PROSPECTUS
Receipts on Corporate Securities Trust, Series BNSF 1998-1
Offer to Exchange Receipts on Corporate Securities, Series BNSF 1998-1,
Residual Class, which have been registered under the Securities Act
of 1933, as amended, for any and all outstanding Receipts on Corporate
Securities, Series BNSF 1998-1, Residual Class
The Exchange Offer will expire at 5:00 p.m., New York City time, on
February 18, 1999, unless extended.
The Receipts on Corporate Securities, Series BNSF 1998-1, Residual Class
(the "New Certificates") issued by the Receipts on Corporate Securities Trust,
Series BNSF 1998-1 (the "Trust"), which have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), pursuant to a
Registration Statement of which this Prospectus is a part, are hereby offered,
upon the terms and subject to the conditions set forth in this Prospectus and
the accompanying letter of transmittal (the "Letter of Transmittal" and,
together with this Prospectus, the "Exchange Offer"), in exchange for an equal
Certificate Principal Balance of outstanding Receipts on Corporate Securities,
Series BNSF 1998-1, Residual Class (the "Old Certificates"), of which
$75,000,000 aggregate Certificate Principal Balance is outstanding as of the
date hereof. The Trust was formed pursuant to a trust agreement dated as of
August 28, 1997 as amended by Base Amendment No. 1 dated as of February 27,
1998, and as supplemented by the Series BNSF 1998-1 Supplement dated as of April
13, 1998 (together, the "Trust Agreement") between Prudential Securities
Structured Assets, Inc., as depositor ("PSSA") and The Bank of New York, a New
York banking corporation, as trustee (the "Trustee"). The property of the Trust
will consist solely of $75,000,000 aggregate principal amount of 7.25%
Debentures due August 1, 2097 (the "BNSF Debentures") issued by Burlington
Northern Santa Fe Corporation ("BNSF"), having the characteristics described in
its prospectus dated July 24, 1997 and a supplement thereto dated May 15, 1997
(together, the "BNSF Debentures Prospectus"). The BNSF Debentures were issued
and sold as part of an underwritten public offering of $200,000,000 aggregate
principal amount of such securities.
Any and all Old Certificates that are validly tendered and not withdrawn on
or prior to 5:00 P.M., New York City time, on the date the Exchange Offer
expires, which will be February 18, 1999 (30 calendar days following the
commencement of the Exchange Offer) unless the Exchange Offer is extended (such
date, including as extended, the "Expiration Date"), will be accepted for
exchange. Tenders of Old Certificates may be withdrawn at any time prior to 5:00
P.M., New York City time on the Expiration Date. The Exchange Offer is not
conditioned upon any minimum principal amount of Old Certificates being tendered
for exchange. However, the Exchange Offer is subject to certain customary
conditions, which may be waived by the Trust, and to the terms of the
Registration Rights Agreement, dated as of April 13, 1998 (the "Registration
Rights Agreement"), between PSSA and Prudential Securities Incorporated, as
initial purchaser ("Prudential Securities"). Old Certificates may be tendered
only in minimum denominations of $500,000 Certificate Principal Balance and
integral multiples of $1.00 in excess thereof. See "The Exchange Offer".
The New Certificates will be entitled to the benefits of the same Trust
Agreement that governs the Old Certificates and will govern the New
Certificates. The form and terms of the New Certificates are the same in all
material respects as the form and terms of the Old Certificates, except the New
Certificates have been registered under the Securities Act and therefore will
not bear certain legends restricting the transfer thereof. The New Certificates
will be issued in fully registered, certificated form. See "The Exchange Offer"
and "Description of the New Certificates".
The Trust issued the Receipts on Corporate Securities Series BNSF 1998-1
(the "Trust Certificates") in two Series: the Residual Class and the Amortizing
Class, which collectively represent the entire beneficial ownership of the
Trust. Subject to the occurrence of an Optional Redemption, a Shortened Maturity
Redemption, or an In-Kind Distribution (each as defined herein), the Residual
Class Certificates evidence fractional undivided beneficial interests in all
principal payments on the BNSF Debentures, and in interest accrued and paid on
the BNSF Debentures after August 1, 2017 at a rate of 7.25% per annum,
compounded semiannually. Subject to such occurrences, the Amortizing Class
Certificates evidence fractional undivided beneficial interests in all payments
of interest accrued and paid on the BNSF Debentures on or before August 1, 2017.
The Trust Certificates were purchased at an original issue discount. Subject to
the occurrence of an Optional Redemption or a Shortened Maturity Redemption, no
cash distributions will be made on the Residual Class Certificates. Instead, the
Residual Class Certificates outstanding on August 1, 2017 will be terminated and
deemed involuntarily surrendered by the holders thereof in exchange for a
principal amount of the BNSF Debentures underlying such Residual Class
Certificates equal to the aggregate Certificate Principal Balance of such
Residual Class Certificates. No action by such holders will be required to
effect such termination and exchange, which will be carried out by the Trustee's
notifying such holders of such termination and exchange and distributing to each
such holder in kind its pro-rata portion of the BNSF Debentures in accordance
with the Trust Agreement.
The BNSF Debentures may be redeemed prior to maturity, as a whole or in
part, at the option of BNSF (an "Optional Redemption"), upon not less than 30
nor more than 60 days' prior written notice, at any time, at a redemption price
equal to the greater of (i) 100% of the principal amount being redeemed and (ii)
the sum of the present values of the remaining scheduled payments of principal
and interest thereon discounted to the date of redemption (an "Optional
Redemption Date") on a semiannual basis (assuming a 360-day year consisting of
twelve 30-day months) at the Treasury Rate (as defined herein), together with
accrued interest to the date of redemption.
Upon the occurrence of a Tax Event (as defined herein) with respect to the
BNSF Debentures, BNSF has the right to shorten the maturity of the BNSF
Debentures (i) to the minimum extent required, in the opinion of nationally
recognized independent tax counsel to BNSF, such that, after the shortening of
the maturity, interest paid on the BNSF Debentures will be deductible for U.S.
federal income tax purposes or, (ii) if such counsel is unable to opine
definitively as to such minimum period, the minimum extent so required as
determined in good faith by the Board of Directors of BNSF after receipt of an
opinion of such counsel regarding the applicable legal standards. (Any such new
maturity date is referred to herein as the "Shortened Maturity Date," and the
redemption of the BNSF Debentures effected on such date is referred to as a
"Shortened Maturity Redemption.")
In the event of an Optional Redemption or a Shortened Maturity Redemption,
the Certificates will be redeemed on the Optional Redemption Date or the
Shortened Maturity Date. In such event, the Trustee will distribute the payment
received on the BNSF Debentures on the Optional Redemption Date or the Shortened
Maturity Date, as the case may be, to the holders of the Amortizing Class
Certificates and the Residual Class Certificates, respectively, in the same
ratio as (i) the present value of all originally scheduled future payments on
the Amortizing Class Certificates bears to (ii) the present value of all
originally scheduled future payments on the BNSF Debentures after August 1,
2017, discounted semiannually in each case at a rate of 7.25% per annum to the
Optional Redemption Date or the Shortened Maturity Date. Such ratio will be
calculated by the Company, as calculation agent. In the case of an Optional
Redemption of less than all of the BNSF Debentures, the Trustee will distribute
the payment received on the BNSF Debentures on the Optional Redemption Date to
the holders of the Amortizing Class Certificates and the Residual Class
Certificates on the basis of the foregoing ratio as of the Optional Redemption
Date on a pro rata basis; such a distribution will result in a reduction (based
on the percentage of BNSF Debentures redeemed) of the Residual Class
Certificates Certificate Principal Balance and a recalculation of the
Certificate Principal Balance of, and Fixed Payments (as defined in the Trust
Agreement) with respect to, the Amortizing Class Certificates based on the
remaining BNSF Debentures after such redemption.
Losses realized on the BNSF Debentures will be borne by the holders of the
Trust Certificates in the manner described herein. See "Risk Factors--Events of
Default" herein.
BNSF did not participate in, and did not receive any proceeds in connection
with, the sale of the Trust Certificates.
Based on interpretations by the staff of the Securities and Exchange
Commission (the "Commission"), as set forth in no-action letters issued to third
parties, including Exxon Capital Holdings Corporation, SEC No-Action Letter
(available April 13, 1989), Morgan Stanley & Co. Incorporated, SEC No-Action
Letter (available June 5, 1991) and Shearman & Sterling, SEC No-Action Letter
(available July 2, 1993) (collectively, the "Exchange Offer No-Action Letters"),
PSSA believes that the New Certificates issued pursuant to the Exchange Offer
may be offered for resale, resold or otherwise transferred by holders thereof
(other than a broker-dealer who acquires such New Certificates directly from the
Trust or PSSA for resale pursuant to Rule 144A under the Securities Act or any
other available exemption under the Securities Act or any holder that is an
"affiliate" of PSSA as defined in Rule 405 under the Securities Act), without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such New Certificates are acquired in the ordinary
course of such holders' business and such holders are not engaged in, and do not
intend to engage in, a distribution of such New Certificates and have no
arrangement with any person to participate in a distribution of such New
Certificates. By tendering the Old Certificates in exchange for New
Certificates, each holder, other than a broker-dealer, will represent to the
Trust that: (i) it is not an affiliate of PSSA (as defined in Rule 405 under the
Securities Act) or a broker-dealer tendering Old Certificates acquired directly
from PSSA for its own account; (ii) any New Certificates to be received by it
will be acquired in the ordinary course of its business; and (iii) it is not
engaged in, and does not intend to engage in, a distribution of such New
Certificates and has no arrangement or understanding to participate in a
distribution of the New Certificates. If a holder of Old Certificates is engaged
in or intends to engage in a distribution of the New Certificates or has any
arrangement or understanding with respect to the distribution of the New
Certificates to be acquired pursuant to the Exchange Offer, such holder may not
rely on the applicable interpretations of the staff of the Commission and must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any secondary resale transaction. Each
broker-dealer that receives New Certificates for its own account pursuant to the
Exchange Offer (a "Restricted Broker-Dealer") must acknowledge that it will
deliver a prospectus in connection with any resale of such New Certificates. The
Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a Restricted Broker-Dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a Restricted
Broker-Dealer in connection with resales of New Certificates received in
exchange for Old Certificates where such Old Certificates were acquired by such
Restricted Broker-Dealer as a result of market-making activities or other
trading activities. Pursuant to the Registration Rights Agreement, PSSA has
agreed that starting on the Expiration Date it will make this Prospectus
available to any Restricted Broker-Dealer for use in connection with any such
resale for one year. See "Plan of Distribution".
Neither the Trust nor PSSA will receive any proceeds from this offering.
PSSA has agreed to pay the expenses of the Exchange Offer. No underwriter or
dealer-manager is being utilized in connection with the Exchange Offer.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE TRUST ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD CERTIFICATES IN ANY JURISDICTION IN
WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE
WITH THE SECURITIES AND BLUE SKY LAWS OF SUCH JURISDICTION.
Prior to this Exchange Offer, there has been no public market for the New
Certificates. Neither PSSA nor the Trust intends to apply for listing of the New
Certificates on any securities exchange or for quotation of the New Certificates
on The Nasdaq Stock Market's National Market or otherwise. Prudential Securities
has previously made a market in the Old Certificates, and the Trust has been
advised that Prudential Securities currently intends to make a market in the New
Certificates, as permitted by applicable laws and regulations, after
consummation of the Exchange Offer. Prudential Securities is not obligated,
however, to make a market in the Old Certificates or the New Certificates and
any such market-making activity may be discontinued at any time without notice
at the sole discretion of Prudential Securities. There can be no assurance as to
the liquidity of the public market for the New Certificates or that any active
public market for the New Certificates will develop or continue. If an active
public market does not develop or continue, the market price and liquidity of
the New Certificates may be adversely affected. See "Risk Factors--Absence of a
Public Market for the New Certificates".
---------------
For a discussion of material risks that should be considered
by participants in the Exchange Offer, see "Risk Factors" beginning on page 15
of this Prospectus.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION. HOLDERS OF OLD CERTIFICATES ARE URGED TO READ THIS PROSPECTUS AND
THE RELATED LETTER OF TRANSMITTAL CAREFULLY BEFORE DECIDING WHETHER TO TENDER
THEIR OLD CERTIFICATES PURSUANT TO THE EXCHANGE OFFER.
---------------
The date of this Prospectus is January 12, 1999
<PAGE>
AVAILABLE INFORMATION REGARDING THE TRUST
PSSA on behalf of the Trust will be subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith will file reports and other information with
the Commission relating to the Trust. Such reports, proxy statements and other
information may be inspected and copied at the following public reference
facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549; Seven World Trade Center, 13th Floor, New
York, New York 10048; and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material may also be obtained from the
Public Reference Section of the Commission at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, upon payment of prescribed rates.
The Commission maintains a Web site at http://www.sec.gov containing reports,
proxy statements and other information regarding registrants that file
electronically with the Commission, including PSSA on behalf of the Trust.
The reports to be filed by PSSA on behalf of the Trust will consist
primarily of distribution date statements relating to the distributions made on
the Trust Certificates and certain material events regarding the Trust, but not
other financial information or statements. The reports will also refer to the
periodic reports filed by BNSF so long as BNSF is a reporting company under the
Exchange Act. If BNSF ceases to be a reporting company under the Exchange Act,
information regarding BNSF and the BNSF Debentures will be limited to that
received by the Trustee, as the holder of the BNSF Debentures, from the BNSF
Debentures Trustee as required by the BNSF Debentures Indenture.
This Prospectus constitutes a part of a registration statement on Form S-4
(together with all amendments and exhibits, the "Registration Statement") filed
by the Trust and PSSA on behalf of the Trust with the Commission, through the
Electronic Data Gathering, Analysis and Retrieval System ("EDGAR"), under the
Securities Act, with respect to the New Certificates offered hereby. This
Prospectus omits certain of the information contained in the Registration
Statement, and reference is hereby made to the Registration Statement for
further information with respect to the Trust and Holdings and the securities
offered hereby. Although statements concerning and summaries of certain
documents are included herein, reference is made to the copy of such document
filed as an exhibit to the Registration Statement or otherwise filed with the
Commission. These documents may be inspected without charge at the office of the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
and copies may be obtained at fees and charges prescribed by the Commission.
No separate financial statements of the Trust have been included or
incorporated by reference herein. PSSA does not believe such financial
statements would be material to holders of the New Certificates because the sole
asset of the Trust consists of debt obligations of an unaffiliated issuer that
is a reporting company under the Exchange Act. See "Description of the Trust
Assets--BNSF."
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission as exhibits to the
Registration Statement of which this Prospectus is a part (File No. 333-63463)
are hereby incorporated by reference in this Prospectus: the Trust Agreement
dated as of August 28, 1997 between Prudential Securities Structured Assets,
Inc., as depositor, and The Bank of New York, as trustee, as amended by Base
Amendment No. 1 dated as of February 27, 1998; the Series BNSF 1998-1 Supplement
dated as of April 13, 1998 between Prudential Securities Structured Assets,
Inc., as depositor, and The Bank of New York, as trustee; and the Registration
Rights Agreement dated as of April 13, 1998 between Prudential Securities
Structured Assets, Inc. and Prudential Securities Incorporated.
This Prospectus incorporates documents by reference that are not presented
herein or delivered herewith. These documents are available without charge to
any person to whom a Prospectus is delivered, upon written or oral request of
such person, from Prudential Securities Structured Assets, Inc., One New York
Plaza, 14th Floor, New York, N.Y. 10292-2014, Attention: James Whang. In order
to ensure timely delivery of the documents, any request should be made by
January 31, 1999.
PROSPECTUS SUMMARY
The following summary information is qualified in its entirety by the
detailed information appearing elsewhere or incorporated by reference in this
Prospectus. Prospective investors are urged to read this Prospectus in its
entirety. Certain capitalized terms used herein are defined elsewhere in this
Prospectus. For an index of capitalized terms, please see page 35.
The Issuer
Receipts on Corporate Securities Trust, Series BNSF 1998-1 (the "Trust")
formed pursuant to a Trust Agreement dated as of August 28, 1997, between
Prudential Securities Structured Assets, Inc., as depositor ("PSSA"), and The
Bank of New York, a New York banking corporation, as trustee (the "Trustee"), as
supplemented by the Series BNSF 1998-1 Supplement dated as of April 13, 1998
(together, and as amended, the "Trust Agreement"). PSSA is a Delaware
corporation and a wholly-owned subsidiary of Prudential Securities Group Inc.
("PSGI"). On April 13, 1998, PSSA deposited $75,000,000 aggregate principal
amount of 7.25% Debentures due August 1, 2097 (the "BNSF Debentures") issued by
Burlington Northern Santa Fe Corporation ("BNSF") with the Trustee in exchange
for two classes of Receipts on Corporate Securities, Series BNSF 1998-1: the
Residual Class Certificates and the Amortizing Class Certificates (together the
"Trust Certificates"). The Old Certificates currently constitute, and the New
Certificates along with any Old Certificates not tendered in the Exchange Offer
will constitute, the entire Residual Class.
The Corporate Trust Office of the Trustee is located at 101 Barclay Street,
12th Floor East, New York, New York 10286, Attention: Corporate
Trust--Administration and its number is (212) 815-5098.
