<PAGE> 1
As Filed Pursuant to Rule 424(b)(2)
Registration No. 333-71667-04
The information in this prospectus is not complete and may be changed. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. This prospectus is not an offer to sell
these securities and it is not soliciting an offer to buy these securities in
any state where the offer of sale is not permitted.
SUBJECT TO COMPLETION, DATED DECEMBER 29, 1999
PROSPECTUS
TARGETS
TRUST V
- ---------------------
TARGETED GROWTH With respect to the common stock of
ENHANCED TERMS SECURITIES Sun Microsystems, Inc.
(TARGETS(R)) Due on , 2003
$ per TARGETS
Guaranteed by
Salomon Smith Barney Holdings Inc.
* Preferred securities of a trust paying:
1. Quarterly distributions in the amount of $ , and
2. A maturity payment based on the market price of the common stock of
Sun Microsystems
* We will apply to list the TARGETS on the Chicago Board Options
Exchange under the symbol "TSW".
Investing in the TARGETS involves a number of risks. See "Risk Factors"
beginning on page 15.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the TARGETS or determined that this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
Per
TARGETS Total
- --------------------------------------------------------------------------------
Public Offering Price $ $
- --------------------------------------------------------------------------------
Underwriting Discount to be paid by Salomon Smith Barney Holdings $ $
- --------------------------------------------------------------------------------
Proceeds to TARGETS Trust V before expenses $ $
- --------------------------------------------------------------------------------
TARGETS Trust V has granted to Salomon Smith Barney, Inc., as underwriter, an
option, exercisable for 30 days from the date of this prospectus, to purchase
up to additional TARGETS at the public offering price.
SALOMON SMITH BARNEY
--------------------
, 2000 A member of citigroup [LOGO]
<PAGE> 2
TARGETS(R) (Targeted Growth Enchanced Terms Securities)
SUMMARY
This summary highlights selected information from this prospectus to help
you understand the TARGETS with respect to the common stock of Sun Microsystems,
Inc. You should carefully read the entire prospectus to fully understand the
terms of the TARGETS as well as the principal tax and other considerations that
are important to you in making a decision about whether to invest in the
TARGETS. You should, in particular, carefully review the section entitled "Risk
Factors", which high-lights a number of risks, to determine whether an
investment in the TARGETS is appropriate for you. All of the information set
forth below is qualified in its entirety by the more detailed explanation set
forth elsewhere in this prospectus.
General
TARGETS are preferred securities issued by a trust that offer a potential
growth and income investment opportunity. TARGETS provide the growth potential
of a particular stock in any given quarter up to an appreciation cap price that
is subject to automatic resets. Although the growth potential of an investment
in the TARGETS is capped, TARGETS investors receive quarterly distributions
with a yield greater than the underlying stock's current dividend yield.
TARGETS have a term of approximately 3 years.
Selected Purchase Considerations
* Growth Potential -- TARGETS allow you to participate in approximately the
first 20% of appreciation in the price of the stock on which they are based
in any quarter.
* Current Income -- TARGETS pay quarterly distributions with a yield set at a
rate that is significantly higher than the dividend yield currently paid by
the company on whose stock the TARGETS are based.
* Tax Advantages -- For most investors, a relatively large portion of the
TARGETS' quarterly distributions will be considered a tax-free return of
principal. In addition, the TARGETS generally will be subject to capital
asset treatment upon sale or at maturity. These tax advantages of the
TARGETS have the potential effect of producing a higher after-tax return than
would be produced by a more conventional income-generating security.
* Exchange Listing -- Although the TARGETS are expected to be "buy and hold"
investments, they are listed on a major exchange.
Selected Risk Considerations
An investment in the TARGETS involves significant risks. These risks
are explained in more detail in the "Risk Factors" section of this prospectus.
Some are summarized here.
* Your Investment in the TARGETS Will Result in a Loss if the Price of the
Common Stock Declines -- Since the maturity payment on the TARGETS is linked
to the price of the underlying stock, if the price of underlying stock falls,
the maturity payment could be less than your initial investment, even if the
price of the underlying stock at some point over the life of the TARGETS
exceeds the price of the underlying stock at the time of your initial
investment.
* Your Investment in the TARGETS May Result in a Loss even if the Price of the
Common Stock Rises -- The maturity payment on the TARGETS is dependent on the
exchange rate at maturity. The exchange rate is subject to quarterly resets
and will be reduced if the price of the common stock on any reset date
exceeds the prevailing appreciation cap. As a result, the amount of any
maturity payments may be less than the amount you paid for your TARGETS even
if the price of the common stock at maturity is equal to, or higher than, the
price of the common stock at the time you bought your TARGETS.
