling is being requested from the Internal Revenue Service with regard to
the DECS and that the Internal Revenue Service might take a different view as to
the proper characterization of the DECS or of the prepaid forward contract 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 Contract. Each
investor will be considered to be the owner of its pro rata portion of the U.S.
treasury securities and the prepaid forward contract 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 contract (in proportion
to the fair market values thereof on the date on which the investor acquired the
DECS) in order to determine the investor's tax basis in its pro rata portion of
the U.S. treasury securities and the prepaid forward contract. It is currently
anticipated that o% and o% 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
seller under the prepaid forward contract, respectively.
Recognition of Original Issue Discount on the Treasury Securities. The
treasury securities in the trust will consist of zero-coupon U.S. treasury
securities. An investor will be required to treat its pro rata portion of each
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 Contract. Each investor will be treated as having
entered into a pro rata portion of the prepaid forward contract and, at the
Exchange Date, as having received a pro rata portion of the Common Stock (or
cash, Reported Securities or combination thereof) delivered to the trust. Under
existing law, an investor will not recognize income, gain or loss upon entry
into the prepaid forward contract. An investor should not be required under
existing law to include in income additional amounts over the term of the
prepaid forward contract. 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 contract underlying the DECS. The
selling investor will recognize gain or loss equal to the difference between the
amount realized and the investor's aggregate tax bases in its pro rata portion
of the treasury securities and the prepaid forward contract. 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 Common Stock to the trust
pursuant to the prepaid forward contract will not be taxable to the investors.
The distribution of Common Stock upon the termination of the trust will not be
taxable to the investors. An investor will have taxable gain or loss (which will
be short-term capital gain or loss) upon receipt of cash in lieu of fractional
shares of Common Stock distributed upon termination of the trust, in an amount
equal to the difference between the cash received and the portion of the basis
of the prepaid forward contract allocable to fractional shares (based on the
relative number of fractional shares and shares delivered to the investor). Each
investor's aggregate basis in its shares of Common Stock will be equal to its
basis in its pro rata portion of the prepaid forward contract less the portion
of such basis allocable to any fractional shares of Common Stock for which cash
is received.
Distribution of Cash. If an investor receives cash upon dissolution of the
trust or as a result of 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 Common Stock is delivered pursuant
to the prepaid forward contract, 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 contract 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 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 contract for which such Reported Securities were
received. See "Investment Objectives and Policies--The Forward Contract."
Extension of Exchange Date. While not free from doubt, an extension of the
Exchange Date under the 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 contract should be treated as
contingent debt obligations of the seller, if the seller is subject to Treasury
regulations governing contingent payment debt instruments. If the Internal
Revenue Service were to prevail in making such an assertion, original issue
discount would accrue with respect to the prepaid forward contract at a
"comparable yield" for the seller under the prepaid forward contract, determined
at the time the prepaid forward contract is entered into. An investor's pro rata
portion of original issue discount in respect of the prepaid forward contract
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 contract. Any
loss realized on such sale, exchange or redemption that is allocable to the
prepaid forward contract would be treated as an ordinary loss to the extent of
the investor's original issue discount inclusions with respect to the prepaid
forward contract, 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.
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.
<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.
Name Number of DECS
- ---- --------------
Salomon Smith Barney Inc.
Total.......................................
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 $o 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 $o per DECS is equal to o% 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 contract from the seller, the underwriting
agreement provides that the seller will pay to the underwriters as compensation
$o 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 o 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 o DECS in connection with the organization of the trust.
o, its executive officers and the seller have agreed that, for a period of
o 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 o 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 o and the
seller 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 o 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 o under
the symbol "o." 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.
In connection with the formation of the trust, Salomon Smith Barney
subscribed for and purchased o DECS for a purchase price of $o. Under the
prepaid forward contract, the seller will be obligated to deliver to the trust
Common Stock in respect of such DECS on the same terms as the DECS offered
hereby. Salomon Smith Barney sponsored the formation of the trust for purposes
of this offering, including selecting its initial Trustees.