Description of the Trust Assets
The assets of the Trust consist solely of $75,000,000 aggregate principal
amount of 7.25% Debentures due August 1, 2097 issued by BNSF and having the
characteristics described in the BNSF Debentures Prospectus. The BNSF Debentures
were originally issued by BNSF on or about July 29, 1997 as part of an
underwritten public offering of $200,000,000 aggregate principal amount of such
securities (CUSIP No. 12189TAF1) pursuant to a registration statement on Form
S-3 (File No. 333-2501) (together with all amendments and exhibits thereto, the
"BNSF Debentures Registration Statement"), filed by BNSF with the Commission
under the Securities Act. Payments of interest are required to be made on the
BNSF Debentures semiannually on the first day of each February and August,
commencing August 1, 1998, or if such day is not a business day, on the next
business day.
The BNSF Debentures deposited in the Trust represent the sole assets of the
Trust that are available to make distributions in respect of the Trust
Certificates. Consequently, the ability of holders of New Certificates to
receive cash distributions in respect of the New Certificates in the event of an
Optional Redemption or a Shortened Maturity Redemption will depend on the
Trust's receipt of payments on, or in respect of, the BNSF Debentures.
The Exchange Offer
The Exchange Offer ................. New Certificates are being offered in
exchange for an equal Certificate
Principal Balance of Old Certificates. As
of the date hereof, Old Certificates with
an aggregate Certificate Principal Balance
of $75,000,000 are outstanding. Old
Certificates may be tendered only in
minimum denominations of $500,000 and
integral multiples of $1.00 in excess
thereof.
Registration Rights Agreement ...... The Old Certificates were sold on April
13, 1998 to Prudential Securities.
Prudential Securities placed the Old
Certificates with institutional investors
in a transaction exempt from registration
under the Securities Act in reliance on
Rule 144A thereunder. In connection
therewith, PSSA and Prudential Securities
entered into the Registration Rights
Agreement, providing, among other things,
for the Exchange Offer to occur. See "The
Exchange Offer--Terms of the Exchange
Offer".
Resale of New Certificates ......... Based on interpretations by the staff of
the Commission, as set forth in no-action
letters issued to third parties, including
the Exchange Offer No-Action Letters, PSSA
believes that the New Certificates issued
pursuant to the Exchange Offer may be
offered for resale, resold or otherwise
transferred by holders thereof (other than
a broker-dealer who acquires such New
Certificates directly from the Trust for
resale pursuant to Rule 144A under the
Securities Act or any other available
exemption under the Securities Act or any
holder that is an "affiliate" of PSSA as
defined under Rule 405 of the Securities
Act), without compliance with the
registration and prospectus delivery
provisions of the Securities Act, provided
that such New Certificates are acquired in
the ordinary course of such holders'
business and such holders are not engaged
in, and do not intend to engage in, a
distribution of such New Certificates and
have no arrangement with any person to
participate in a distribution of such New
Certificates. By tendering the Old
Certificates in exchange for New
Certificates, each holder, other than a
broker-dealer, will represent to the Trust
that: (i) it is not an affiliate of PSSA
(as defined in Rule 405 under the
Securities Act) or a broker-dealer
tendering Old Certificates acquired
directly from PSSA for its own account;
(ii) any New Certificates to be received
by it were acquired in the ordinary course
of its business; and (iii) it is not
engaged in, and does not intend to engage
in, a distribution of such New
Certificates and has no arrangement or
understanding to participate in a
distribution of the New Certificates. If a
holder of Old Certificates is engaged in
or intends to engage in a distribution of
the New Certificates or has any
arrangement or understanding with respect
to the distribution of the New
Certificates to be acquired pursuant to
the Exchange Offer, such holder may not
rely on the applicable interpretations of
the staff of the Commission and must
comply with the registration and
prospectus delivery requirements of the
Securities Act in connection with any
secondary resale transaction. Each
Restricted Broker-Dealer that receives New
Certificates for its own account pursuant
to the Exchange Offer must acknowledge
that it will deliver a prospectus in
connection with any resale of such New
Certificates. The Letter of Transmittal
states that by so acknowledging and by
delivering a prospectus, a Restricted
Broker-Dealer will not be deemed to admit
that it is an "underwriter" within the
meaning of the Securities Act. This
Prospectus, as it may be amended or
supplemented from time to time, may be
used by a Restricted Broker-Dealer in
connection with resales of New
Certificates received in exchange for Old
Certificates where such Old Certificates
were acquired by such Restricted
Broker-Dealer as a result of market-making
activities or other trading activities.
PSSA has agreed that it will make this
Prospectus available to any Restricted
Broker-Dealer for use in connection with
any such resale for one year. See "Plan of
Distribution". To comply with the
securities laws of certain jurisdictions,
it may be necessary to qualify for sale or
register the New Certificates prior to
offering or selling such New Certificates.
PSSA has agreed, pursuant to the
Registration Rights Agreement and subject
to certain specified limitations therein,
to cause the registration or qualification
of the New Certificates for offer or sale
under the securities or "blue sky" laws of
such jurisdictions as may be necessary to
permit the holders of New Certificates to
trade the New Certificates without any
restrictions or limitations under the
securities laws of the several states of
the United States.
Consequences of Failure to
Exchange Old Certificates ........... Upon consummation of the Exchange Offer,
subject to certain exceptions, holders of
Old Certificates who do not exchange their
Old Certificates for New Certificates in
the Exchange Offer will no longer be
entitled to registration rights and will
not be able to offer or sell their Old
Certificates, unless such Old Certificates
are subsequently registered under the
Securities Act (which, subject to certain
limited exceptions, neither PSSA nor the
Trust will have an obligation to do),
except pursuant to an exemption from, or
in a transaction not subject to, the
Securities Act and applicable state
securities laws. See "Risk Factors--Risk
Factors Relating to the New Certificates
and the Exchange Offer--Consequences of
Failure to Exchange" and "The Exchange
Offer--Terms of the Exchange Offer".
Expiration Date ..................... 5:00 p.m., New York City time, on February
18, 1999 (30 calendar days following the
commencement of the Exchange Offer),
unless the Exchange Offer is extended, in
which case the term "Expiration Date"
means the latest date and time to which
the Exchange Offer is extended.
Conditions to the Exchange Offer .... The Exchange Offer is not conditioned upon
any minimum principal amount of Old
Certificates being tendered for exchange.
However, the Exchange Offer is subject to
certain customary conditions, which may be
waived by the Trust. See "The Exchange
Offer--Conditions". Except for the
requirements of applicable federal and
state securities laws, there are no
federal or state regulatory requirements
to be complied with, or obtained by, the
Trust or PSSA in connection with the
Exchange Offer.
Procedures for Tendering
Old Certificates .................... Each holder of Old Certificates wishing to
accept the Exchange Offer must complete,
sign and date the Letter of Transmittal,
or a facsimile thereof, in accordance with
the instructions contained herein and
therein, and mail or otherwise deliver
such Letter of Transmittal, or such
facsimile, together with the Old
Certificates to be exchanged and any other
required documentation to the Exchange
Agent at the address set forth herein. See
"The Exchange Offer--Procedures for
Tendering".
Guaranteed Delivery Procedures ...... Holders of Old Certificates who wish to
tender their Old Certificates and whose
Old Certificates are not immediately
available or who cannot deliver their Old
Certificates and a properly completed
Letter of Transmittal or any other
documents required by the Letter of
Transmittal to the Exchange Agent prior to
the Expiration Date may tender their Old
Certificates according to the guaranteed
delivery procedures set forth in "The
Exchange Offer--Guaranteed Delivery
Procedures".
Withdrawal Rights ................... Tenders of Old Certificates may be
withdrawn at any time prior to 5:00 p.m.,
New York City time, on the Expiration
Date. To withdraw a tender of Old
Certificates, a written or facsimile
transmission notice of withdrawal must be
received by the Exchange Agent at its
address set forth herein under "The
Exchange Offer--Exchange Agent" prior to
5:00 p.m., New York City time, on the
Expiration Date.
Acceptance of Old Certificates
and Delivery of New Certificates .... Subject to certain conditions, any and all
Old Certificates that are properly
tendered in the Exchange Offer prior to
5:00 p.m., New York City time, on the
Expiration Date will be accepted for
exchange. The New Certificates issued
pursuant to the Exchange Offer will be
delivered promptly following the
Expiration Date. See "The Exchange
Offer--Terms of the Exchange Offer".
Federal Income Tax Consequences ..... The exchange of New Certificates for Old
Certificates will not be a sale or
exchange or otherwise a taxable event for
federal income tax purposes. See "U.S.
Federal Income Tax Consequences--Exchange
of Old Certificates for New Certificates".
Exchange Agent ...................... The Bank of New York is serving as
exchange agent (the "Exchange Agent") in
connection with the Exchange Offer. The
Bank of New York is also the Trustee.
Fees and Expenses ................... All expenses incident to the Trust's
consummation of the Exchange Offer and
compliance with the Registration Rights
Agreement will be borne by PSSA. See "The
Exchange Offer--Fees and Expenses".
Use of Proceeds ..................... There will be no cash proceeds payable to
the Trust or PSSA from the issuance of the
New Certificates pursuant to the Exchange
Offer. The proceeds from the sale of the
Old Certificates were applied to the
purchase of the BNSF Debentures and to pay
issuance costs. See "Use of Proceeds".
<PAGE>
The New Certificates
The Exchange Offer relates to the exchange of up to $75,000,000 aggregate
Certificate Principal Balance of Old Certificates for up to an equal aggregate
Certificate Principal Balance of New Certificates. The New Certificates will be
entitled to the benefits of the same Trust Agreement that governs the Old
Certificates and will govern the New Certificates. The form and terms of the New
Certificates are the same in all material respects as the form and terms of the
Old Certificates, except that the New Certificates have been registered under
the Securities Act and therefore will not bear certain legends restricting the
transfer thereof. See "Description of the New Certificates".
Trust
Securities .......................... The New Certificates (along with any Old
Certificates that are not
tendered.in.the.Exchange Offer) will
constitute the "Residual Class
Certificates," one of two classes of Trust
Certificates, which collectively represent
the entire undivided beneficial ownership
of the Trust. The initial aggregate
Certificate Principal Balance on the
Residual Class Certificates will be
$75,000,000. The other class of Trust
Certificates, the Amortizing Class
Certificates, has a $58,841,740.41 current
Certificate Principal Balance. Subject to
the occurrence of an Optional Redemption,
a Shortened Maturity Redemption, or an
In-Kind Distribution, scheduled
distributions on the Amortizing Class
Certificates will consist of equal
semiannual installments allocable to
principal and interest through August 1,
2017 (each, a "Fixed Payment") and will be
made on each Scheduled Distribution Date
up to and including August 1, 2017.
Scheduled Distributions on New
Certificates ........................ Subject to the occurrence of an Optional
Redemption, a Shortened Maturity
Redemption or an In-Kind Distribution, no
cash distributions will be made on the
Residual Class Certificates. Instead,
except in certain circumstances of
non-payment by BNSF, the Residual Class
Certificates outstanding on August 1, 2017
will be terminated and deemed
involuntarily surrendered by the holders
thereof in exchange for a principal amount
of the BNSF Debentures underlying such
Residual Class Certificates equal to the
aggregate Certificate Principal Balance of
the Residual Class Certificates. Such
exchange will be made on a pro rata basis
among holders of the Residual Class
Certificates. No action by such holders
will be required to effect such
termination and the exchange will be
carried out in accordance with the Trust
Agreement. The BNSF Debentures to be
delivered to each holder of New
Certificates on August 1, 2017 or earlier
upon an In-Kind Distribution will entitle
holders thereof to the same rights as
holders of all other BNSF Debentures.
Optional
Redemption .......................... The BNSF Debentures will be redeemable
prior to maturity, as a whole or.in.part,
at the option of BNSF (an "Optional
Redemption"), upon not less than 30 nor
more than 60 days' prior written notice,
at any time, at a redemption price equal
to the greater of (i) 100% of the
principal amount being redeemed and (ii)
the sum of the present values of the
remaining scheduled payments of principal
and interest thereon discounted to the
date of redemption (an "Optional
Redemption Date") on a semiannual basis
(assuming a 360-day year consisting of
twelve 30-day months) at the Treasury Rate
(as defined herein), together with accrued
interest to the date of redemption. In the
event of an Optional Redemption, the
Trustee will distribute the payment
received on the BNSF Debentures on the
Optional Redemption Date to the holders of
the Amortizing Class Certificates and the
Residual Class Certificates, respectively,
in the same ratio as (i) the present value
of all originally scheduled future
payments on the Amortizing Class
Certificates bears to (ii) the present
value of all originally scheduled future
payments on the BNSF Debentures after
August 1, 2017, discounted semiannually in
each case at a rate of 7.25% per annum
(such ratio being the "Distribution
Ratio") to the Optional Redemption Date.
Such ratio will be calculated by the
Company, as calculation agent (the
"Calculation Agent"). In the case of an
Optional Redemption of less than all of
the BNSF Debentures, the Trustee will
distribute the payment received on the
BNSF Debentures on the Optional Redemption
Date to the holders of the Amortizing
Class Certificates and the Residual Class
Certificates on the basis of the
Distribution Ratio as of the Optional
Redemption Date on a pro rata basis; such
a distribution will result in a reduction
(based on the percentage of BNSF
Debentures redeemed) of the Residual Class
Certificates Certificate Principal Balance
and a recalculation of the Certificate
Principal Balance of, and Fixed Payments
with respect to, the Amortizing Class
Certificates based on the remaining BNSF
Debentures after such redemption.
Shortened Maturity
Redemption .......................... Upon the occurrence of a Tax Event (as
defined below) with respect to the BNSF
Debentures, BNSF has the right to shorten
the maturity of the BNSF Debentures (i) to
the minimum extent required, in the
opinion of nationally recognized
independent tax counsel, such that, after
the shortening of the maturity, interest
paid on the BNSF Debentures will be
deductible for U.S. federal income tax
purposes or, (ii) if such counsel is
unable to opine definitively as to such
minimum period, the minimum extent so
required as determined in good faith by
the Board of Directors of BNSF after
receipt of an opinion of such counsel
regarding the applicable legal standards.
(Any such new maturity date is referred to
herein as the "Shortened Maturity Date.")
If the Shortened Maturity Date is on or
prior to August 1, 2017, the Amortizing
Class Certificates and the Residual Class
Certificates will be redeemed on the
Shortened Maturity Date (a "Shortened
Maturity Redemption"). The Trustee will
distribute the payment received on the
BNSF Debentures on the Shortened Maturity
Date to the holders of each class of
Certificates on the basis of the
Distribution Ratio as of the Shortened
Maturity Date. Such ratio will be
calculated by the Calculation Agent. After
such a distribution, holders of Amortizing
Class Certificates and Residual Class
Certificates will receive no further
distributions from the Trust. A Shortened
Maturity Redemption as a result of a Tax
Event may increase the amount of original
issue discount required to be included in
a holder's ordinary gross income. See
"U.S. Federal Income Tax
Consequences--Purchase and Holding of
Trust Certificates."
A "Tax Event" means that BNSF shall have
received an opinion of nationally
recognized independent tax counsel to the
effect that, as a result of (a) any
amendment to, clarification of, or change
(including any announced prospective
amendment, clarification or change) in any
law, or any regulation thereunder, of the
United States, (b) any judicial decision,
official administrative pronouncement,
ruling, regulatory procedure, notice or
announcement, including any notice or
announcement of intent to adopt or
promulgate any ruling, regulatory
procedure or regulation (any of the
foregoing, an "Administrative or Judicial
Action"), or (c) any amendment to,
clarification of, or change in any
official position with respect to, or any
interpretation of, an Administrative or
Judicial Action or a law or regulation of
the United States that differs from the
theretofore generally accepted position or
interpretation, in each case, occurring on
or after July 29, 1997, there is more than
an insubstantial increase in the risk that
interest paid by BNSF on the BNSF
Debentures is not, or will not be,
deductible, in whole or in part, by BNSF
for United States federal income tax
purposes. See "Description of the New
Certificates--Shortened Maturity
Redemption".
In-Kind
Distribution ........................ Upon a Payment Default or an Acceleration
of the BNSF Debentures under..the..terms.
of the trust indenture relating to the
BNSF Debentures (the "BNSF Debentures
Indenture") on or before August 1, 2017,
the Trustee will make an In-Kind
Distribution of the BNSF Debentures to the
holders of the Trust Certificates. Such
distribution will be made to the holders
of the Residual Class Certificates and the
Amortizing Class Certificates,
respectively, in the same ratio as (i) the
present value of all originally scheduled
future payments on the BNSF Debentures
after August 1, 2017 bears to (ii) the
present value of all originally scheduled
future payments on the Amortizing Class
Certificates, discounted semiannually in
each case at a rate of 7.25% per annum to
the date of such Payment Default or
Acceleration. Such ratio will be
calculated by the Calculation Agent. See
"Description of New Certificates--In-Kind
Distribution". After such a distribution,
Holders of Amortizing Class Certificates
will receive no further distributions from
the Trust. An In-Kind Distribution may be
treated in whole or in part as equivalent
to a taxable sale or exchange. See "U.S.