* The Appreciation of Your Investment in the TARGETS Will Be Capped -- The
TARGETS provide less opportunity for equity appreciation than a direct
investment in the common stock because the appreciation cap (as reset
quarterly) will operate to limit the portion of any appreciation in the price
of the common stock in which you will share to approximately the first 20% of
the increase in any quarter, but will not limit your exposure to any
depreciation in the price of the common stock. If the price of the common
stock increases by more than 20% in any single quarter during the term of the
TARGETS, your return on the TARGETS will therefore be less than your return
on a similar security that was directly linked to the common stock but was
not subject to an appreciation cap.
* If the Exchange Rate Is Reset, You Will Receive Less At Maturity Than You
would have Received Had the Exchange Rate Not Been Reset -- Any reset of the
exchange rate will lower the exchange rate from its initial value of 0.20,
and every subsequent periodic reset of the exchange rate will further lower
the exchange rate. Each time the exchange rate is reset and a lower rate is
in effect, any subsequent resets will never cause the exchange rate to rise
above this lower rate. If the exchange rate is reset at any time, you will
receive less at maturity than you would have received if the exchange rate
had never been reset.
* You Have No Rights Against Sun Microsystems Even Though the Maturity Payment
on the TARGETS Is Based on the Price of Sun Microsystems' Stock -- The market
price of the TARGETS at any time will be affected primarily by changes in the
price of the underlying stock. The yield on the TARGETS is set at a rate that
is higher than the current dividend yield on the underlying stock, but may
not remain higher through the term of the TARGETS is Sun Microsystems
increases its dividends. Sun Microsystems is not involved in this offering
and has no obligations relating to the TARGETS.
* You May Not Be Able to Sell Your TARGETS if an Active Trading Market for the
TARGETS Does Not Develop -- TARGETS will be listed on a major exchange, but
there can be no guarantee of liquidity in the secondary market. Although
Salomon Smith Barney Inc. intends to make a market in the TARGETS, it is not
obligated to do so.
* The Price at Which you Will Be Able to Sell Your TARGETS Prior to Maturity
may Be Substantially less Than the Amount You Originally Invest -- Due to
changes in the price of and the dividend yield on the underlying stock,
interest rates, other economic conditions and Salomon Smith Barney Holdings'
perceived creditworthiness, the TARGETS may trade at prices below their
initial issue price and you could receive substantially less than the amount
of your original investment if you sell your TARGETS prior to maturity.
<PAGE> 3
TARGETS TRUST V
TARGETS Trust V is a recently formed Delaware business trust. Salomon Smith
Barney Holdings will own all of the common securities of Trust V. The common
securities will comprise at least 3% of Trust V's capital.
Trust V will not engage in any activities except:
- issuing TARGETS and common securities,
- investing approximately 85% to 90% of the proceeds of the offering
($ ) in a forward contract of Salomon Smith Barney Holdings
relating to the common stock of Sun Microsystems,
- investing approximately 10% to 15% of the proceeds of the offering
($ ) in stripped self-amortizing U.S. treasury securities, and
- activities incidental to the above.
Trust V will not issue any securities except the common securities and the
TARGETS.
Trust V will be managed by trustees elected by Salomon Smith Barney
Holdings, as the holder of the common securities. The holders of the TARGETS
have no right to elect or remove trustees. Salomon Smith Barney Holdings will
pay all costs, expenses, debts and liabilities of Trust V, including fees and
expenses related to the offering of the TARGETS, but not including payments
under the TARGETS.
The address and telephone number of Trust V are:
TARGETS Trust V
c/o Salomon Smith Barney Holdings Inc.
388 Greenwich Street
New York, NY 10013
(212) 816-6000
THE TARGETS
The TARGETS are preferred undivided interests in Trust V. The TARGETS
mature on , 2003, but will be subject to acceleration to an
accelerated maturity date upon the occurrence of one of the acceleration events
described below. If an acceleration event occurs or Salomon Smith Barney
Holdings defaults on its guarantee, holders of the TARGETS will have a
preference over holders of the common securities for payments.