Pursuant to the prepaid forward contract, the trust has agreed, subject to
the terms and conditions set forth therein, to purchase from the seller a number
of shares of 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 contract, the seller will deliver to the trust at the Exchange
Date a number of shares of Common Stock (or, at the option of the seller, the
cash equivalent) and/or such other consideration as permitted or required by the
terms of the prepaid forward contract, that are expected to have the same value
as the shares of Common Stock delivered pursuant to the DECS. The closing of the
offering of the DECS is conditioned upon execution of the prepaid forward
contract by the seller 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 Common Stock in excess
of the number of DECS to be purchased by the underwriters in the offering, which
creates a syndicate short position. Syndicate covering transactions involve
purchases of the DECS or the Common Stock in the open market after the
distribution has been completed in order to cover syndicate short positions.
Stabilizing transactions consist of certain bids or purchases of DECS or common
stock made for the purpose of preventing or retarding a decline in the market
price of the DECS or common stock while the offering is in progress. Penalty
bids permit the underwriters to reclaim a selling concession from a syndicate
member when an underwriter, in covering syndicate short positions or making
stabilizing purchases, repurchases DECS or Common Stock originally sold by the
syndicate member. These activities may cause the price of DECS or Common Stock
to be higher than the price that otherwise would exist in the open market in the
absence of such transactions. These transactions may be effected on o or in the
over-the-counter market, or otherwise and, if commenced, may be discontinued at
any time.
In addition, in connection with this offering, certain of the underwriters
(and selling group members) may engage in passive market making transactions in
the DECS or Common Stock on o prior to the pricing and completion of the DECS
offering. Passive market making consists of displaying bids on o no higher than
the bid prices of independent market makers and making purchases at prices no
higher than those independent bids and effected in response to order flow. Net
purchases by a passive market on each day are limited to a specified percentage
of the passive market maker's average daily trading volume in the Common Stock
during a specified period and must be discontinued when such limit is reached.
Passive market making may cause the price of the Common Stock to be higher than
the price that otherwise would exist in the open market in the absence of such
transactions. If passive market making is commenced, it may be discontinued at
any time.
The underwriters have performed certain investment banking and advisory
services for o 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 o in the ordinary course of its business.
o and the seller 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. [o has agreed to pay certain amounts on behalf of the
seller in respect of fees, expenses and other compensation in connection with
the DECS offering.]
LEGAL MATTERS
Certain legal matters will 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 seller
by o.
EXPERTS
The statement of assets, liabilities and capital included in this
prospectus has been audited by o, 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.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustee and Securityholders of DECS Trust VII:
In our opinion, the accompanying statement of assets, liabilities and capital
presents fairly, in all material respects, the financial position of DECS Trust
VII (the "Trust") as of o, o, 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.
o
New York, New York
o, o
<PAGE>
DECS TRUST VII
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL, o, o
ASSETS
Cash.....................................................
Total Assets.............................................
LIABILITIES
Total Liabilities........................................
NET ASSETS...............................................
CAPITAL
DECS, one DECS issued and outstanding....................
The accompanying notes are an integral part of this statement.
<PAGE>
DECS TRUST VII
NOTES TO STATEMENT OF ASSETS, LIABILITIES AND CAPITAL, o, o
I........Organization
DECS Trust VII, organized as a Delaware business trust on o, o, 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 o;
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 o 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 prepaid
forward contract relating to the Common Stock. The business activities of the
trust are limited to the matters discussed above. The trust will be treated as a
grantor trust for U.S. federal income tax purposes.
On o, o, the trust issued o 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.
Note: Add the Part C & Index of Exhibits at time of filing.
<PAGE>
================================================================================
100 DECSSM
DECS TRUST VII
(Subject to Exchange into Common Stock of o)
---------------------------------------------
PROSPECTUS
--------------------------------------------
o, o
---------------------------------------------
Salomon Smith Barney