Federal Income Tax
Consequences--Distributions".
Restriction on
Ownership ........................... Each registered holder of a New
Certificate will be required to deliver to
the Trustee a certification upon purchase
of the New Certificate (which will be
included in the Letter of Transmittal) to
the effect that the beneficial owner
thereof (whether such registered holder or
the ultimate beneficiary for whom it holds
such Certificate) is (a) a qualified
institutional buyer (as defined in Rule
144A under the Securities Act) and (b)
either (i) a United States person or (ii)
a non-United States person who is exempt
from withholding under U.S. federal income
tax laws and has completed, accurately and
in a manner reasonably satisfactory to the
Trustee or its agent, an appropriate
statement (generally on IRS Form W-8)
signed under penalties of perjury,
identifying the holder and stating, among
other things, that the holder is not a
U.S. person (or after December 31, 1999,
if the holder satisfied applicable
documentary evidence requirements for
establishing that it is not a U.S. person)
and delivered such statement to the
Trustee or its agent. Such registered
holder will be deemed to have represented
and agreed with the Trustee that so long
as it is the registered holder of such New
Certificate, the beneficial owner thereof
will be a person described in clauses
(b)(i) or (b)(ii) above and, in the event
of any change in the identity of the
beneficial owner for whom such registered
holder is acting or any lapse of such
appropriate statement (generally on IRS
Form W-8) previously delivered to the
Trustee, it will promptly deliver a new
certification, or a current appropriate
statement (generally on IRS Form W-8), as
applicable. In the event such
representation is untrue or such current
forms are not so furnished, the New
Certificate held by such registered holder
will be subject to mandatory resale as
described herein. See "Description of the
New Certificates--Limitations on
Beneficial Ownership of New Certificates"
herein.
Certificateholder Exchange
Right ............................... Holders of both the Amortizing Class
Certificates and Residual Class
Certificates will have the right on any
Scheduled Distribution Date other than
August 1, 2017, on not less than 30 and
not more than 45 days' prior written
notice to the Trustee, to exchange
Certificates of both Classes representing
not less than 10 percent of the Aggregate
Certificate Principal Balance of all
Certificates of each such Class for an
equivalent percentage of BNSF Debentures
held in the Trust. See "Description of New
Certificates--Exchange of Certificates for
BNSF Debentures."
Record Dates ........................ The fifth day immediately preceding each
Distribution Date.
Denominations ....................... The.New.Certificates will be denominated
and payable in U.S. dollars and will be
issued in definitive, fully-registered
form in minimum denominations of $500,000
Certificate Principal Balance and integral
multiples of $1.00 in excess thereof.
Federal Income Tax
Consequences ........................ For U.S. federal income tax purposes, the
Trust will not be treated as an
association taxable as a corporation (or a
publicly traded partnership treated as an
association). Although the
characterization of the Trust is not
certain, the Trust should be treated for
U.S. federal income tax purposes as a
grantor trust, and the Trustee intends to
report income, gain, loss and deductions
to the Internal Revenue Service on that
basis. If the Trust were not classified as
a grantor trust, it would be classified as
a partnership. In either event, the Trust
will not be subject to U.S. federal income
taxation.
Under the grantor trust characterization,
each holder of a Trust Certificate will be
treated as owning the rights to those
payments on the BNSF Debentures that are
allocable to that Trust Certificate and
will be taxed under the "stripped bond"
rules of the Internal Revenue Code of
1986. Under those rules, a holder of a
Trust Certificate will be required to
include in ordinary gross income original
issue discount income based on the
holder's yield to maturity for the Trust
Certificate.
The exchange of New Certificates for Old
Certificates will not be a sale or
exchange or otherwise a taxable event for
Federal income tax purposes. See "U.S.
Federal Income Tax Consequences--Exchange
of Old Certificates for New Certificates".
Ratings ............................. The New Certificates will be rated "Baa2"
by Moody's Investors Service,..Inc.. and
"BBB+" by Standard & Poor's Ratings
Services at issuance. A security rating is
not a recommendation to buy, sell or hold
securities and may be subject to revision
or withdrawal at any time by the assigning
rating organization.
<PAGE>
RISK FACTORS
Prior to tendering Old Certificates in the Exchange Offer, holders of Old
Certificates should carefully review the information contained and incorporated
by reference in this Prospectus and should particularly consider the following
matters.
Limited Obligations and Interests
The New Certificates will not represent an obligation of, or interest in,
PSSA or any of its affiliates. The New Certificates will not be insured or
guaranteed by any government agency or instrumentality, PSSA, any Person
affiliated with PSSA or the Trustee, or any other Person.
No Detailed Information About BNSF or the BNSF Debentures
This Prospectus provides limited information with respect to the BNSF
Debentures and BNSF, any risk factors relating thereto, and any rights or
obligations, legal, financial or otherwise, arising under or related to the BNSF
Debentures. See "Description of the Trust Assets".
Events of Default
If an event of default on the BNSF Debentures occurs, the risk of loss with
respect to the BNSF Debentures lies entirely with the holders of the Trust
Certificates. If a Payment Default or Acceleration occurs with respect to the
BNSF Debentures, the Trustee will distribute the BNSF Debentures to the holders
of the Trust Certificates in an In-Kind Distribution. In connection with an
In-Kind Distribution, a holder will recognize gain or loss on such exchange
equal to the difference between the portion of the amount realized on the
exchange allocable to the holder and the allocable portion of the holder's basis
in the Certificate. See "Description of the New Certificates--Distribution of
the BNSF Debentures on Payment Default or Acceleration" herein. An In-Kind
Distribution may be treated in whole or in part as equivalent to a taxable sale
or exchange. See "U.S. Federal Income Tax Consequences--Distributions".
Bankruptcy Risks
The New Certificates are payable solely from payments made on the BNSF
Debentures by BNSF. BNSF is subject to laws permitting bankruptcy, moratorium,
reorganization or other actions which, in the event of financial difficulties of
BNSF, could result in delays in distribution, partial distribution or
non-distribution, on the New Certificates. See "Description of the New
Certificates--Distribution of the BNSF Debentures on Payment Default or
Acceleration" herein.
Maturity and Redemption Considerations
The Residual Class Certificates are not scheduled to receive any
distributions before the in-kind distribution of the BNSF Debentures on August
1, 2017. Potentially, the maturity and yield of the New Certificates could be
affected by (i) a cash distribution to holders of the Trust Certificates upon a
Shortened Maturity Redemption or an Optional Redemption of the BNSF Debentures
or (ii) a distribution of the BNSF Debentures to such holders upon an In-Kind
Distribution. In the event of a cash distribution on a Shortened Maturity Date
or an Optional Redemption Date, holders of Trust Certificates will receive their
respective shares (determined pursuant to formulas described in "Description of
the New Certificates--Shortened Maturity Redemption" and "Description of the New
Certificates--Optional Redemption") of the redemption price (which price will
consist of principal and accrued and unpaid interest, without premium); holders
may then need to reinvest at the then-prevailing market rates rather than
receiving a fixed-rate coupon of 7.90 percent per annum for the period remaining
prior to August 1, 2017. A Shortened Maturity Redemption as a result of a Tax
Event may increase the amount of original issue discount required to be included
in a holder's ordinary gross income. See "U.S. Federal Income Tax
Consequences--Purchase and Holding of Trust Certificates." In the event of an
In-Kind Distribution, holders of New Certificates will receive their share of
the BNSF Debentures (determined pursuant to a formula described in "Description
of the New Certificates--Distribution of the BNSF Debentures on Payment Default
or Acceleration") at the time of such distribution, which distribution will
represent a principal amount of BNSF Debentures less than the amount of BNSF
Debentures that would be distributed as scheduled and which distribution will
occur prior to the scheduled distribution on August 1, 2017. An In-Kind
Distribution may be treated in whole or in part as equivalent to a taxable sale
or exchange. See "U.S. Federal Income Tax Consequences--Distributions".
Passive Nature of the Trust
The Trustee with respect to the Trust Certificates will hold the BNSF
Debentures for the benefit of the holders of the Trust Certificates. The Trust
will generally hold the BNSF Debentures to August 1, 2017 and not dispose of
them, regardless of adverse events, financial or otherwise, which may affect
BNSF or the value of the BNSF Debentures, except pursuant to an In-Kind
Distribution to holders of the Trust Certificates in exchange for their Trust
Certificates or upon exercise of the Certificateholder Exchange Right described
herein.
Risk Factors Relating to the Certificates and the Exchange Offer
Consequences of Failure to Exchange
Holders of Old Certificates who do not exchange their Old Certificates for
New Certificates pursuant to the Exchange Offer will continue to be subject to
the restrictions on transfer of such Old Certificates as set forth in the legend
thereon as a consequence of the issuance of the Old Certificates pursuant to
exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. In
addition, the Old Certificates will remain subject to the transfer restrictions
described therein pursuant to Rule 3a-7. In general, the Old Certificates may
not be offered or sold, unless registered under the Securities Act, except
pursuant to an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. PSSA does not currently
anticipate that it will register the Old Certificates under the Securities Act.
To the extent that Old Certificates are tendered and accepted in the Exchange
Offer, the trading market for Old Certificates could be adversely affected.
Absence of a Public Market for the New Certificates
Prior to the Exchange Offer, there has been no public market for the New
Certificates and it is uncertain whether such a market will develop. Neither
PSSA nor the Trust intends to apply for listing of the New Certificates on any
securities exchange or for quotation of the New Certificates on The Nasdaq Stock
Market's National Market or otherwise. The Trust has been advised by Prudential
Securities that it currently intends to make a market in the New Certificates,
as permitted by applicable laws and regulations, after consummation of the
Exchange Offer. Prudential Securities is not obligated, however, to make a
market in the New Certificates, and any such market-making activity may be
discontinued at any time without notice at the sole discretion of Prudential
Securities. There can be no assurance as to the liquidity of the market for the
New Certificates or that any active market for the New Certificates will develop
or continue. If an active market does not develop or continue, the market price
and liquidity of the New Certificates may be adversely affected.
USE OF PROCEEDS
There will be no cash proceeds payable to PSSA or the Trust from the
issuance of the New Certificates pursuant to the Exchange Offer. PSSA sold the
Old Certificates to Prudential Securities, an affiliate of PSSA, as initial
purchaser. The proceeds from the sale of the Old Certificates were received by
PSSA and were applied to its purchase of the BNSF Debentures, which, after the
purchase thereof, were deposited by PSSA in the Trust. PSSA also paid the
issuance costs out of the proceeds from the sale of Old Certificates.
FORMATION OF THE TRUST
Receipts on Corporate Securities Trust, Series BNSF 1998-1 was formed under
New York law pursuant to the Trust Agreement dated as of August 28, 1997, as
amended by Base Amendment No. 1 dated as of February 27, 1998 and as
supplemented by the Series BNSF 1998-1 Supplement dated as of April 13, 1998.
Concurrently with the execution and delivery of the Trust Certificates, PSSA
deposited the BNSF Notes with the Trustee. The Trustee, on behalf of the Trust,
accepted the BNSF Debentures and delivered the Trust Certificates to PSSA. The
Trustee is holding the BNSF Debentures for the benefit of the holders of the
Trust Certificates.
DESCRIPTION OF THE TRUST ASSETS
The assets of the Trust consist solely of $75,000,000 aggregate principal
amount of 7.25% Debentures due August 1, 2097 issued by BNSF and having the
characteristics described in the BNSF Debentures Prospectus. The BNSF Debentures
were originally issued by BNSF on or about July 29, 1997 as part of an
underwritten public offering of $200,000,000 aggregate principal amount of such
securities (CUSIP No. 12189TAF1) pursuant to a registration statement on Form
S-3 (File No. 333-2501) (together with all amendments and exhibits thereto, the
"BNSF Debentures Registration Statement"), filed by BNSF with the Commission
under the Securities Act. Payments of interest are required to be made on the
BNSF Debentures semiannually on the first day of each February and August,
commencing August 1, 1998, or if such day is not a business day, on the next
business day.
The BNSF Debentures deposited in the Trust represent the sole assets of the
Trust that are available to make distributions in respect of the Trust
Certificates. Consequently, the ability of holders of New Certificates to
receive cash distributions in respect of the New Certificates in the event of an
Optional Redemption or a Shortened Maturity Redemption will depend on the
Trust's receipt of payments on, or in respect of, the BNSF Debentures.
Holders of New Certificates have no rights with respect to the BNSF
Debentures except in the event of an In-Kind Distribution.
The BNSF Debentures Prospectus states that the BNSF Debentures rank pari
passu with all other unsecured and unsubordinated indebtedness of BNSF. Under
the BNSF Debentures Indenture, the events of default are as follows: (a) failure
to pay principal of or any premium on any BNSF Debenture when due; (b) failure
to pay any interest on any BNSF Debenture when due, continued for 30 days; (c)
failure to perform any other covenant or warranty of BNSF in the BNSF Debentures
Indenture with respect to the BNSF Debentures, continued for 90 days after
written notice, as provided in the BNSF Debentures Indenture; and (d) certain
events in bankruptcy, insolvency or reorganization.
The BNSF Debentures are not subject to a sinking fund. The BNSF Debentures
may be redeemed, in whole or in part, at any time at the option of BNSF. See
"Description of the Trust Assets--Optional Redemption."
The BNSF Debentures are denominated in United States dollars and issued in
fully registered form without coupons in denominations of $1,000 and any
integral multiples thereof. The BNSF Debentures were issued in book-entry form
only and are held through participants in the Depository Trust Company.
Optional Redemption
The BNSF Debentures will be redeemable prior to maturity, as a whole or in
part, at the option of BNSF (an "Optional Redemption"), upon not less than 30
nor more than 60 days' prior written notice, at any time, at a redemption price
equal to the greater of (i) 100% of the principal amount being redeemed and (ii)
the sum of the present values of the remaining scheduled payments of principal
and interest thereon discounted to the date of redemption (an "Optional
Redemption Date") on a semiannual basis (assuming a 360-day year consisting of
twelve 30-day months) at the Treasury Rate (as defined below), together with
accrued interest to the date of redemption. In the event of an Optional
Redemption, the Trustee will distribute the payment received on the BNSF
Debentures on the Optional Redemption Date to the holders of the Amortizing
Class Certificates and the Residual Class Certificates, respectively, in the
same ratio as (i) the present value of all originally scheduled future payments
on the Amortizing Class Certificates bears to (ii) the present value of all
originally scheduled future payments on the BNSF Debentures after August 1,
2017, discounted semiannually in each case at a rate of 7.25% per annum (such
ratio being the "Distribution Ratio") to the Optional Redemption Date. Such
ratio will be calculated by the Company, as calculation agent (the "Calculation
Agent"). In the case of such an Optional Redemption of less than all of the BNSF
Debentures, the Trustee will distribute the payment received on the BNSF
Debentures on the Optional Redemption Date to the holders of the Amortizing
Class Certificates and the Residual Class Certificates on the basis of the
Distribution Ratio as of the Optional Redemption Date on a pro rata basis; such
a distribution will result in a reduction (based on the percentage of BNSF
Debentures redeemed) of the Residual Class Certificates Certificate Principal
Balance and a recalculation of the Certificate Principal Balance of, and Fixed
Payments with respect to, the Amortizing Class Certificates based on the
remaining BNSF Debentures after such redemption.
"Treasury Rate" means, with respect to any redemption date, the rate per
annum equal to the semi-annual equivalent yield to maturity of the Comparable
Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as
a percentage of its principal amount) equal to the Comparable Treasury Price for
such redemption date.
"Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker as having a maturity comparable to
the remaining term of the BNSF Debentures to be redeemed, that would be
utilized, at the time of selection and in accordance with customary financial
practice, in pricing new issues of corporate debt securities of comparable
maturity to the remaining term of the BNSF Debentures.
"Independent Investment Banker" means one of the Reference Treasury Dealers
appointed by the Trustee after consultation with BNSF.
"Comparable Treasury Price" means, with respect to any redemption date, (i)
the average of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) on the third
business day preceding such redemption date, as set forth in the daily
statistical release (or any successor release) published by the Federal Reserve
Bank of New York and designated "Composite 3:30 p.m. Quotations for U.S.
Government Securities" or (ii) if such release (or any successor release) is not
published or does not contain such prices on such business day, (A) the average
of the Reference Treasury Dealer Quotations for such redemption date after
excluding the highest and lowest such Reference Treasury Quotations or, (B) if
the Trustee obtains fewer than four such Reference Treasury Dealer Quotations,
the average of all such Quotations. "Reference Treasury Dealer Quotations"
means, with respect to each Reference Treasury Dealer and any redemption date,
the average, as determined by the Trustee, of the bid and asked prices for the
Comparable Treasury Issue (expressed in each case as a percentage of its
principal amount) quoted in writing to the Trustee by such Reference Treasury
Dealer at 5:00 p.m., on the third business day preceding such redemption date.
"Reference Treasury Dealer" means each of Goldman Sachs & Co., Chase
Securities Inc., J.P. Morgan Securities Inc., Morgan Stanley & Co. Incorporated,
and Salomon Brothers Inc., and their respective successors; provided, however,
that if any of the foregoing shall cease to be a primary U.S. Government
securities dealer in New York City (a "Primary Treasury Dealer"), BNSF shall
substitute therefor another Primary Treasury Dealer.