The TARGETS are designed to provide you with a higher yield than the
current dividend yield paid on the common stock of Sun Microsystems while also
providing the opportunity for holders to share in a portion of any appreciation
in the price of the common stock during a particular quarter up to a resettable
appreciation cap. The appreciation cap will initially be set at a price per
share equal to 120% of the closing price of the common stock on the date the
TARGETS are priced for initial sale to the public and will be reset each
quarter, as explained more fully below. The application of the appreciation cap,
and the related exchange rate (also subject to quarterly downward resets as
explained more fully below), allows you to participate in approximately the
first 20% of appreciation in the price of the common stock of Sun Microsystems
in any quarter during the term of the TARGETS, but will not limit your exposure
to any depreciation in the price of the common stock. Details of the actual
appreciation cap and exchange rate will be provided to you in the final
prospectus.
QUARTERLY DISTRIBUTIONS
You will receive cash distributions of $ per quarter on each TARGETS
(except that the quarterly distribution payment payable on May 15, 2000 will be
$ per TARGETS), payable on each February 15, May 15, August 15, November
15, beginning May 15, 2000.
3
<PAGE> 4
Trust V will make quarterly distribution payments out of:
- payments received on the treasury securities, and
- any yield enhancement payments received from Salomon Smith Barney
Holdings under the forward contract.
Depending on market conditions at the time of pricing the TARGETS for
initial sale to the public, the amount of the yield enhancement payments may be
zero or a nominal amount.
The ability of TRUST V to make quarterly distributions on the TARGETS is
entirely dependent on receipt by Trust V of payments under the treasury
securities and yield enhancement payments, if any, under the forward contact. If
Salomon Smith Barney Holdings does not make any yield enhancement payments on
the date they are due under the forward contract, it will be allowed to delay
making those payments, with interest, until maturity. You should refer to the
sections "Risk Factors -- You May Not Receive Yield Enhancement Payments on the
Date They Are Due Because They Can Be Deferred" and "Description of the
TARGETS -- Quarterly Distributions" in this prospectus.
PAYMENT AT MATURITY
At maturity, you will receive for each TARGETS the maturity payment and the
final quarterly distribution.
Maturity Payment
The maturity payment per TARGETS will equal the product of (A) the current
market price of the common stock as of the maturity date times (B) the exchange
rate. The exchange rate will be set to equal 0.20 on the date the TARGETS are
priced for initial sale to the public and, as described more fully below, will
be subject to automatic reset downward on reset dates occurring on each
quarterly payment date (February 15, May 15, August 15 and November 15,
beginning May 15, 2000) and on the maturity date. Prior to maturity, the
exchange rate will only be reset if the closing price of the common stock on the
relevant reset date is greater than the prevailing appreciation cap, as set at
the immediately preceding quarterly reset date (or, in the case of the first
reset period, the initial appreciation cap). At maturity, the exchange rate will
only be reset if the current market price of the common stock (an average of
closing prices over a 10-day period, as described below) is greater than the
prevailing appreciation cap, as set at the immediately preceding quarterly reset
date.
The appreciation cap will initially be set to equal 120% of the market
price of the common stock as of the date the TARGETS are priced for initial sale
to the public and will be automatically reset at the beginning of each
subsequent quarter (but not at maturity) to a price that is 20% above the
closing price of the common stock as of the end of the previous quarter. The
application of the appreciation cap and the exchange rate allows you to
participate in approximately the first 20% of appreciation in the price of the
common stock of Sun Microsystems in any quarter during the term of the TARGETS,
but will not limit your exposure to any depreciation in the price of the common
stock.
Prior to maturity, automatic resets of the exchange rate will depend on the
closing price of the common stock on the relevant reset date. The exchange rate
in effect following any reset date other than the maturity date will be (A) if
the closing price of the common stock as of the reset date is less than or equal
to the prevailing appreciation cap, the then-current exchange rate (i.e., the
initial exchange rate, or if the initial exchange rate has been reset, the
exchange rate in effect immediately preceding that reset date), and (B) if the
closing price of the common stock as of the reset date is greater than the
prevailing appreciation cap, the following fraction:
prevailing appreciation cap x then-current exchange rate
------------------------------------------------------------
closing price of the common stock as of the reset date
4
<PAGE> 5
At maturity, an automatic reset of the exchange rate will depend on the
current market price of the common stock as of the maturity date. The exchange
rate at the maturity date will be (A) if the current market price of the common
stock as of the maturity date is less than or equal to the prevailing
appreciation cap, the then-current exchange rate (i.e., the initial exchange
rate, or if the initial exchange rate has been reset, the exchange rate in
effect immediately preceding the maturity date), and (B) if the current market
price of the common stock as of the maturity date is greater than the prevailing
appreciation cap, the following fraction:
prevailing appreciation cap x then-current exchange rate
----------------------------------------------------------------------
current market price of the common stock as of the maturity date
The closing price used to calculate resets of the exchange rate on reset
dates prior to maturity will be the closing sale price of the common stock on
the relevant reset date (assuming the scheduled reset date is a trading day), or
if no closing sale price is reported on that trading day, the closing sale price
of the common stock on the most recent trading day for which a closing sale
price was reported.