Shortened Maturity Redemption
The BNSF Debentures Prospectus states as follows: BNSF intends to deduct
interest paid on the BNSF Debentures for United States federal income tax
purposes. However, there have been proposed tax law changes over the past year
that, among other things, would have prohibited an issuer from deducting
interest payments on debt instruments with a maturity of more than 40 years.
While none of these proposals has become law, there can be no assurance that
similar legislation affecting BNSF's ability to deduct interest paid on the BNSF
Debentures will not be enacted in the future or that any such legislation would
not have a retroactive effective date. As a result, there can be no assurance
that a Tax Event (as defined below) will not occur.
The BNSF Debentures Prospectus states as follows: Upon the occurrence of a
Tax Event (as defined below), BNSF will have the right, without the consent of
the holders of the BNSF Debentures, to shorten the maturity of the BNSF
Debentures to the minimum extent required, in the opinion of nationally
recognized independent tax counsel to BNSF, such that, after the shortening of
the maturity, interest paid on the BNSF Debentures will be deductible for United
States federal income tax purposes of, if such counsel is unable to opine
definitively as to such a minimum period, the minimum extent so required as
determined in good faith by the Board of Directors of BNSF, after receipt of an
opinion of such counsel regarding the applicable legal standards. There can be
no assurance that BNSF would not exercise its right to shorten the maturity of
the BNSF Debentures upon the occurrence of such a Tax Event and no assurance as
to the period by which such maturity would be shortened.
The BNSF Debentures Prospectus states as follows: In the event that BNSF
elects to exercise its right to shorten the maturity of BNSF Debentures upon the
occurrence of a Tax Event, BNSF will mail a notice of shortened maturity to each
holder of the BNSF Debentures by first-class mail not more than 60 days after
the occurrence of such Tax Event, stating the new maturity date of the BNSF
Debentures. Such notice shall be effective immediately upon mailing.
The BNSF Debentures Prospectus states as follows: BNSF believes that the
BNSF Debentures should constitute indebtedness for United States federal income
tax purposes under current law and, in that case, an exercise of its right to
shorten the maturity of the BNSF Debentures would not be a taxable event to
holders for such purposes. Prospective investors should be aware, however, that
BNSF's exercise of its right to shorten the maturity of the BNSF Debentures
would be a taxable event to holders for United States federal income tax
purposes if the BNSF Debentures are treated as equity for United States federal
income tax purposes before the maturity is shortened, assuming that the BNSF
Debentures of shortened maturity are treated as debt for such purposes.
BNSF Debentures Indenture
The BNSF Debentures were issued under the BNSF Debentures Indenture, dated
December 1, 1995, as amended or supplemented, between BNSF and First National
Bank of Chicago, as trustee.
Modification, Amendment and Waiver
The BNSF Debentures Prospectus states as follows: Modifications and
amendments of the BNSF Debentures Indenture may be made by BNSF and the BNSF
Debentures Trustee with the consent of the holders of a majority in aggregate
principal amount of the Outstanding Securities of each series affected by such
modification or amendment; provided, however, that no such modification or
amendment may, without the consent of the holder of each Outstanding Security
affected thereby, (a) change the Stated Maturity of the principal of, or any
installment of principal of or interest, if any, on, any Debt Security, (b)
reduce the principal amount of, or any premium or interest on, any Debt
Security, (c) reduce the amount of principal of an Original Issue Discount
Security or any other Debt Security payable upon acceleration of the Maturity
thereof, (d) change the place or currency of payment of principal of, or any
premium or interest on, any Debt Security, (e) impair the right to institute
suit for the enforcement of any payment on or with respect to any Debt Security,
(f) reduce the consent of whose holders is required for modification or
amendment of the Indenture, (g) reduce the percentage in principal amount of
Outstanding Securities of any series necessary for waiver of compliance with
certain provisions of the Indenture or for waiver of certain defaults, or (h)
make certain modifications to such provisions with respect to modification and
waiver.
The BNSF Debentures Prospectus states as follows: The holders of a majority
in principal amount of the Outstanding Securities of any series may waive any
past default or compliance with certain restrictive provisions under the BNSF
Debentures Indenture, except with a default in the payment of principal, premium
or interest and certain covenants and provisions of the Indenture, which cannot
be amended without the consent of the holder of each Outstanding Security of
such series affected.
The information under this caption is derived solely from the description
of the BNSF Debentures contained in the BNSF Debentures Prospectus. An investor
may wish to read this Prospectus in conjunction with (i) the BNSF Debentures
Prospectus and (ii) the BNSF Debentures Registration Statement, of which the
BNSF Debentures Prospectus is a part. This Prospectus relates only to New
Certificates offered hereby and does not relate to an offering of the BNSF
Debentures. No representation is made by the Trust, the Trustee or PSSA as to
the accuracy or completeness of the information contained in the BNSF Debentures
Prospectus or the BNSF Debentures Registration Statement.
BNSF
This Prospectus does not provide information with respect to BNSF. No
investigation has been made of the financial condition or creditworthiness of
BNSF or any of its subsidiaries in connection with the issuance of the New
Certificates. PSSA is not an affiliate of BNSF. Prospective purchasers of the
New Certificates should consider carefully BNSF's financial condition and its
ability to make payments in respect of the BNSF Debentures. All information
contained in this Prospectus regarding BNSF is derived from the BNSF Debentures
Prospectus. Neither PSSA nor the Trust nor any of their respective affiliates
has participated in the preparation of the BNSF Debentures Prospectus or the
BNSF Debentures Registration Statement, and takes no responsibility for the
accuracy or completeness of the information provided therein.
BNSF is presently subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports and other information (including
financial information) with the Commission. Copies of such reports and other
information may be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549; Seven World Trade Center, Suite 1300, New York, New York 10048; and
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661, and may be obtained from the Public Reference Section of the
Commission at Washington, D.C. 20549, at prescribed rates. The Commission
maintains a Web site at http://www.sec.gov containing reports, proxy statements
and other information regarding registrants that file electronically with the
Commission. In addition, certain material described above and other information
will also be available for inspection at the offices of the New York Stock
Exchange at 20 Broad Street, New York, New York. Neither PSSA nor the Trust nor
any of their respective affiliates has participated in the preparation of any of
the foregoing reports or other information filed by BNSF with the Commission or
the New York Stock Exchange or has made any investigation with respect to the
information contained therein.
If BNSF ceases to be a reporting company under the Exchange Act,
information regarding BNSF or the BNSF Debentures will be limited to any
information received by the Trustee, as the holder of the BNSF Debentures,
pursuant to the BNSF Debentures Indenture from BNSF or the trustee under the
BNSF Debentures Indenture (the "BNSF Debentures Trustee"). The Trustee will
furnish such information to registered holders of the Trust Certificates
promptly following receipt.
The Trust will have no assets other than the BNSF Debentures from which to
make distributions of amounts due in respect of the Trust Certificates.
Consequently, the ability of holders of Trust Certificates to receive
distributions and the timeliness of such distributions in respect of the New
Certificates will depend on the Trust's receipt of payments on the BNSF
Debentures from BNSF.
Ratings
The BNSF Debentures have been rated "Baa2" and "BBB+" by Moody's Investors
Service, Inc. and Standard & Poor's Ratings Services, respectively. The New
Certificates will be rated "Baa1" by Moody's Investors Service, Inc. and "BBB+"
by Standard & Poor's Ratings Services at issuance. Any rating of the BNSF
Debentures or the New Certificates is not a recommendation to purchase, hold or
sell the New Certificates, and there can be no assurance that a rating will
remain for any given period of time or that a rating will not be revised or
withdrawn entirely by a rating agency if in its judgment circumstances in the
future so warrant.
Prudential Securities and BNSF
From time to time, Prudential Securities may be engaged by BNSF as an
underwriter or placement agent, in an advisory capacity or in other business
arrangements. In addition, Prudential Securities or another affiliate of PSSA
may make a market in other outstanding securities of BNSF.
THE EXCHANGE OFFER
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and reference is made to the
provisions of the Registration Rights Agreement, filed as an exhibit to the
Registration Statement of which this Prospectus is a part.
Terms of the Exchange Offer
In connection with the sale of the Old Certificates pursuant to a Purchase
Agreement dated as of August 25, 1997 and the Terms Agreement dated as of April
13, 1998, between PSSA and Prudential Securities, their respective assignees
became entitled to the benefits of the Registration Rights Agreement
incorporated by reference hereto as described under "Incorporation of Certain
Documents by Reference".
Under the Registration Rights Agreement, except in certain circumstances,
PSSA is obligated to use its best efforts to (i) file a Registration Statement
(the "Exchange Offer Registration Statement"), of which this Prospectus is a
part, for a registered exchange offer with respect to an issue of New
Certificates identical in all material respects to the Old Certificates within
180 calendar days after April 13, 1998, the date the Old Certificates were
issued, (ii) use its reasonable best efforts to cause the Registration Statement
to become effective at the earliest practicable time, (iii) use its reasonable
best efforts to consummate the Exchange Offer on or prior to 210 days from April
13, 1998, and (iv) in connection with the foregoing, (A) file all pre-effective
amendments to such Exchange Offer Registration Statement as may be necessary in
order to cause such Exchange Offer Registration Statement to become effective,
(B) file, if applicable, a post-effective amendment to such Exchange Offer
Registration Statement pursuant to Rule 430A under the Act and (C) cause all
necessary filings, if any, in connection with the registration and qualification
of the Exchange Certificates to be made under the Blue Sky laws of such
jurisdictions as are necessary to permit consummation of the Exchange Offer and
(iv) promptly after the effectiveness of such Exchange Offer Registration
Statement, commence and consummate the Exchange Offer. The Trust will keep the
Exchange Offer open for a period of not less than 30 calendar days and not more
than 45 days after the date notice of the Exchange Offer is mailed to holders.
The Exchange Offer being made hereby, if commenced and consummated within the
time periods described in this paragraph, will satisfy those requirements under
the Registration Rights Agreement.
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal (which together constitute the Exchange Offer),
all Old Certificates validly tendered and not withdrawn prior to 5:00 p.m., New
York City time, on the Expiration Date will be accepted for exchange. New
Certificates of the same class will be issued in exchange for an equal principal
amount of outstanding Old Certificates accepted in the Exchange Offer. Old
Certificates may be tendered only in minimum denominations of $500,000
Certificate Principal Balance and integral multiples of $1.00 in excess thereof.
This Prospectus, together with the Letter of Transmittal, is being sent to all
registered holders as of January 12, 1999. The Exchange Offer is not conditioned
upon any minimum principal amount of Old Certificates being tendered in
exchange. However, the obligation to accept Old Certificates for exchange
pursuant to the Exchange Offer is subject to certain conditions as set forth
herein under "--Conditions".
Old Certificates shall be deemed to have been accepted as validly tendered
when, as and if the Trustee has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
of Old Certificates for the purposes of receiving the New Certificates and
delivering New Certificates to such holders.
Based on interpretations by the staff of the Commission, as set forth in
no-action letters issued to third parties, including the Exchange Offer
No-Action Letters, PSSA believes that the New Certificates issued pursuant to
the Exchange Offer may be offered for resale, resold or otherwise transferred by
holders thereof (other than a broker-dealer who acquires such New Certificates
directly from PSSA for resale pursuant to Rule 144A under the Securities Act or
any other available exemption under the Securities Act or any holder that is an
"affiliate" of PSSA as defined in Rule 405 under the Securities Act), without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such New Certificates are acquired in the ordinary
course of such holders' business and such holders are not engaged in, and do not
intend to engage in, a distribution of such New Certificates and have no
arrangement with any person to participate in a distribution of such New
Certificates. By tendering the Old Certificates in exchange for New
Certificates, each holder, other than a broker-dealer, will represent to the
Trust that (i) it is not an affiliate of PSSA (as defined in Rule 405 under the
Securities Act) or a broker-dealer tendering Old Certificates acquired directly
from the Trust or PSSA for its own account; (ii) any New Certificates to be
received by it will be acquired in the ordinary course of its business; and
(iii) it is not engaged in, and does not intend to engage in, a distribution of
such New Certificates and has no arrangement or understanding to participate in
a distribution of the New Certificates. If a holder of Old Certificates is
engaged in or intends to engage in a distribution of the New Certificates or has
any arrangement or understanding with respect to the distribution of the New
Certificates to be acquired pursuant to the Exchange Offer, such holder may not
rely on the applicable interpretations of the staff of the Commission and must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any secondary resale transaction. Each
Broker-Dealer that receives New Certificates for its own account ("Restricted
Broker-Dealer") pursuant to the Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale of such New Certificates. The
Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a Restricted Broker-Dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a Restricted
Broker-Dealer in connection with resales of New Certificates received in
exchange for Old Certificates where such Old Certificates were acquired by such
Restricted Broker-Dealer as a result of market-making activities or other
trading activities. PSSA has agreed that for a period of one year it will cause
this Prospectus to be made available to any Restricted Broker-Dealer for use in
connection with any such resale. See "Plan of Distribution".
If (i) PSSA is not required to file an Exchange Offer Registration
Statement with respect to the New Certificates because the Exchange Offer is not
permitted by applicable law or (ii) if any holder of Old Certificates shall
notify PSSA within 20 Business Days following the consummation of the Exchange
Offer that (A) such holder was prohibited by law or Commission policy from
participating in the Exchange Offer or (B) such holder may not resell the
Exchange Certificates acquired by it in the Exchange Offer to the public without
delivering a prospectus and the prospectus contained in the Exchange Offer
Registration Statement is not appropriate or available for such resales by such
holder or (C) such holder is a Broker-Dealer and holds Old Certificates acquired
directly from any of the Trust or PSSA or one of their respective Affiliates,
then PSSA shall (x) cause to be filed, on or prior to 60 days after the date on
which PSSA determines that it is not required to file the Exchange Offer
Registration Statement pursuant to clause (i) above, or 60 days after the date
on which PSSA receives the notice specified in clause (ii) above, a shelf
registration statement pursuant to Rule 415 under the Securities Act (which may
be an amendment to the Exchange Offer Registration Statement (in either event,
the "Shelf Registration Statement") relating to all Old Certificates the holders
of which shall have provided the information required by the Registration Rights
Agreement, and shall (y) use its best efforts to cause such Shelf Registration
Statement to become effective on or prior to 190 days after the date on which
PSSA becomes obligated to file such Shelf Registration Statement. PSSA shall use
its best efforts to keep the Shelf Registration Statement continuously
effective, supplemented and amended to the extent necessary to ensure that it is
available for sales of Old Certificates by the holders thereof entitled to the
benefit of the Shelf Registration Statement, and to ensure that it conforms with
the requirements of the Registration Rights Agreement, the Securities Act and
the policies, rules and regulations of the Commission as announced from time to
time, for a period of not more than one year following the date on which such
Shelf Registration Statement first becomes effective under the Securities Act or
such shorter period that will terminate when all the Old Certificates covered by
the Shelf Registration Statement have been sold pursuant to the Shelf
Registration Statement.
Upon consummation of the Exchange Offer, subject to certain exceptions,
holders of Old Certificates who do not exchange their Old Certificates for New
Certificates in the Exchange Offer will no longer be entitled to registration
rights and will not be able to offer or sell their Old Certificates, unless such
Old Certificates are subsequently registered under the Securities Act (which,
subject to certain limited exceptions, PSSA will have no obligation to do),
except pursuant to an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. See "Risk Factors--Risk
Factors Relating to the New Certificates and the Exchange Offer".
NEITHER PSSA NOR THE TRUSTEE MAKES ANY RECOMMENDATION TO HOLDERS OF OLD
CERTIFICATES AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING ALL OR ANY
PORTION OF THEIR OLD CERTIFICATES PURSUANT TO THE EXCHANGE OFFER. IN ADDITION,
NO ONE HAS BEEN AUTHORIZED TO MAKE ANY SUCH RECOMMENDATION. HOLDERS OF OLD
CERTIFICATES MUST MAKE THEIR OWN DECISION WHETHER TO TENDER PURSUANT TO THE
EXCHANGE OFFER AND, IF SO, THE AGGREGATE AMOUNT OF OLD CERTIFICATES TO TENDER
AFTER READING THIS PROSPECTUS AND THE LETTER OF TRANSMITTAL AND CONSULTING WITH
THEIR ADVISERS, IF ANY, BASED ON THEIR OWN FINANCIAL POSITION AND REQUIREMENTS.
Expiration Date; Extensions; Amendments; Termination
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
February 18, 1999 (30 calendar days following the commencement of the Exchange
Offer), unless PSSA, in its sole discretion, instructs the Exchange Agent to
extend the Exchange Offer, in which case the term "Expiration Date" shall mean
the latest date to which the Exchange Offer is extended.
In order to extend the Expiration Date, PSSA will notify the Exchange Agent
of any extension by oral or written notice and will cause the Exchange Agent to
notify the holders of the Old Certificates by means of a press release or other
public announcement prior to 9:00 A.M., New York City time, on the next business
day after the previously scheduled Expiration Date. Such announcement may state
that the Trust is extending the Exchange Offer for a specified period of time.
PSSA reserves the right to cause the Trust and the Exchange Agent (i) to
delay acceptance of any Old Certificates, to extend the Exchange Offer or to
terminate the Exchange Offer and not permit acceptance of Old Certificates not
previously accepted if any of the conditions set forth herein under "--
Conditions" shall have occurred and shall not have been waived by PSSA, by
giving oral or written notice of such delay, extension or termination to the
Exchange Agent, or (ii) to cause the Trustee to amend the terms of the Exchange
Offer in any manner deemed by it to be advantageous to the holders of the Old
Certificates. Any such delay in acceptance, extension, termination or amendment
will be followed as promptly as practicable by oral or written notice thereof to
the Exchange Agent. If the Exchange Offer is amended in a manner determined by
PSSA to constitute a material change, PSSA will promptly cause such amendment to
be disclosed in a manner reasonably calculated to inform the holders of the Old
Certificates of such amendment.
Without limiting the manner in which the Exchange Agent may choose to make
public announcement of any delay, extension, amendment or termination of the
Exchange Offer, the Exchange Agent shall have no obligation to publish,
advertise, or otherwise communicate any such public announcement, other than by
making a timely release to an appropriate news agency.
Procedures for Tendering
To tender in the Exchange Offer, a holder must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by the Letter of Transmittal, and mail or otherwise
deliver such Letter of Transmittal or such facsimile, together with any other
required documents, to the Exchange Agent prior to 5:00 p.m., New York City
time, on the Expiration Date. In addition, (A) either (i) certificates for such
Old Certificates must be received by the Exchange Agent along with the Letter of
Transmittal or (ii) the holder must comply with the guaranteed delivery
procedures described below, and (B) a certification to the effect that the
beneficial owner thereof (whether such registered holder or the ultimate
beneficiary for whom it holds such Old Certificate(s)) is (a) a qualified
institutional buyer (as defined in Rule 144A under the Securities Act) and (b)
either (i) a United States person or (ii) a non-United States person who is
exempt from withholding under U.S. federal income tax laws and has completed,
accurately and in a manner reasonably satisfactory to the Trustee or its agent,
an IRS Form W-8 and delivered such Form to the Trustee or its agent unless such
certificate has already been provided to the Trustee in connection with the
purchase of the Old Certificate(s) being tendered and the status of the
beneficial owner has not changed. THE METHOD OF DELIVERY OF OLD CERTIFICATES,
LETTERS OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND
RISK OF THE HOLDERS. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT
REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. IN
ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. NO
LETTERS OF TRANSMITTAL OR OLD CERTIFICATES SHOULD BE SENT TO PSSA. Delivery of
all documents must be made to the Exchange Agent at its address set forth below.
Holders may also request their respective brokers, dealers, commercial banks,
trust companies or nominees to effect such tender for such holders.
The tender by a holder of Old Certificates will constitute an agreement
between such holder and the Trust in accordance with the terms and subject to
the conditions set forth herein and in the Letter of Transmittal.
Only a holder of Old Certificates may tender such Old Certificates in the
Exchange Offer. The term "holder" with respect to the Exchange Offer means any
person in whose name Old Certificates are registered on the books of the Trustee
or any other person who has obtained a properly completed bond power from the
registered holder.
Any beneficial owner whose Old Certificates are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact such registered holder promptly and instruct such
registered holder to tender on his behalf. If such beneficial owner wishes to
tender on his own behalf, such beneficial owner must, prior to completing and
executing the Letter of Transmittal and delivering his Old Certificates, either
make appropriate arrangements to register ownership of the Old Certificates in
such owner's name or obtain a properly completed bond power from the registered
holder. The transfer of registered ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by any member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
a commercial bank or trust company having an office or correspondent in the
United States or an "eligible guarantor" institution within the meaning of Rule
17Ad-15 under the Exchange Act (each an "Eligible Institution") unless the Old
Certificates tendered pursuant thereto are tendered (i) by a registered holder
who has not completed the box entitled "Special Issuance Instructions" or
"Special Delivery Instructions" on the Letter of Transmittal or (ii) for the
account of an Eligible Institution.
If the Letter of Transmittal is signed by a person other than the
registered holder of any Old Certificates listed therein, such Old Certificates
must be endorsed or accompanied by bond powers and a proxy which authorizes such
person to tender the Old Certificates on behalf of the registered holder, in
each case as the name of the registered holder or holders appears on the Old
Certificates.
If the Letter of Transmittal or any Old Certificates or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and unless waived by the
Trustee, evidence satisfactory to the Trustee of their authority to so act must
be submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt) and withdrawal of the tendered Old Certificates will be determined by
the Trustee in its sole discretion, which determination will be final and
binding. The Trustee reserves the absolute right to reject any and all Old
Certificates not properly tendered or any Old Certificates which, if accepted,
would, in the opinion of counsel for PSSA, be unlawful. The Trustee also
reserves the absolute right to waive any irregularities or conditions of tender
as to particular Old Certificates. The Trustee's interpretation of the terms and
conditions of the Exchange Offer (including the instructions in the Letter of
Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Old Certificates must be
cured within such time as the Trustee shall determine. Neither the Trustee nor
PSSA, nor the Exchange Agent nor any other person shall be under any duty to
give notification of defects or irregularities with respect to tenders of Old
Certificates, nor shall any of them incur any liability for failure to give such
notification. Tenders of Old Certificates will not be deemed to have been made
until such irregularities have been cured or waived. Any Old Certificates
received by the Exchange Agent that are not properly tendered and as to which
the defects or irregularities have not been cured or waived will be returned
without cost to such holder by the Exchange Agent to the tendering holders of
Old Certificates, unless otherwise provided in the Letter of Transmittal, as
soon as practicable following the Expiration Date.
In addition, PSSA reserves the right in its sole discretion (i) to purchase
or make offers for any Old Certificates that remain outstanding subsequent to
the Expiration Date or, as set forth under "-- Conditions", to terminate the
Exchange Offer in accordance with the terms of the Registration Rights Agreement
and (ii) to the extent permitted by applicable law, to purchase Old Certificates
in the open market, in privately negotiated transactions or otherwise. The terms
of any such purchases or offers could differ from the terms of the Exchange
Offer.
Acceptance of Old Certificates for Exchange; Delivery of New Certificates
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
all Old Certificates properly tendered will be accepted, promptly after the
Expiration Date, and the New Certificates will be issued promptly after
acceptance of the Old Certificates. For purposes of the Exchange Offer, Old
Certificates shall be deemed to have been accepted as validly tendered for
exchange when, as and if the Trustee has given oral or written notice thereof to
the Exchange Agent.
In all cases, issuance of New Certificates for Old Certificates that are
accepted for exchange pursuant to the Exchange Offer will be made only after
timely receipt by the Exchange Agent of certificates for such Old Certificates,
a properly completed and duly executed Letter of Transmittal and all other
required documents. If any tendered Old Certificates are not accepted for any
reason set forth in the terms and conditions of the Exchange Offer or if Old
Certificates are submitted for a greater principal amount than the holder
desires to exchange, such unaccepted or nonexchanged Old Certificates will be
returned without expense to the tendering holder thereof as promptly as
practicable after the expiration or termination of the Exchange Offer.
Guaranteed Delivery Procedures
If a registered holder of the Old Certificates desires to tender such Old
Certificates, and the Old Certificates are not immediately available, or time
will not permit such holder's Old Certificates or other required documents to
reach the Exchange Agent before the Expiration Date, a tender may be effected if
(i) the tender is made through an Eligible Institution, (ii) prior to the
Expiration Date, the Exchange Agent receives from such Eligible Institution a
properly completed and duly executed Letter of Transmittal (or a facsimile
thereof) and Notice of Guaranteed Delivery, substantially in the form provided
by PSSA (by facsimile transmission, mail or hand delivery), setting forth the
name and address of the holder of Old Certificates and the amount of Old
Certificates tendered, stating that the tender is being made thereby and
guaranteeing that within three New York Stock Exchange (the "NYSE") trading days
after the date of execution of the Notice of Guaranteed Delivery, the
certificates for all physically tendered Old Certificates, in proper form for
transfer, and any other documents required by the Letter of Transmittal will be
deposited by the Eligible Institution with the Exchange Agent and (iii) the
certificates for all physically tendered Old Certificates, in proper form for
transfer, and all other documents required by the Letter of Transmittal are
received by the Exchange Agent within three NYSE trading days after the date of
execution of the Notice of Guaranteed Delivery.
Withdrawal of Tenders
Tenders of Old Certificates may be withdrawn at any time prior to 5:00
p.m., New York City time on the Expiration Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent prior to 5:00 p.m., New York City time on the
Expiration Date at one of the addresses set forth below under "--Exchange
Agent". Any such notice of withdrawal must specify the name of the person having
tendered the Old Certificates to be withdrawn, identify the Old Certificates to
be withdrawn (including the principal amount of such Old Certificates) and
(where certificates for Old Certificates have been transmitted) specify the name
in which such Old Certificates are registered, if different from that of the
withdrawing holder. If certificates for Old Certificates have been delivered or
otherwise identified to the Exchange Agent, then, prior to the release of such
certificates, the withdrawing holder must also submit the serial numbers of the
particular certificates to be withdrawn and a signed notice of withdrawal with
signatures guaranteed by an Eligible Institution unless such holder is an
Eligible Institution. All questions as to the validity, form and eligibility
(including time of receipt) of such notices will be determined by the Trustee,
whose determination shall be final and binding on all parties. Any Old
Certificates so withdrawn will be deemed not to have been validly tendered for
exchange for purposes of the Exchange Offer. Any Old Certificates which have
been tendered for exchange but which are not exchanged for any reason will be
returned to the holder thereof without cost to such holder as soon as
practicable after withdrawal, rejection of tender or termination of the Exchange
Offer. Properly withdrawn Old Certificates may be retendered by following one of
the procedures described under "-- Procedures for Tendering" above at any time
on or prior to the Expiration Date.
Conditions
Notwithstanding any other term of the Exchange Offer, Old Certificates will
not be required to be accepted for exchange, nor will New Certificates be issued
in exchange for any Old Certificates, and PSSA may cause the Trustee to
terminate or amend the Exchange Offer as provided herein before the acceptance
of such Old Certificates, if because of any change in law, or applicable
interpretations thereof by the Commission, PSSA determines that the Trust is not
permitted to effect the Exchange Offer. PSSA has no obligation to, and will not
knowingly, permit acceptance of tenders of Old Certificates by the Trust from
affiliates of PSSA (within the meaning of Rule 405 under the Securities Act) or
from any other holder or holders who are not eligible to participate in the
Exchange Offer under applicable law or interpretations thereof by the
Commission, or if the New Certificates to be received by such holder or holders
of Old Certificates in the Exchange Offer, upon receipt, will not be tradable by
such holder without restriction under the Securities Act and the Exchange Act
and without material restrictions under the "blue sky" or securities laws of
substantially all of the states of the United States.
Exchange Agent
The Bank of New York has been appointed as Exchange Agent for the Exchange
Offer. Questions and requests for assistance and requests for additional copies
of this Prospectus or of the Letter of Transmittal should be directed to the
Exchange Agent addressed as follows:
By Mail or By Hand:
The Bank of New York
101 Barclay Street, 12 East
New York, N.Y. 10286
Attention: Corporate Trust--Administration
Telephone: (212) 815-5098
Facsimile: (212) 815-5999
Fees and Expenses
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by PSSA on behalf of the Trust pursuant to the Registration Rights
Agreement. The principal solicitation for tenders pursuant to the Exchange Offer
is being made by mail; however, additional solicitations may be made by
telegraph, telephone, telecopy or in person by officers and regular employees or
agents of PSSA on behalf of the Trust.
PSSA will not make any payments to brokers, dealers or other persons
soliciting acceptances of the Exchange Offer. PSSA, however, will pay on behalf
of the Trust the Exchange Agent's reasonable and customary fees for its services
and will reimburse the Exchange Agent for its reasonable out-of-pocket expenses
in connection therewith. PSSA may also pay on behalf of the Trust, the
reasonable out-of-pocket expenses incurred by brokerage houses and other
custodians, nominees and fiduciaries in forwarding copies of the Prospectus and
related documents to the beneficial owners of the Old Certificates, and in
handling or forwarding tenders for exchange.
The expenses to be incurred in connection with the Exchange Offer will be
paid by PSSA on behalf of the Trust, including fees and expenses of the Exchange
Agent and Trustee and accounting, legal, printing and related fees and expenses.
PSSA will pay all transfer taxes, if any, applicable to the exchange of Old
Certificates pursuant to the Exchange Offer. If, however, certificates
representing New Certificates or Old Certificates for principal amounts not
tendered or accepted for exchange are to be delivered to, or are to be
registered or issued in the name of, any person other than the registered holder
of the Old Certificates tendered, or if tendered Old Certificates are registered
in the name of any person other than the person signing the Letter of
Transmittal, or if a transfer tax is imposed for any reason other than the
exchange of Old Certificates pursuant to the Exchange Offer, then the amount of
any such transfer taxes (whether imposed on the registered holder or any other
persons) will be payable by the tendering holder. If satisfactory evidence of
payment of such taxes or exemption therefrom is not submitted with the Letter of
Transmittal, the amount of such transfer taxes will be billed directly to such
tendering holder.
DESCRIPTION OF THE NEW CERTIFICATES
General
The New Certificates will be denominated and distributions with respect
thereto will be payable in United States Dollars. The Trust Certificates
represent in the aggregate the entire beneficial ownership interest in the
Trust. The property of the Trust will consist of (i) the BNSF Debentures, (ii)
all payments on or collections in respect of the BNSF Debentures received on or
after April 13, 1998, together with any proceeds thereof, and (iii) all funds
from time to time deposited with the Trustee in accounts related to the Trust.
The property of the Trust will be held for the benefit of the holders of the
Trust Certificates by the Trustee. Holders of the New Certificates will receive
payments or distributions on each Distribution Date as described herein. See
"--Collections and Distributions."
The Trust Certificates represent two classes of undivided fractional
beneficial interests in the assets of the Trust, and all distributions to
holders of the Trust Certificates will be made only from the property of the
Trust as described herein. The Trust Certificates are comprised of two classes
representing the entire undivided beneficial ownership of the Trust: the
Residual Class and the Amortizing Class (the Old Certificates currently
constitute, and the New Certificates along with any Old Certificates not
tendered in the Exchange Offer, will constitute the entire Residual Class). The
Residual Class has an aggregate Certificate Principal Balance of $75,000,000.
The Amortizing Class has a current aggregate Certificate Principal Balance of
$58,841,740.41. Subject to the occurrence of an Optional Redemption, a Shortened
Maturity Redemption, or an In-Kind Distribution, distributions on the Amortizing
Class Certificates will be made semiannually on each Scheduled Distribution Date
up to and including August 1, 2017 in an amount equal to the amount of interest
due and received on the BNSF Debentures on such Distribution Date.
Subject to the occurrence of an Optional Redemption, a Shortened Maturity
Redemption, or an In-Kind Distribution, the Residual Class Certificates evidence
fractional undivided beneficial interests in all principal payments on the BNSF
Debentures and in interest accrued and paid on the BNSF Debentures after August
1, 2017 at a rate of 7.25% per annum. The Trust Certificates do not represent an
interest in or obligation of PSSA, BNSF, the BNSF Debentures Trustee or the
Trustee or any affiliate of any of the foregoing.
The aggregate "Certificate Principal Balance" of the Residual Class
Certificates on any determination date will equal the aggregate principal amount
of the BNSF Debentures in the Trust as of such date. The Certificate Principal
Balance of any Residual Class Certificate will represent a pro rata portion of
the then-current aggregate Certificate Principal Balance of all outstanding
Residual Class Certificates, which equals the principal amount of the BNSF
Debentures that the holder of such Residual Class Certificate is entitled to
receive as an in-kind distribution on August 1, 2017. In the case of an Optional
Redemption of less than all of the BNSF Debentures, upon the distribution of the
proceeds from such Optional Redemption, the Certificate Principal Balance of
each Residual Class Certificate shall be reduced by the same percentage as the
percentage of BNSF Debentures redeemed.
New Certificates may be transferred or exchanged for like Certificates of
the same Class at the corporate trust office or agency of the Trustee in the
City and State of New York, subject to the limitations provided in the Trust
Agreement, without the payment of any service charge, other than any tax or
governmental charge payable in connection therewith.
Form of the New Certificates
The New Certificates will be issued in definitive registered form in
minimum denominations of $500,000 Certificate Principal Balance and integral
multiples of $1.00 in excess thereof.