The current market price used to calculate resets of the exchange rate at
maturity and the amount of the payment at maturity will be the average daily
closing sale price or, if no closing sale price is reported, the last reported
sale price of the common stock for the 10 trading days immediately prior to but
not including the date one business day before the maturity date.
The exchange rate and the appreciation cap are also subject to adjustment
upon the occurrence of certain events involving Sun Microsystems and its capital
structure, as described in the section "Description of the TARGETS -- Dilution
Adjustments" in this prospectus.
The amount payable to holders of the TARGETS at maturity is dependent upon
the current market price of the common stock at maturity and the then-current
exchange rate. Based on the initial exchange rate, if the current market price
on the maturity date is less than the price of the common stock upon issuance of
the TARGETS, the maturity payment on each TARGETS will be less than the amount
originally invested. If the exchange rate is reset during the term of the
TARGETS, the current market price on the maturity date that will result in a
loss on the amount originally invested will be higher than the price of the
common stock upon issuance of the TARGETS. The possibility therefore exists that
an investment in the TARGETS will result in a loss even if the current market
price of the common stock at maturity is greater than the market price of the
common stock when the TARGETS are issued.
The TARGETS also provide less opportunity for equity appreciation than a
direct investment in the common stock because the appreciation cap (as reset
quarterly) will operate to limit the portion of any appreciation in the price of
the common stock in which you will share to approximately the first 20% of any
increase in the price of the common stock in any quarter, but not limit your
exposure to any depreciation in the price of the common stock.
The maturity payment with respect to each TARGETS will be paid by Trust V
out of the funds received by Trust V from Salomon Smith Barney Holdings under
the forward contract. Trust V's ability to make the maturity payments is
entirely dependent upon Trust V receiving payment under the forward contract
from Salomon Smith Barney Holdings. You should refer to the section "Description
of the TARGETS -- Maturity Payment" in this prospectus.
Maturity Payment -- Hypothetical Examples
Because the appreciation cap and the exchange rate are dependent on
the price of Sun Microsystems common stock (which may be subject to
significant variations over the term of the TARGETS) and may be reset
quarterly, it is not possible to present a chart or table illustrating a
complete range of possible payments at maturity. The examples of
hypothetical maturity payment calculations that follow are intended to
illustrate the effect of general trends in price of Sun Microsystems common
stock on the amount payable at maturity on the TARGETS. All of the
hypothetical examples assume that the initial price to the public of each
TARGETS is $14.00 and the initial exchange rate is 0.20. You should also
refer to the "Risk Factors" section of this prospectus beginning on page
15.
5
<PAGE> 6
Hypothetical Examples: Increase in Appreciation Cap
In each of the seven following hypothetical examples, the appreciation
cap prevailing at maturity (as set on the last quarterly reset date prior
to maturity) has increased from the initial appreciation cap as a result of
increases in the price of the common stock during the term of the TARGETS.
EXAMPLE 1: STOCK PRICE AT MATURITY IS LESS THAN ITS PRICE AT ISSUANCE AND
THE EXCHANGE RATE HAS NOT BEEN RESET PRIOR TO MATURITY:
(a) The current market price of the common stock is less than
the price of the common stock when the TARGETS are issued and
(b) the initial exchange ratio of 0.20 has not been reset
during the term of the security (i.e., the closing price of the
common stock on any reset date has not been greater than the
prevailing appreciation cap, as set at the beginning of the
relevant reset period):
<TABLE>
<S> <C>
Hypothetical market price of common stock upon issuance of
TARGETS..................................................... $ 70.00
Hypothetical closing price of the common stock on the last
quarterly reset date prior to maturity.................... $175.00
Hypothetical exchange rate as of the last quarterly reset
date prior to maturity.................................... 0.20
Hypothetical prevailing appreciation cap at maturity........ $210.00
Hypothetical current market price at maturity............... $ 40.00
</TABLE>
Exchange rate at maturity = 0.20, since the current market price is less
than the prevailing appreciation cap, as set on the last quarterly reset
date prior to maturity.