Collections and Distributions on New Certificates
Subject to the occurrence of an Optional Redemption or a Shortened Maturity
Redemption of the BNSF Debentures, no cash distributions will be made on the
Residual Class Certificates. Instead, the Residual Class Certificates
outstanding on August 1, 2017 will be terminated and deemed involuntarily
surrendered by the holders thereof in exchange for a principal amount of the
BNSF Debentures underlying the Residual Class Certificates equal to the
aggregate Certificate Principal Balance of the Residual Class Certificates. No
action by such holders will be required to effect such termination. Holders of
Residual Class Certificates will be required to physically surrender the
Residual Class Certificates to the Trustee, endorsed to the Trustee with
signature guaranteed and instruct the Trustee as to the name of the participant
in the Depository Trust Company in whose name such holder's BNSF Debentures are
to be registered; provided that if the BNSF Debentures cease to be held through
the Depository Trust Company, the Trustee will provide notice to the holders as
to how such exchange shall be made. The BNSF Debentures to be delivered to each
holder of New Certificates on August 1, 2017 or earlier upon an In-Kind
Distribution will be registered in the name requested by such holder by the
Trustee and will entitle holders thereof to the same rights as holders of all
other BNSF Debentures.
Distributions with respect to New Certificates will be made at the
corporate trust office or agency of the Trustee in The City of New York.
Any cash distribution on the New Certificates, upon a liquidation of the
Trust as described below, will be made (i) in U.S. Dollars by or on behalf of
the Trustee on the date of the distribution and (ii) by check drawn on, or wire
transfer, of immediately available funds, but, with respect to the latter, only
if appropriate wire transfer instructions have been received in writing by the
Trustee not later than fifteen calendar days prior to the date of the
distribution. If a holder of New Certificates wishes to receive cash payments by
wire transfer, such holder shall provide appropriate wire transfer instructions
by delivery of a written notice to the Trustee not later than fifteen calendar
days prior to the date of the distribution, which will remain in effect until
revoked by written notice to such Trustee received not later than fifteen
calendar days prior to the date of the distribution. Any cash distribution by
the Trustee to the New Certificates shall be made, subject to timely receipt of
payments on the BNSF Debentures and solely to the extent of Available Funds. See
"--Shortened Maturity Redemption" and "--Optional Redemption." "Available Funds"
means, as of any date of the distribution, the aggregate amount received on or
with respect to the BNSF Debentures during the period from the preceding date of
the distribution up to and including such date of the distribution (each such
period, a "Collection Period"), and deposited in the Collection Account and
available for distribution on such date of the distribution.
If a payment with respect to the BNSF Debentures is made to the Trustee
after the date on which such payment was due, the Trustee will distribute any
such amounts received on the Business Day thereafter as if such funds had
constituted Available Funds on the date of the distribution immediately
preceding such Business Day; provided, however, that the Record Date for such
distribution shall be fifteen days prior to such Business Day and no additional
amounts will accrue on the Trust Certificates or be owed to holders of Trust
Certificates in respect of such distribution.
All amounts received on or with respect to the BNSF Debentures shall be
held uninvested by the Trustee. On August 1, 2017, the Trustee will distribute
the BNSF Debentures in kind to the holders of Residual Class Certificates,
unless an Optional Redemption, a Shortened Maturity Redemption, or an In-Kind
Distribution has occurred on or prior to such date.
In the event that PSSA is required to repurchase the BNSF Debentures as a
result of a breach of its representation and warranty as to its title to the
BNSF Debentures immediately prior to the transfer thereof to the Trustee, the
Trustee will distribute the repurchase price received from PSSA to the holders
of the Residual Class Certificates and the Amortizing Class Certificates,
respectively, in the same ratio as (i) the present value of all originally
scheduled future payments on the BNSF Debentures after August 1, 2017 bears to
(ii) the present value of all originally scheduled future payments on the
Amortizing Class Certificates, discounted semiannually in each case at a rate of
7.90 percent per annum to the date on which the repurchase price is distributed.
Such ratio will be calculated by PSSA, as calculation agent, and such
distribution will be made fifteen days after receipt of the repurchase price.
Optional Redemption
The BNSF Debentures will be redeemable prior to maturity, as a whole or in
part, at the option of BNSF (an "Optional Redemption"), upon not less than 30
nor more than 60 days' prior written notice, at any time, at a redemption price
equal to the greater of (i) 100% of the principal amount being redeemed and (ii)
the sum of the present values of the remaining scheduled payments of principal
and interest thereon discounted to the date of redemption (an "Optional
Redemption Date") on a semiannual basis (assuming a 360-day year consisting of
twelve 30-day months) at the Treasury Rate (as defined herein), together with
accrued interest to the date of redemption. In the event of an Optional
Redemption, the Trustee will distribute the payment received on the BNSF
Debentures on the Optional Redemption Date to the holders of the Amortizing
Class Certificates and the Residual Class Certificates, respectively, in the
same ratio as (i) the present value of all originally scheduled future payments
on the Amortizing Class Certificates bears to (ii) the present value of all
originally scheduled future payments on the BNSF Debentures after August 1,
2017, discounted semiannually in each case at a rate of 7.25% per annum (such
ratio being the "Distribution Ratio") to the Optional Redemption Date. Such
ratio will be calculated by the Company, as calculation agent (the "Calculation
Agent"). In the case of such an Optional Redemption of less than all of the BNSF
Debentures, the Trustee will distribute the payment received on the BNSF
Debentures on the Optional Redemption Date to the holders of the Amortizing
Class Certificates and the Residual Class Certificates on the basis of the
Distribution Ratio as of the Optional Redemption Date on a pro rata basis; such
a distribution will result in a reduction (based on the percentage of BNSF
Debentures redeemed) of the Residual Class Certificates Certificate Principal
Balance and a recalculation of the Certificate Principal Balance of, and Fixed
Payments with respect to, the Amortizing Class Certificates based on the
remaining BNSF Debentures after such redemption. A table showing the percentages
of such distribution that would be distributable to the Amortizing Class
Certificates and the Residual Class Certificates, respectively, assuming that
such a distribution date occurs on a Scheduled Distribution Date, is attached
hereto as Appendix A.
Shortened Maturity Redemption
Upon the occurrence of a Tax Event (as defined below) with respect to the
BNSF Debentures, BNSF has the right to shorten the maturity of the BNSF
Debentures (i) to the minimum extent required, in the opinion of nationally
recognized independent tax counsel, such that, after the shortening of the
maturity, interest paid on the BNSF Debentures will be deductible for U.S.
federal income tax purposes or, (ii) if such counsel is unable to opine
definitively as to such minimum period, the minimum extent so required as
determined in good faith by the Board of Directors of BNSF after receipt of an
opinion of such counsel regarding the applicable legal standards. (Any such new
maturity date is referred to herein as the "Shortened Maturity Date.") If the
Shortened Maturity Date is on or prior to August 1, 2017, the Residual Class
Certificates and the Amortizing Class Certificates will be redeemed on the
Shortened Maturity Date (a "Shortened Maturity Redemption"). The Trustee will
distribute the payment received on the BNSF Debentures on the Shortened Maturity
Date to the holders of each class of Certificates on the basis of the
Distribution Ratio as of the Shortened Maturity Date. Such ratio will be
calculated by the Calculation Agent. A Shortened Maturity Redemption as a result
of a Tax Event may increase the amount of original issue discount required to be
included in a holder's ordinary gross income. See "U.S. Federal Income Tax
Consequences--Purchase and Holding of Trust Certificates." A table showing the
percentages of such distribution that would be distributable to the Amortizing
Class Certificates and the Residual Class Certificates, respectively, assuming
that such a distribution date occurs on a Scheduled Distribution Date, is
attached hereto as Appendix A.
A "Tax Event" means that BNSF shall have received an opinion of nationally
recognized independent tax counsel to the effect that, as a result of (a) any
amendment to, clarification of, or change (including any announced prospective
amendment, clarification or change) in any law, or any regulation thereunder, of
the United States, (b) any judicial decision, official administrative
pronouncement, ruling, regulatory procedure, notice or announcement, including
any notice or announcement of intent to adopt or promulgate any ruling,
regulatory procedure or regulation (any of the foregoing, an "Administrative or
Judicial Action"), or (c) any amendment to, clarification of, or change in any
official position with respect to, or any interpretation of, an Administrative
or Judicial Action or a law or regulation of the United States that differs from
the theretofore generally accepted position or interpretation, in each case,
occurring on or after July 29, 1997, there is more than an insubstantial
increase in the risk that interest paid by BNSF on the BNSF Debentures is not,
or will not be, deductible, in whole or in part, by BNSF for United States
federal income tax purposes.
Distribution of the BNSF Debentures on Payment Default or Acceleration
If a Payment Default or an Acceleration with respect to the BNSF Debentures
occurs on or prior to August 1, 2017, the Trustee will make an in-kind
distribution (an "In-Kind Distribution") of the remaining BNSF Debentures to the
holders of the Residual Class Certificates and the Amortizing Class
Certificates. A "Payment Default" means a default in the payment of any amount
due on the BNSF Debentures from BNSF after the same becomes due and payable (and
the expiration of any applicable grace period on the BNSF Debentures). An
"Acceleration" means the acceleration of the maturity of the BNSF Debentures
following the occurrence of any default on the BNSF Debentures other than a
Payment Default, notwithstanding any subsequent rescission and annulment of such
Acceleration by the requisite holders of the entire series of BNSF Debentures.
The In-Kind Distribution will be made to the holders of Amortizing Class
Certificates and Residual Class Certificates on the basis of the Distribution
Ratio as of such Payment Default or Acceleration. Such ratio will be calculated
by the Calculation Agent. To the extent necessary to avoid a distribution of
BNSF Debentures in unauthorized denominations, the Trustee will cause the
liquidation in a commercially reasonable manner of such BNSF Debentures as are
necessary, and will distribute the proceeds therefrom to the holders of
Amortizing Class Certificates and Residual Class Certificates based on their
respective rights to BNSF Debentures in unauthorized denominations. An In-Kind
Distribution may be treated in whole or in part as equivalent to a taxable sale
or exchange. See "U.S. Federal Income Tax Consequences--Distributions." A table
showing the percentages of such distribution that would be distributable to the
Amortizing Class Certificates and the Residual Class Certificates, respectively,
assuming that such distribution occurs on a Scheduled Distribution Date, is
attached hereto as Appendix A.
Exchange of Certificates for BNSF Debentures
Any holder of both Amortizing Class Certificates and Residual Class
Certificates may, by delivery of a notice to the Trustee substantially in the
form of the Notice of Exchange attached to a Certificate (a "Notice of
Exchange") not less than 30 and not more than 45 days prior to any Scheduled
Distribution Date other than August 1, 2017, elect to exchange Certificates of
both Classes for the BNSF Debentures on such Scheduled Distribution Date (the
"Exchange Date"). In order to exercise such right, the holder shall tender to
the Trustee on the Exchange Date immediately succeeding such notice both (a)
Amortizing Class Certificates evidencing the percentage specified in the Notice
of Exchange (which shall not be less than 10%) of the aggregate Certificate
Principal Balance of all Amortizing Class Certificates then outstanding and (b)
Residual Class Certificates evidencing the same percentage of the aggregate
Certificate Principal Balance of all Residual Class Certificates then
outstanding as is represented by the Amortizing Class Certificates tendered by
such holder.
Upon tender of such Certificates, duly endorsed by the holder to the
Trustee, the Trustee shall transfer to the holder (or its designee specified in
the Notice of Exchange) a principal amount of BNSF Debentures comprising the
same percentage of the BNSF Debentures then held in the Trust as the percentage
of Amortizing Class Certificates and Residual Class Certificates tendered by
such holder on such Scheduled Distribution Date, rounded down to the nearest
authorized denomination of BNSF Debentures. Upon such exchange, the Trustee
shall cancel the tendered Certificates, provided that if the amount of the BNSF
Debentures delivered to the holder or its designee was rounded down in
accordance with the preceding sentence, the Trustee shall issue to such holder
new Certificates of each Class evidencing percentage interests of such Class
(regardless of whether such interests would otherwise be authorized
denominations) equal to the amount of such Class in excess of the amount
accepted for such exchange.
The delivery of a Notice of Exchange shall be irrevocable; provided,
however, that if (i) the proceeds of an Optional Redemption, a Shortened
Maturity Redemption or an In-Kind Distribution are to be distributed on the
Exchange Date to which such Notice of Exchange relates or (ii) if prior to such
Exchange Date, the Trustee gives notice to holders that the proceeds of an
Optional Redemption, a Shortened Maturity Redemption or an In-Kind Distribution
are scheduled to be distributed on a date subsequent to such Exchange Date, such
Notice of Exchange shall be automatically deemed canceled and be of no further
force and effect.
Any holder tendering Certificates in exchange for the BNSF Debentures on an
Exchange Date shall be entitled to receive cash distributions otherwise payable
on such Certificates on such Exchange Date.
Limitations on Beneficial Ownership of New Certificates.
Each registered holder of a New Certificate will be required to deliver to
the Trustee a certification (which will be included in the Letter of
Transmittal) upon purchase of the Certificate to the effect that the beneficial
owner thereof (whether such registered holder or the ultimate beneficiary for
whom it holds such Certificate) is (a) a qualified institutional buyer (as
defined in Rule 144A under the Securities Act) and (b) either (i) a United
States person or (ii) a non-United States person who is exempt from withholding
under U.S. federal income tax laws and has completed, accurately and in a manner
reasonably satisfactory to the Trustee or its agent, an appropriate statement
(generally on IRS Form W-8), signed under penalties of perjury, identifying the
holder and stating, among other things, that the holder is not a U.S. person
(or, after December 31, 1999, if the holder satisfied applicable documentary
evidence requirements for establishing that it is not a U.S. person) and
delivered such statement to the Trustee or its agent. Such registered holder
will be deemed to have represented and agreed with the Trustee that so long as
it is the registered holder of such Certificate, the beneficial owner thereof
will be a person described in clauses (b)(i) or (b)(ii) above and, in the event
of any change in the identity of the beneficial owner for whom such registered
holder is acting or any lapse of an appropriate statement (generally on IRS Form
W-8) previously delivered to the Trustee, it will promptly deliver a new
certification or an appropriate statement (generally on IRS Form W-8), as
applicable. In the event such representation is untrue or such current forms are
not so furnished, the Certificate held by such registered holder will be subject
to mandatory resale as described below.
If the Trustee determines that the deemed representation made by such
registered holder is incorrect or if such registered holder does not provide the
current Form W-8 as described above within ten days after the prior such Form
has lapsed, then, the Trustee will furnish a notice to such registered holder
stating that (i) such registered holder must, within 30 calendar days from the
date of such notice, effect the registration of transfer of its New Certificate
to a person that certifies that the beneficial owner of the Certificate is a
U.S. person or exempt from U.S. withholding tax as described above and (ii) if
such transfer does not occur by the thirtieth day, the registered holder will be
deemed to have appointed Prudential Securities and/or Prudential-Bache
Securities (U.K.) Inc. as its broker(s) to sell such registered holder's
certificate on its behalf to such an exempt person at a commercially reasonable
price (net of customary brokerage commissions) within the next succeeding five
business days.
The foregoing restrictions on transfer also apply to transfers conducted in
the secondary market.
DESCRIPTION OF THE TRUST AGREEMENT
General
The following summary of certain provisions of the Trust Agreement and the
Trust Certificates does not purport to be complete and such summary is qualified
in its entirety by reference to the detailed provisions of the Trust Agreement
incorporated by reference hereto as described under "Incorporation of Certain
Documents by Reference." Article and section references in parentheses below are
to articles and sections in the Trust Agreement. Wherever particular sections or
defined terms of the Trust Agreement are referred to, such sections or defined
terms are incorporated herein by reference as part of the statement made, and
the statement is qualified in its entirety by such reference.
The Trustee
The Bank of New York, a New York banking corporation, acts as trustee of
the Trust pursuant to the Trust Agreement. The Trustee's offices are located at
101 Barclay Street, 12th Floor East, New York, New York 10286, Attention:
Corporate Trust.
The Trust Agreement provides that the Trustee and any director, officer,
employee or agent thereof will be indemnified by PSSA and held harmless against
any loss, liability or expense incurred in connection with any legal action
relating to the Trust Agreement or the Trust Certificates or the performance of
the Trustee's duties under the Trust Agreement, other than any loss, liability
or expense (i) that constitutes a specific liability of the Trustee under the
Trust Agreement or (ii) incurred by reason of willful misfeasance, bad faith or
negligence in the performance of the Trustee's duties under the Trust Agreement
or as a result of a breach, or by reason of reckless disregard, of the Trustee's
obligations and duties under the Trust Agreement. Pursuant to the Trust
Agreement, as compensation for the performance of its duties thereunder, the
Trustee is entitled to payment of trustee fees and reimbursement of expenses by
PSSA pursuant to a separate agreement with PSSA, but shall not have any claim
against the Trust with respect thereto.
The Trustee makes no representations as to the validity or sufficiency of
the Trust Agreement, the New Certificates or the BNSF Debentures or any related
document. The Trustee is required to perform only those duties specifically
required under the Trust Agreement. However, upon receipt of the various
certificates, reports or other instruments required to be furnished to it, the
Trustee is required to examine such documents and to determine whether they
conform to the applicable requirements of the Trust Agreement.
The Trustee is unaffiliated with, but may have normal banking relationships
with, PSSA and its affiliates.
The Trust Agreement and, upon consummation of the Exchange Offer, the
provisions of the Trust Indenture Act of 1939, as amended, incorporated by
reference therein, contain limitations on the rights of the Trustee thereunder,
should it become a creditor of the Trust, to obtain payment of claims in certain
cases or to realize on certain property received by it in respect of any such
claims, as security or otherwise. The Trustee is permitted to engage in other
transactions; provided, however, that if it acquires any conflicting interest
(as defined) it must eliminate such conflict or resign.
Event of Default
There are no events of default with respect to the Trust Certificates.
Voting Rights
Voting rights will be allocated between the holders of Residual Class
Certificates, on the one hand, and the holders of Amortizing Class Certificates
on the other, respectively, at any date of determination in the same ratio as
(i) the present value of all originally scheduled future payments on the BNSF
Debentures after August 1, 2017 bears to (ii) the present value of all
originally scheduled future payments on the Amortizing Class Certificates,
discounted semiannually in each case at a rate of 7.90 percent per annum to the
date of determination. Such ratio will be calculated by the Calculation Agent.
All voting rights with respect to the Residual Class Certificates will be
allocated among all holders of Residual Class Certificates in proportion to the
respective Certificate Principal Balances of the then-outstanding Residual Class
Certificates held by such holders on any date of determination. All voting
rights with respect to the Amortizing Class Certificates will be allocated among
all holders of Amortizing Class Certificates in proportion to the respective
Notional Amounts of the then-outstanding Amortizing Class Certificates held by
such holders on any date of determination.
The required percentage of Voting Rights of those Classes of Trust
Certificates that are materially adversely affected by any modification or
amendment of the Trust Agreement necessary to consent to such modification or
amendment is 100%.
Voting with Respect to the BNSF Debentures
The Trustee, as the holder of the BNSF Debentures, has the right to vote
and give consents and waivers in respect of the BNSF Debentures as permitted by
the BNSF Debentures Indenture with respect thereto and except as otherwise
limited by the Trust Agreement. In the event that the Trustee receives a request
from BNSF for its consent to any amendment, modification or waiver of the BNSF
Debentures or any document relating thereto, or receives any other solicitation
for any action with respect to the BNSF Debentures, the Trustee shall mail a
notice of such proposed amendment, modification, waiver or solicitation to each
Certificateholder of record as of such date. The Trustee shall request
instructions from the holders of Amortizing Class Certificates and Residual
Class Certificates as to whether or not to consent to or vote to accept such
amendment, modification, waiver or solicitation. The Trustee shall consent or
vote, or refrain from consenting or voting, in the same proportion (based on the
relative Voting Rights of the Certificates) as the Certificates of the Trust
were actually voted or not voted by the holders of Amortizing Class Certificates
and Residual Class Certificates thereof as of a date determined by the Trustee
prior to the date on which such consent or vote is required; provided, however,
that, notwithstanding anything to the contrary herein, the Trustee shall at no
time vote in favor of or consent to any matter (i) which would alter the timing
or amount of any payment on the BNSF Debentures, including, without limitation,
any demand to accelerate the BNSF Debentures, (ii) which would result in the
exchange or substitution of any BNSF Debenture pursuant to a plan for the
refunding or refinancing of such BNSF Debenture, (iii) which would alter the
currency in which any payment is required to be made on the BNSF Debentures,
(iv) which would change the voting rights granted to holders of the BNSF
Debentures under the BNSF Debentures Indenture, or (v) which would impair in any
material respect any rights of the Trustee or holders of the BNSF Debentures to
enforce remedies against BNSF under the BNSF Debentures Indenture, except in
each case with the unanimous consent of the holders of Amortizing Class
Certificates and Residual Class Certificates, and subject to the requirement
that such vote or consent would not, based on an Opinion of Counsel, cause the
Trust to fail to be characterized as a grantor trust for U.S. federal income tax
purposes or result in a sale or exchange of any Certificate for federal income
tax purpose. The Trustee shall have no liability for any failure to act
resulting from the holders of Amortizing Class Certificates and Residual Class
Certificates' late return of, or failure to return, directions requested by the
Trustee from the holders of Amortizing Class Certificates and Residual Class
Certificates.
Modification and Waiver
The Trust Agreement may be amended by PSSA and the Trustee, without notice
to or consent of the holders of Trust Certificates, for certain purposes
including (i) to cure any ambiguity, (ii) to correct or supplement any provision
therein which may be inconsistent with any other provision therein, (iii) to add
or supplement any Credit Support (as defined in the Trust Agreement) for the
benefit of any holders of Trust Certificates, (iv) to add to the covenants,
restrictions or obligations of PSSA or the Trustee for the benefit of the
holders of Trust Certificates, (v) to add, change or eliminate any other
provisions with respect to matters or questions arising under such Trust
Agreement, or (vi) to comply with any requirements imposed by the Internal
Revenue Code of 1986 (the "Code"); provided that (x) any such amendment
described in (i) through (vi) will not, as evidenced by an Opinion of Counsel,
cause the Trust to fail to qualify as a grantor trust for federal income tax
purposes or result in a sale or exchange of any Certificate for tax purposes and
(y) the Trustee has received (1) a certificate of PSSA to the effect that such
amendment will not have a material adverse effect on any class of holders of
Trust Certificates and (2) written confirmation from each Rating Agency rating
such Trust Certificates, if any, that such amendment will not cause such Rating
Agency to reduce or withdraw the then current rating thereof. Without limiting
the generality of the foregoing, the Trust Agreement may also be modified or
amended from time to time by PSSA and the Trustee, with the consent of the
holders of Certificates of each class evidencing not less than the "Required
Percentage--Amendment" of the Voting Rights of those Trust Certificates of such
Classes that are affected by such modification or amendment for the purpose of
adding any provision to or changing in any manner or eliminating any provision
of the Trust Agreement or of modifying in any manner the rights of such holders
of Trust Certificates; provided that any such amendment shall not, as evidenced
by an Opinion of Counsel, cause the Trust to fail to qualify as a grantor trust
for federal income tax purposes.
No such modification or amendment may, however, (i) reduce in any manner
the amount of or alter the timing of, distributions or payments which are
required to be made on any Certificate without the consent of the holder of such
Trust Certificate or (ii) reduce the aforesaid Required Percentage of Voting
Rights required for the consent to any such amendment without the consent of the
holders of all Certificates covered by the Trust Agreement then outstanding.
Reports to Holders of Trust Certificates; Notices
Reports to Holders of Trust Certificates. With each distribution to holders
of Trust Certificates, the Trustee will forward or cause to be forwarded to each
such holder of Trust Certificates and to PSSA a statement setting forth: (i) the
amount of such distribution to holders of Trust Certificates of such Class
allocable to principal, if any, on the Trust Certificates of such Class; (ii)
the amount of compensation received by the Trustee for the period relating to
such Distribution Date, (iii) the aggregate stated principal amount or, if
applicable, notional principal amount of the BNSF Debentures and the current
interest rate thereon at the close of business on such Distribution Date; and
(iv) the aggregate Certificate Principal Balance or aggregate Notional Amount,
if applicable, of each Class of Trust Certificates at the close of business on
such Distribution Date, separately identifying any reduction in such aggregate
Certificate Principal Balance or aggregate Notional Amount due to the allocation
of any Realized Losses or otherwise. In the case of information furnished
pursuant to subclauses (i) and (ii) above, the amounts shall be expressed as a
U.S. dollar amount per minimum denomination of Trust Certificates or for such
other specified portion thereof. Subject to the occurrence of a Shortened
Maturity Redemption or an In-Kind Distribution, the holders of New Certificates
will receive no such reports until the distribution in-kind on August 1, 2017.
Within a reasonable period of time after the end of each calendar year, the
Trustee shall furnish to each person who at any time during the calendar year
was a holder of Trust Certificates a statement containing the information set
forth in subclauses (i) and (ii) above, aggregated for such calendar year or the
applicable portion thereof during which such person was a holder of Trust
Certificates. Such obligation of the Trustee shall be deemed to have been
satisfied to the extent that substantially comparable information shall be
provided by the Trustee pursuant to any requirements of the Code as are from
time to time in effect.
Notices. Any notice required to be given to a holder of a Registered
Certificate will be mailed to the address of such holder set forth in the
applicable Certificate Register.
Replacement Certificates
If a New Certificate is mutilated, destroyed, lost or stolen, it may be
replaced at the corporate trust office or agency of the applicable Trustee in
the City and State of New York, upon payment by the holder of such expenses as
may be incurred by the applicable Trustee in connection therewith and the
furnishing of such evidence and indemnity as such Trustee may require. Mutilated
Certificates must be surrendered before new Certificates will be issued.
Termination of the Trust
The Trust shall terminate upon the earliest of (i) the distribution of the
BNSF Debentures on August 1, 2017, (ii) the date of any Optional Redemption or
Shortened Maturity Redemption or (iii) the date of an In-Kind Distribution.
The final distribution will be made only upon surrender and cancellation of
the Trust Certificates at an office or agency appointed by the Trustee.
Governing Law
The Trust Agreement and the Trust Certificates will be governed by, and
construed in accordance with, the laws of the State of New York without
reference to such State's principles of conflicts of law. Upon consummation of
the Exchange Offer, the Trust Agreement will be subject to the provisions of the
Trust Indenture Act of 1939, as amended, that are required to be part of the
Trust Agreement and will, to the extent applicable, be governed by such
provisions.
U.S. FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of U.S. federal income tax consequences material
to the purchase, ownership and disposition of Trust Certificates and the
exchange of Old Certificates for New Certificates (the "Exchange") pursuant to
the Exchange Offer. The summary does not purport to be a comprehensive
description of all of the tax consequences that may be relevant to a decision to
purchase Trust Certificates by any particular investor, including tax
consequences that arise from rules of general application to all taxpayers or to
certain classes of taxpayers or that are generally assumed to be known by
investors. Thus, for example, except where otherwise noted, the discussion below
is addressed to holders that are "U.S. persons" and that hold Trust Certificates
as capital assets. It does not discuss state, local or foreign tax consequences,
nor does it discuss all the tax consequences that may be relevant to a holder
subject to special rules, including dealers in securities or commodities, banks,
savings and loan associations and similar financial institutions, tax-exempt
organizations, insurance companies, taxpayers that hold Trust Certificates as
part of a hedged or integrated transaction (such as a "straddle" or "conversion
transaction") for U.S. federal income tax purposes, or taxpayers whose
functional currency is other than the U.S. dollar. It also does not discuss tax
consequences for individuals or entities taxed as individuals. The discussion
below is based on the Code and the regulations issued thereunder, and
interpretations of law, rulings and decisions currently in effect, all of which
are subject to change. Any such change may be applied retroactively, and may
adversely affect the U.S. federal income tax consequences described herein.
The term "U.S. person" means a citizen or resident of the United States, a
corporation, partnership or other entity created or organized in or under the
laws of the United States or any political subdivision thereof, an estate the
income of which is subject to U.S. federal income taxation regardless of its
source, or a trust if (i) a U.S. court is able to exercise primary supervision
over the trust's administration and (ii) one or more U.S. persons have the
authority to control all of the trust's substantial decisions.
Prospective holders should consult their tax advisors as to the U.S.
federal tax consequences to them of the Exchange, and of acquiring, holding and
disposing of Trust Certificates, including, in particular, the application in
their particular circumstances of the tax consequences discussed below, as well
as the application of state, local, foreign or other tax laws.
Exchange of Old Certificates for New Certificates
In the opinion of Cleary, Gottlieb, Steen & Hamilton, the Exchange will not
be a taxable event for U.S. federal income tax purposes. As a result, a holder
of an Old Certificate whose Old Certificate is accepted in the Exchange Offer
will not recognize gain on the Exchange. The New Certificates will have the same
"issue price" (and "adjusted issue price" immediately after the Exchange) as the
Old Certificates, and each tendering holder will have the same adjusted basis
and holding period in the New Certificates as it had in the Old Certificates
immediately before the Exchange.
Characterization of the Trust
For U.S. federal income tax purposes, the Trust will not be treated as an
association taxable as a corporation (or a publicly traded partnership treated
as an association) in the opinion of Cleary, Gottlieb, Steen & Hamilton.
Although the characterization of the Trust is not certain, the Trust should be
treated for U.S. federal income tax purposes as a grantor trust, and the Trustee
intends to report income, gain, loss and deductions to the Internal Revenue
Service ("IRS") on that basis. If the Trust were not classified as a grantor
trust, it would be classified as a partnership. As a consequence, the Trust will
not be subject to U.S. federal income taxation.
Prospective investors should be aware that no rulings have been or are
expected to be sought from the IRS with respect to the classification of the
Trust (or any of the other U.S. federal income tax consequences discussed in
this summary) and there can be no assurance that the IRS will agree with the
characterization of the Trust as a grantor trust (or with the other U.S. federal
income tax consequences discussed herein). See "--Alternative
Characterizations." Accordingly, prospective purchasers are urged to consult
their tax advisers regarding the U.S. federal income tax classification of the
Trust.
Under the U.S. federal income tax rules applicable to grantor trusts, a
holder of a Trust Certificate will be treated as owning the rights to those
payments on the BNSF Debentures that are allocable to that Trust Certificate.
The sale of a Trust Certificate will be considered a sale of a holder's interest
in those payments. In addition, a holder may deduct its pro rata share of the
fees and other deductible expenses paid by the Trust, at the same time and to
the same extent as such items would be deducted by the holder if the holder paid
directly a pro rata portion of the amounts paid by the Trust.
The BNSF Debentures Prospectus indicates that the BNSF Debentures
underlying the Trust Certificates were sold based on BNSF's belief that they
constitute indebtedness of BNSF for U.S. federal income tax purposes. The
following discussion is based on the assumption that the BNSF Debentures will
constitute debt instruments in their entirety. Except for the discussion under
"--Alternative Characterizations," the following also assumes that the Trust
will be classified as a grantor trust.
Purchase and Holding of Trust Certificates
A purchaser of a Trust Certificate will be treated as having acquired the
rights to those payments on the BNSF Debentures that are allocable to that Trust
Certificate and will be taxed under the "stripped bond" rules of the Code. The
holder will be treated as having purchased a newly issued, single debt
instrument providing for payments equal to the payments on the BNSF Debentures
allocable to the Trust Certificate, and having original issue discount ("OID")
equal to the excess of the sum of such payments over the holder's purchase price
for the Trust Certificate (which would be treated as the "issue price"). In
determining the purchase price for a Trust Certificate for this purpose, a
portion of the purchase price of the Trust Certificate may be separately
allocated to amounts held by the Trust pending distribution to holders (the
recovery of which amounts would not be taxable). Any such allocation would
reduce the amount paid for (and the amount payable on) such Trust Certificate.
Under the OID rules, in general, each holder of a Trust Certificate,
whether such holder uses the cash or the accrual method of tax accounting, will
be required to include in ordinary gross income the sum of the "daily portions"
of OID on the Trust Certificate for all days during the taxable year that the
holder owns the Trust Certificate. The daily portions of OID on a Trust
Certificate are determined by allocating to each day in any accrual period a
ratable portion of the OID allocable to that accrual period. Accrual periods may
be any length and may vary in length over the term of a Trust Certificate,
provided that no accrual period is longer than one year and each scheduled
payment of principal or interest occurs on either the final day or the first day
of an accrual period. The amount of OID on a Trust Certificate allocable to each
accrual period is determined by multiplying the "adjusted issue price" of the
Trust Certificate at the beginning of the accrual period by the yield to
maturity of such Trust Certificate (appropriately adjusted to reflect the length
of the accrual period). The yield to maturity of a Trust Certificate is the
discount rate that causes the present value of all payments on the Trust
Certificate as of its issue date to equal the issue price of such Trust
Certificate. The "adjusted issue price" of a Trust Certificate at the beginning
of any accrual period will generally be the sum of its issue price and the
amount of OID allocable to all prior accrual periods, reduced by the amount of
all payments made with respect to such Trust Certificate in all prior accrual
periods.
Because holders of Residual Class Certificates will not be receiving
current distributions, OID will be includible as income prior to the receipt of
cash attributable to such income and the amount of OID includible in income will
increase each year.
It is not clear how the possibility of a Shortened Maturity Redemption or
an Optional Redemption, and the resulting distribution to Amortizing Class
Certificate holders of a portion of the payment received by the Trust on the
Shortened Maturity Date or Optional Redemption Date, as the case may be, should
be taken into account for purposes of determining the taxation of holders at,
and prior to, the Shortened Maturity Date or Optional Redemption Date
(including, but not limited to, the amount of OID required to be included by
holders in ordinary gross income). The Trustee intends to take the position that
the possibility of a Shortened Maturity Redemption or Optional Redemption should
not affect the U.S. federal income tax consequences to holders prior to the
Shortened Maturity Date or Optional Redemption Date. Under this treatment, if
the maturity of the BNSF Debentures was shortened as a result of a Shortened
Maturity Redemption, a holder would be treated, solely for OID purposes, as
acquiring a newly issued OID bond, and would be required to determine OID on the
newly issued bond taking into account the Shortened Maturity Date and the amount
required to be distributed to the holder on that date. The amount of OID
required to be included in the holder's ordinary gross income as a result of the
redetermination could be more or less than the amount determined without taking
into account the Shortened Maturity Redemption. In addition, under this
treatment, if the maturity of the BNSF Debentures was shortened as a result of
an Optional Redemption, a holder would be treated as disposing of the BNSF
Debentures in whole, in the case of an Optional Redemption of all of the BNSF
Debentures, or in part, in the case of an Optional Redemption of less than all
of the BNSF Debentures, on the Optional Redemption Date with the consequences
described below under "--Sale or Exchange of Certificates or BNSF Debentures."