MATURITY PAYMENT = $40.00 x 0.20 = $8.00 PER TARGETS, LESS THAN THE AMOUNT
OF YOUR INITIAL INVESTMENT.
EXAMPLE 2: STOCK PRICE AT MATURITY IS GREATER THAN ITS PRICE AT ISSUANCE,
BUT LESS THAN THE PREVAILING APPRECIATION CAP, AND THE EXCHANGE
RATE HAS NOT BEEN RESET PRIOR TO MATURITY:
(a) The current market price of the common stock is greater
than the price of the common stock when the TARGETS are issued,
but less than the prevailing appreciation cap and (b) the
initial exchange ratio of 0.20 has not been reset during the
term of the security (i.e., the closing price of the common
stock on any reset date has not been greater than the
prevailing appreciation cap, as set at the beginning of the
relevant reset period):
<TABLE>
<S> <C>
Hypothetical market price of common stock upon issuance of
TARGETS..................................................... $ 70.00
Hypothetical closing price of the common stock on the last
quarterly reset date prior to maturity.................... $175.00
Hypothetical exchange rate as of the last quarterly reset
date prior to maturity.................................... 0.20
Hypothetical prevailing appreciation cap at maturity........ $210.00
Hypothetical current market price at maturity............... $140.00
</TABLE>
Exchange rate at maturity = 0.20, since the current market price is less
than the prevailing appreciation cap, as set on the last quarterly reset
date prior to maturity.
MATURITY PAYMENT = $140.00 x 0.20 = $28.00 PER TARGETS.
EXAMPLE 3: STOCK PRICE AT MATURITY IS GREATER THAN ITS PRICE AT ISSUANCE,
AND GREATER THAN THE PREVAILING APPRECIATION CAP, AND THE
EXCHANGE RATE HAS NOT BEEN RESET PRIOR TO MATURITY:
(a) The current market price of the common stock is greater
than the price of the common stock when the TARGETS are issued,
and is also greater than the prevailing appreciation cap, and
(b) the initial exchange ratio of 0.20 has not been reset
during the term of the security (i.e., the closing price of the
common stock on any reset date has not been greater than the
prevailing appreciation cap, as set at the beginning of the
relevant reset period).
6
<PAGE> 7
Because the current market price of the common stock at
maturity is greater than the prevailing appreciation cap, the
exchange rate is reset at maturity, as follows:
<TABLE>
<S> <C>
Hypothetical market price of common stock upon issuance of
TARGETS..................................................... $ 70.00
Hypothetical closing price of the common stock on the last
quarterly reset date prior to maturity.................... $175.00
Hypothetical exchange rate as of the last quarterly reset
date prior to maturity.................................... 0.20
Hypothetical prevailing appreciation cap at maturity........ $210.00
Hypothetical current market price at maturity............... $300.00
</TABLE>
<TABLE>
<S> <C> <C>
Exchange rate = 0.20 X $210.00 = 0.14, since the current market price is greater than
---------------- the prevailing appreciation cap, as set on the last
$300.00 quarterly reset date prior to maturity.
</TABLE>
MATURITY PAYMENT = $300.00 x 0.14 = $42.00 PER TARGETS.
EXAMPLE 4: STOCK PRICE AT MATURITY IS LESS THAN ITS PRICE AT ISSUANCE AND
THE EXCHANGE RATE HAS BEEN RESET PRIOR TO MATURITY:
(a) The current market price of the common stock is less than
the price of the common stock when the TARGETS are issued and
(b) the initial exchange ratio of 0.20 has been reset to 0.13
during the term of the security (i.e., the closing price of the
common stock on at least one reset date was greater than the
prevailing appreciation cap, as set at the beginning of the
relevant reset period):
<TABLE>
<S> <C>
Hypothetical market price of common stock upon issuance of
TARGETS..................................................... $ 70.00
Hypothetical closing price of the common stock on the last
quarterly reset date prior to maturity.................... $175.00
Hypothetical exchange rate as of the last quarterly reset
date prior to maturity.................................... 0.13
Hypothetical prevailing appreciation cap at maturity........ $210.00
Hypothetical current market price at maturity............... $ 40.00
</TABLE>
Exchange rate = 0.13, since the current market price is less than the
prevailing appreciation cap, as set on the last quarterly reset date prior
to maturity.
MATURITY PAYMENT = $40.00 x 0.13 = $5.20 PER TARGETS, LESS THAN THE AMOUNT
OF YOUR INITIAL INVESTMENT.
EXAMPLE 5A: STOCK PRICE AT MATURITY IS GREATER THAN ITS PRICE AT ISSUANCE,
BUT LESS THAN THE PREVAILING APPRECIATION CAP, AND THE
EXCHANGE RATE HAS BEEN RESET PRIOR TO MATURITY TO MORE THAN
0.10:
(a) The current market price of the common stock is greater
than the price of the common stock when the TARGETS are
issued, but less than the prevailing appreciation cap and (b)
the initial exchange ratio of 0.20 has been reset to 0.13
during the term of the security (i.e., the closing price of
the common stock on at least one reset date was greater than
the prevailing appreciation cap, as set at the beginning of
the relevant reset period):
7
<PAGE> 8
<TABLE>
<S> <C>
Hypothetical market price of common stock upon issuance of
TARGETS..................................................... $ 70.00
Hypothetical closing price of the common stock on the last
quarterly reset date prior to maturity.................... $175.00
Hypothetical exchange rate as of the last quarterly reset
date prior to maturity.................................... 0.13
Hypothetical prevailing appreciation cap at maturity........ $210.00
Hypothetical current market price at maturity............... $140.00
</TABLE>
Exchange rate = 0.13, since the current market price is less than the
prevailing appreciation cap, as set on the last quarterly reset date prior
to maturity.
MATURITY PAYMENT = $140.00 x 0.13 = $18.20 PER TARGETS.
EXAMPLE 5B: STOCK PRICE AT MATURITY IS GREATER THAN ITS PRICE AT ISSUANCE,
BUT LESS THAN THE PREVAILING APPRECIATION CAP, AND THE
EXCHANGE RATE HAS BEEN RESET PRIOR TO MATURITY TO LESS THAN
0.10:
(a) The current market price of the common stock is greater
than the price of the common stock when the TARGETS are
issued, but less than the prevailing appreciation cap and (b)
the initial exchange ratio of 0.20 has been reset to 0.09
during the term of the security (i.e., the closing price of
the common stock on at least one reset date was greater than
the prevailing appreciation cap, as set at the beginning of
the relevant reset period):
<TABLE>
<S> <C>
Hypothetical market price of common stock upon issuance of
TARGETS..................................................... $ 70.00
Hypothetical closing price of the common stock on the last
quarterly reset date prior to maturity.................... $175.00
Hypothetical exchange rate as of the last quarterly reset
date prior to maturity.................................... 0.09
Hypothetical prevailing appreciation cap at maturity........ $210.00
Hypothetical current market price at maturity............... $140.00
</TABLE>
Exchange rate = 0.09, since the current market price is less than the
appreciation cap, as set on the last quarterly reset date prior to
maturity.
MATURITY PAYMENT = $140.00 x 0.09 = $12.60 PER TARGETS, LESS THAN THE
AMOUNT OF YOUR INITIAL INVESTMENT (EVEN THOUGH THE PRICE OF THE COMMON
STOCK AT MATURITY IS GREATER THAN ITS PRICE AT ISSUANCE OF THE TARGETS).
EXAMPLE 6: STOCK PRICE AT MATURITY IS GREATER THAN ITS PRICE AT ISSUANCE,
AND GREATER THAN THE PREVAILING APPRECIATION CAP, AND THE
EXCHANGE RATE HAS BEEN RESET PRIOR TO MATURITY TO MORE THAN
0.0666:
(a) The current market price of the common stock is greater
than the price of the common stock when the TARGETS are issued,
and greater than the prevailing appreciation cap and (b) the
initial exchange ratio of 0.20 has been reset to 0.13 during
the term of the security (i.e., the closing price of the common
stock on at least one reset date was greater than the
prevailing appreciation cap, as set at the beginning of the
relevant reset period). Because the current market price of the
common stock at maturity is greater than the prevailing
appreciation cap, the exchange rate is reset at maturity, as
follows:
8
<PAGE> 9
<TABLE>
<S> <C>
Hypothetical market price of common stock upon issuance of
TARGETS..................................................... $ 70.00
Hypothetical closing price of the common stock on the last
quarterly reset date prior to maturity.................... $175.00
Hypothetical exchange rate as of the last quarterly reset
date prior to maturity.................................... 0.13
Hypothetical prevailing appreciation cap at maturity........ $210.00
Hypothetical current market price at maturity............... $300.00
</TABLE>
<TABLE>
<S> <C> <C>
Exchange rate = 0.13 X $210.00 = 0.091, since the current market price is greater than
---------------- the prevailing appreciation cap, as set on the last
$300.00 quarterly reset date prior to maturity.