There can be no assurance, however, that the IRS will not take a different
position on the effect of a potential Shortened Maturity Redemption or Optional
Redemption, which position may have less favorable tax consequences. See
"-Alternative Characterizations." Prospective purchasers should consult their
tax advisers with respect to the effect of a potential Shortened Maturity
Redemption or Optional Redemption.
The Trust currently intends, for information reporting purposes, to account
for OID reportable by holders of Trust Certificates by reference to the first
price at which a substantial amount of the Trust Certificates is sold to
purchasers (other than Prudential Securities), even though the amount of OID
will differ for subsequent purchasers. Such prospective purchasers should
consult their tax advisers regarding the proper calculation of OID.
Distributions
Cash distributions on the Trust Certificates and the distribution of the
BNSF Debentures on August 1, 2017, to Residual Class Certificate holders will
not be subject to additional taxation. An In-Kind Distribution may be treated in
whole or in part as equivalent to a sale or exchange.
Optional Exchange of Certificates for the BNSF Debentures
The distribution of a principal amount of the BNSF Debentures comprising a
specified percentage of the BNSF Debentures then held in the Trust in exchange
for the same percentage of Amortizing Class Certificates and Residual Class
Certificates, and the issuance of new Certificates, if any, evidencing smaller
equal percentage interests of each such Class will not be subject to additional
taxation. The treatment of a holder that exchanges such Certificates for the
BNSF Debentures is unclear. The provisions of the Code and Treasury regulations
relating to stripped bonds do not specifically provide authority or a mechanism
for ceasing to apply the stripped bond rules under such circumstances. It
therefore appears likely that such a holder would be required to continue to
report income, gain or loss on the BNSF Debentures so acquired in the same
manner as if it still held the Certificates surrendered in exchange for the BNSF
Debentures.
Sale or Exchange of Certificates or BNSF Debentures
A Certificateholder's tax basis in a Certificate generally will equal the
cost of the Certificate increased by any amounts includible in income as OID,
and reduced by any payments made on the Certificate.
Upon the sale or exchange of a Certificate, a holder generally will
recognize gain or loss equal to the difference between the amount realized on
the sale or exchange and the holder's tax basis in the Certificate. Gain or loss
recognized by a holder on the sale or exchange of a Certificate generally will
be capital gain or loss, and will be long-term capital gain or loss if the
holder is considered to have held the Certificate for more than one year at the
time of the disposition. Long-term capital gain recognized by an individual
holder generally will be subject to a maximum rate of 20 percent in respect of
Trust Certificates held for more than one year.
A holder will recognize gain or loss on any sale by the Trust of the BNSF
Debentures, including in connection with an In-Kind Distribution or pursuant to
an Optional Redemption of all or part of the BNSF Debentures, equal to the
difference between the portion of the amount realized on the sale allocable to
the holder and the allocable portion of the holder's basis in the Certificate.
In the event of an Optional Redemption of less than all of the BNSF Debentures,
a holder will calculate gain or loss by assuming that the BNSF Debentures
consist of two debt instruments, one of which is retired and one of which
remains outstanding. The adjusted issue price, holder's adjusted basis and
accrued but unpaid OID of the BNSF Debentures, determined immediately before the
partial Optional Redemption, will be allocated between those two instruments
based on the portion of the BNSF Debentures that is treated as retired by the
partial Optional Redemption.
Alternative Characterizations
As noted above, there can be no assurance that the IRS will agree with the
characterization of the Trust as a grantor trust. It is possible that the IRS
could seek to classify the Trust as a partnership, although even if the IRS were
successful the Trust would not be subject to U.S. federal income tax. While not
certain, if the Trust is classified as a partnership, it should be eligible for
the election out of the partnership tax rules of subchapter K of the Code, under
Treasury Regulation Section 1.761-2. In mutual consideration for each holder's
purchase of a Trust Certificate, each holder of a Trust Certificate is deemed to
have consented to the making of such a protective election as of the date of
formation of the Trust. As a result of the election, each holder of a Trust
Certificate would be required to report its respective share of the items of
income, deductions and credits of the Trust on its respective U.S. federal
income tax return in a manner substantially similar to the U.S. federal income
tax reporting required under the grantor trust rules. However, if the Trust were
not eligible to make the election, the method of taxation of holders of Trust
Certificates could differ significantly from the treatment described in this
summary. Among those differences, (i) the Trust would be required to account for
its income and deductions at the Trust level, and to utilize a taxable year for
reporting purposes, (ii) income from the BNSF Debentures would be taxed under
the rules of the Code applicable to whole debt instruments rather than under the
"stripped bond" rules described above, and (iii) each holder would be required
to separately take into account such holder's distributive share of income and
deductions of the Trust. A holder would take into account its distributive share
of Trust income and deductions for each taxable year of the Trust in the
holder's taxable year which ends with or within the Trust's taxable year.
Prospective purchasers are urged to consult their tax advisers regarding the
U.S. federal income tax classification of the Trust.
Adverse tax consequences might also result if the IRS takes a different
position than the position described above under "--Purchase and Holding of
Trust Certificates" with respect to the effect on holders of a potential
distribution to Amortizing Class Certificate holders of a portion of the payment
received by the Trust on an Optional Redemption Date or a Shortened Maturity
Date. For example, the IRS might treat the Amortizing Class Certificate as a
right to payments on the BNSF Debentures coupled with a separate agreement, in
the nature of a put option, between Amortizing Class Certificate holders, on the
one hand, and Residual Class Certificate holders, on the other hand. Under this
characterization, an Optional Redemption or Shortened Maturity Redemption would
be a taxable event. Moreover, the existence of a deemed put option might trigger
the Code's "straddle" rules, in which case, among other matters, gain or loss on
the sale of a Trust Certificate would be short-term capital gain or loss
regardless of the period during which the holder held the Trust Certificate.
Non-U.S. Holders
A holder that is not a U.S. person and that is not subject to U.S. federal
income tax as a result of any direct or indirect connection to the United States
other than its ownership of a Trust Certificate will not be subject to United
States income or withholding tax, except as described below and under
"--Information Reporting and Backup Withholding," in respect of interest income
or gain on the BNSF Debentures if the holder provides an appropriate statement
(generally on IRS Form W-8), signed under penalties of perjury, identifying the
holder and stating, among other things, that the holder is not a U.S. person
(or, after December 31, 1999, if the holder satisfied applicable documentary
evidence requirements for establishing that it is not a U.S. person) and if the
holder is not a "10-percent shareholder" or related "controlled foreign
corporation" with respect to BNSF. If these conditions are not met, a 30 percent
withholding tax will apply to interest income from the Trust Certificates,
unless an income tax treaty reduces or eliminates such tax or unless the
interest is effectively connected with the conduct of a trade or business within
the United States by such holder. In the latter case, such holder will be
subject to U.S. federal income tax with respect to all income from the BNSF
Debentures at regular rates applicable to U.S. taxpayers.
A holder that is not a U.S. person may also be subject to U.S. federal
income taxation with respect to a Trust Certificate if it is a personal holding
company, a corporation that accumulates earnings to avoid U.S. taxes on
shareholders or a private foundation under the Code.
Information Reporting and Backup Withholding
The Trustee will furnish or make available to each party registered during
such calendar year as a holder, such information as is required under the Code
or regulations under the Code to enable each holder to file its U.S. federal
income tax returns.
Certain holders that are U.S. persons or that otherwise are subject to
United States federal income taxation on a net income basis in respect of the
Note ("U.S. holders") may be subject to a 31 percent backup withholding tax in
respect of distributions made on a Trust Certificate and proceeds from the sale
of a Trust Certificate to or through certain brokers if they do not provide
their taxpayer identification numbers (generally on IRS Form W-9). Persons who
are not U.S. holders may be required to comply with applicable certification
procedures to establish that they are not U.S. holders in order to avoid the
application of information reporting requirements and backup withholding tax.
Any amounts so withheld from distributions on the Trust Certificate would be
allowed as a credit against the holder's U.S. federal income tax liability, or
upon application by the holder to the IRS, would be refunded by the IRS to the
extent it exceeds such liability.
PLAN OF DISTRIBUTION
Each broker or dealer that receives New Certificates for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Certificates. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker or dealer in connection with resales of New Certificates received in
exchange for Old Certificates where such Old Certificates were acquired as a
result of market-making activities or other trading activities. PSSA has agreed
that it will make this Prospectus, as amended or supplemented, available to any
broker or dealer for use in connection with any such resale for a period of one
year. In addition, until such date, all brokers or dealers effecting
transactions in the New Certificates may be required to deliver a prospectus.
PSSA will not receive any proceeds from any sale of New Certificates by
brokers or dealers. New Certificates received by brokers or dealers for their
own account pursuant to the Exchange Offer may be sold from time to time in one
or more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the New Certificates or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to purchasers or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
broker or dealer and/or the purchasers of any such New Certificates. Any broker
or dealer that resells New Certificates that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such New Certificates may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of New Certificates and any commissions or concessions received by
any such persons may be deemed to be underwriting compensation under the
Securities Act. The Letter of Transmittal states that by acknowledging that it
will deliver and by delivering a prospectus, a broker or dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act.
Starting on the Expiration Date, PSSA will promptly send additional copies
of this Prospectus and any amendment or supplement to this Prospectus to any
broker or dealer that requests such documents in the Letter of Transmittal. PSSA
has agreed to pay all expenses incident to the Exchange Offer (including the
expenses of one counsel for the Holders of the Certificates) other than
commissions or concessions of any brokers or dealers and will indemnify the
Holders of the New Certificates (including any broker or dealers) against
certain liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the New Certificates and certain United States federal
income taxation matters will be passed upon for the Trust by Cleary, Gottlieb,
Steen & Hamilton, New York, New York.
INDEX OF DEFINED TERMS
Administrative Action............................................. 7
Acceleration...................................................... 22
Amortizing Class Certificates..................................... 6
Available Funds................................................... 21
Calculation Agent................................................. 6
Certificate Principal Balance..................................... 20
Certificateholder Exchange Right.................................. 7
Code.............................................................. 25
Collection Period................................................. 21
Commission........................................................ cover
EDGAR............................................................. 1
Eligible Institution.............................................. 17
Exchange.......................................................... 26
Exchange Act...................................................... 1
Exchange Agent.................................................... 5
Exchange Offer.................................................... cover
Exchange Offer No-Action Letters.................................. cover
Exchange Offer Registration Statement............................. 14
Expiration Date................................................... cover
Fixed Payment..................................................... 5
BNSF.............................................................. cover
BNSF Debentures................................................... cover
BNSF Debentures Indenture......................................... 7
BNSF Debentures Prospectus........................................ cover
BNSF Debentures Registration Statement............................ 2
BNSF Debentures Series............................................ 12
BNSF Debentures Trustee........................................... 13
holder............................................................ 17
In-Kind Distribution.............................................. 22
IRS............................................................... 27
Letter of Transmittal............................................. cover
Shortened Maturity Redemption..................................... cover
New Certificates.................................................. cover
NYSE.............................................................. 18
OID............................................................... 28
Old Certificates.................................................. cover
Optional Redemption............................................... 6
Payment Default................................................... 22
PSGI.............................................................. 2
Prudential Securities............................................. cover
PSSA.............................................................. cover
Registration Rights Agreement..................................... cover
Registration Statement............................................ 1
Restricted Broker-Dealer.......................................... cover
Residual Class Certificates....................................... 6
Rule 3a-7......................................................... 5
Securities Act.................................................... cover
Shelf Registration Statement...................................... 15
Shortened Maturity Date........................................... cover
Tax Event......................................................... 7
Trust............................................................. cover
Trust Agreement................................................... cover
Trust Certificates................................................ cover
Trustee........................................................... cover
U.S. holders...................................................... 30
U.S. person....................................................... 27
<PAGE>
APPENDIX A
Relative Percentages Distributable upon Optional Redemption,
Shortened Maturity Redemption or In-Kind Distribution *
DEFAULT JUST PRIOR DEFAULT JUST AFTER
TO INTEREST PAYMENT INTEREST PAYMENT
------------------------- ---------------------------
Amortizing Step-up Amortizing Step-up
Date Tranche Tranche Tranche Tranche
---- ------- ------- ------- -------
February 1, 1999 74.16% 25.84% 73.22% 26.78%
August 1, 1999 73.22% 26.78% 72.25% 27.75%
February 1, 2000 72.25% 27.75% 71.24% 28.76%
August 1, 2000 71.24% 28.76% 70.20% 29.80%
February 1, 2001 70.20% 29.80% 69.12% 30.88%
August 1, 2001 69.12% 30.88% 68.00% 32.00%
February 1, 2002 68.00% 32.00% 66.84% 33.16%
August 1, 2002 66.84% 33.16% 65.64% 34.36%
February 1, 2003 65.64% 34.36% 64.39% 35.61%
August 1, 2003 64.39% 35.61% 63.10% 36.90%
February 1, 2004 63.10% 36.90% 61.77% 38.23%
August 1, 2004 61.77% 38.23% 60.38% 39.62%
February 1, 2005 60.38% 39.62% 58.94% 41.06%
August 1, 2005 58.94% 41.06% 57.45% 42.55%
February 1, 2006 57.45% 42.55% 55.91% 44.09%
August 1, 2006 55.91% 44.09% 54.31% 45.69%
February 1, 2007 54.31% 45.69% 52.66% 47.34%
August 1, 2007 52.66% 47.34% 50.94% 49.06%
February 1, 2008 50.94% 49.06% 49.16% 50.84%
August 1, 2008 49.16% 50.84% 47.32% 52.68%
February 1, 2009 47.32% 52.68% 45.41% 54.59%
August 1, 2009 45.41% 54.59% 43.43% 56.57%
February 1, 2010 43.43% 56.57% 41.38% 58.62%
August 1, 2010 41.38% 58.62% 39.26% 60.74%
February 1, 2011 39.26% 60.74% 37.06% 62.94%
August 1, 2011 37.06% 62.94% 34.77% 65.23%
February 1, 2012 34.77% 65.23% 32.41% 67.59%
August 1, 2012 32.41% 67.59% 29.96% 70.04%
February 1, 2013 29.96% 70.04% 27.42% 72.58%
August 1, 2013 27.42% 72.58% 24.79% 75.21%
February 1, 2014 24.79% 75.21% 22.06% 77.94%
August 1, 2014 22.06% 77.94% 19.24% 80.76%
February 1, 2015 19.24% 80.76% 16.31% 83.69%
August 1, 2015 16.31% 83.69% 13.28% 86.72%
February 1, 2016 13.28% 86.72% 10.13% 89.87%
August 1, 2016 10.13% 89.87% 6.87% 93.13%
February 1, 2017 6.87% 93.13% 3.50% 96.50%
August 1, 2017 3.50% 96.50% 0.00% 100.00%
_______________
* The proceeds of any Optional Redemption, Shortened Maturity Redemption,
or In-Kind Distribution occurring on any of the above Scheduled Distribution
Dates with respect to the BNSF Debentures will be allocated according to the
above percentages if such proceeds are distributed on the above Scheduled
Distribution Dates. The proceeds of any such event occurring on dates
other than Scheduled Distribution Dates will be distributed in accordance
with the ratio described in the Prospectus.
<PAGE>
====================================== =====================================
No person has been authorized to give
any information or to make any
representations other than those
contained or incorporated by reference
in this Prospectus and the accompanying
Letter of Transmittal and, if given or
made, such information or
representations must not be relied upon Receipts on Corporate
as having been authorized by the Trust, Securities Trust,
PSSA or the Exchange Agent. Neither this Series BNSF 1998-1
Prospectus nor the accompanying Letter
of Transmittal, or both together, Offer to Exchange
constitute an offer to sell or the Receipts on Corporate Securities,
solicitation of an offer to buy Series BNSF 1998-1, Residual Class
securities in any jurisdiction to any
person to whom it is unlawful to make which have been registered under the
such offer or solicitation. Neither the Securities Act of 1933, as amended,
delivery of this Prospectus, nor the
accompanying Letter of Transmittal, or for any and all outstanding
both together, nor any sale made Receipts on Corporate Securities,
hereunder shall, under any Series BNSF 1998-1, Residual Class
circumstances, create an implication
that there has been no change in the
affairs of the Trust since the date
hereof or thereof or that the January 12, 1999
information contained herein is correct
at any time subsequent to the date
hereof or thereof.
TABLE OF CONTENTS
Page
----
Available Information.....................1
Incorporation of Certain Documents
by Reference.........................1
Prospectus Summary........................2
Risk Factors.............................10
Use of Proceeds..........................11
Formation of the Trust...................11
Description of the Trust Assets..........12
The Exchange Offer.......................16
Description of the New Certificates......21
Description of the Trust Agreement.......26
U.S. Federal Income Tax Consequences.....29
Plan of Distribution.....................33
Legal Matters............................33
Index of Defined Terms...................34
Appendix A -- Allocation Schedule........A-1
====================================== =====================================