</TABLE>
MATURITY PAYMENT = $300.00 x 0.091 = $27.30 PER TARGETS.
Hypothetical Examples: Decrease in Appreciation Cap
In each of the six following hypothetical examples, the appreciation
cap prevailing at maturity (as set on the last quarterly reset date prior
to maturity) has decreased from the initial appreciation cap as a result of
decreases in the price of the common stock during the term of the TARGETS.
EXAMPLE 1: STOCK PRICE AT MATURITY IS LESS THAN ITS PRICE AT ISSUANCE AND
THE EXCHANGE RATE HAS NOT BEEN RESET PRIOR TO MATURITY:
(a) The current market price of the common stock is less than
the price of the common stock when the TARGETS are issued and
(b) the initial exchange rate of 0.20 has not been reset during
the term of the security (i.e., the closing price of the common
stock on any reset date has not been greater than the
prevailing appreciation cap, as set at the beginning of the
relevant reset period):
<TABLE>
<S> <C>
Hypothetical market price of common stock upon issuance of
TARGETS..................................................... $70.00
Hypothetical closing price of the common stock on the last
quarterly reset date prior to maturity.................... $50.00
Hypothetical exchange rate as of the last quarterly reset
date prior to maturity.................................... 0.20
Hypothetical prevailing appreciation cap at maturity........ $60.00
Hypothetical current market price at maturity............... $40.00
</TABLE>
Exchange rate at maturity = 0.20, since the current market price is less
than the prevailing appreciation cap, as set on the last quarterly reset
date prior to maturity.
MATURITY PAYMENT = $40.00 x 0.20 = $8.00 PER TARGETS, LESS THAN THE AMOUNT
OF YOUR INITIAL INVESTMENT.
EXAMPLE 2A: STOCK PRICE AT MATURITY IS GREATER THAN ITS PRICE AT ISSUANCE,
AND GREATER THAN THE PREVAILING APPRECIATION CAP (WHICH IS
GREATER THAN THE ISSUE PRICE), AND THE EXCHANGE RATE HAS NOT
BEEN RESET PRIOR TO MATURITY:
(a) The current market price of the common stock is greater
than the price of the common stock when the TARGETS are
issued, and is also greater than the prevailing appreciation
cap (which is greater than the issue price) and (b) the
initial exchange rate of 0.20 has not been reset during the
term of the security (i.e., the closing price of the common
stock on any reset date has not been greater than the
prevailing appreciation cap, as set at the beginning of the
relevant reset period). Because the current market price of
the common stock at maturity is greater than the prevailing
appreciation cap, the exchange rate is reset at maturity, as
follows:
9
<PAGE> 10
<TABLE>
<S> <C>
Hypothetical market price of common stock upon issuance of
TARGETS..................................................... $ 70.00
Hypothetical closing price of the common stock on the last
quarterly reset date prior to maturity.................... $ 65.00
Hypothetical exchange rate as of the last quarterly reset
date prior to maturity.................................... 0.20
Hypothetical prevailing appreciation cap at maturity........ $ 78.00
Hypothetical current market price at maturity............... $100.00
</TABLE>
<TABLE>
<S> <C> <C>
Exchange rate = 0.20 X $78.00 = 0.156, since the current market price is greater than
--------------- the prevailing appreciation cap, as set on the last
$100.00 quarterly reset date prior to maturity.
</TABLE>
MATURITY PAYMENT = $100.00 x 0.156 = $15.60 PER TARGETS.
EXAMPLE 2B: STOCK PRICE AT MATURITY IS GREATER THAN ITS PRICE AT ISSUANCE,
AND GREATER THAN THE PREVAILING APPRECIATION CAP (WHICH IS
LESS THAN THE ISSUE PRICE), AND THE EXCHANGE RATE HAS NOT BEEN
RESET PRIOR TO MATURITY:
(a) The current market price of the common stock is greater
than the price of the common stock when the TARGETS are
issued, and is also greater than the prevailing appreciation
cap (which is less than the issue price), and (b) the initial
exchange rate of 0.20 has not been reset during the term of
the security (i.e., the closing price of the common stock on
any reset date has not been greater than the prevailing
appreciation cap, as set at the beginning of the relevant
reset period). Because the current market price of the common
stock at maturity is greater than the prevailing appreciation
cap, the exchange rate is reset at maturity, as follows:
<TABLE>
<S> <C>
Hypothetical market price of common stock upon issuance of
TARGETS..................................................... $ 70.00
Hypothetical closing price of the common stock on the last
quarterly reset date prior to maturity.................... $ 50.00
Hypothetical exchange rate as of the last quarterly reset
date prior to maturity.................................... 0.20
Hypothetical prevailing appreciation cap at maturity........ $ 60.00
Hypothetical current market price at maturity............... $100.00
</TABLE>
<TABLE>
<S> <C> <C>
Exchange rate = 0.20 X $60.00 = 0.12, since the current market price is greater than the
--------------- prevailing appreciation cap, as set on the last
$100.00 quarterly reset date prior to maturity.
</TABLE>
MATURITY PAYMENT = $100.00 x 0.12 = $12.00 PER TARGETS, LESS THAN THE
AMOUNT OF YOUR INITIAL INVESTMENT.
EXAMPLE 3: STOCK PRICE AT MATURITY IS LESS THAN ITS PRICE AT ISSUANCE AND
THE EXCHANGE RATE HAS BEEN RESET PRIOR TO MATURITY:
(a) The current market price of the common stock is less than
the price of the common stock when the TARGETS are issued and
(b) the initial exchange rate of 0.20 has been reset to 0.13
during the term of the security (i.e., the closing price of the
common stock on at least one reset date was greater than the
prevailing appreciation cap, as set at the beginning of the
relevant reset period):
10
<PAGE> 11
<TABLE>
<S> <C>
Hypothetical market price of common stock upon issuance of
TARGETS..................................................... $70.00
Hypothetical closing price of the common stock on the last
quarterly reset date prior to maturity.................... $50.00
Hypothetical exchange rate as of the last quarterly reset
date prior to maturity.................................... 0.13
Hypothetical prevailing appreciation cap at maturity........ $60.00
Hypothetical current market price at maturity............... $40.00
</TABLE>
Exchange rate = 0.13, since the current market price is less than the
prevailing appreciation cap, as set on the last quarterly reset date prior
to maturity.
MATURITY PAYMENT = $40.00 x 0.13 = $5.20 PER TARGETS, LESS THAN THE AMOUNT
OF YOUR INITIAL INVESTMENT.
EXAMPLE 4A: STOCK PRICE AT MATURITY IS GREATER THAN ITS PRICE AT ISSUANCE,
AND GREATER THAN THE PREVAILING APPRECIATION CAP (WHICH IS
GREATER THAN THE ISSUE PRICE), AND THE EXCHANGE RATE HAS BEEN
RESET PRIOR TO MATURITY:
(a) The current market price of the common stock is greater
than the price of the common stock when the TARGETS are
issued, and greater than the prevailing appreciation cap
(which is greater than the issue price) and (b) the initial
exchange rate of 0.20 has been reset to 0.13 during the term
of the security (i.e., the closing price of the common stock
on at least one reset date was greater than the prevailing
appreciation cap, as set at the beginning of the relevant
reset period). Because the current market price of the common
stock at maturity is greater than the prevailing appreciation
cap, the exchange rate is reset at maturity, as follows:
<TABLE>
<S> <C>
Hypothetical market price of common stock upon issuance of
TARGETS..................................................... $ 70.00
Hypothetical closing price of the common stock on the last
quarterly reset date prior to maturity.................... $ 65.00
Hypothetical exchange rate as of the last quarterly reset
date prior to maturity.................................... 0.19
Hypothetical prevailing appreciation cap at maturity........ $ 78.00
Hypothetical current market price at maturity............... $100.00
</TABLE>
<TABLE>
<S> <C> <C>
Exchange rate = 0.19 X $78.00 = 0.1482, since the current market price is greater than
--------------- the prevailing appreciation cap, as set on the last
$100.00 quarterly reset date prior to maturity.
</TABLE>
MATURITY PAYMENT = $100.00 x 0.1482 = $14.82 PER TARGETS.
EXAMPLE 4B: STOCK PRICE AT MATURITY IS GREATER THAN ITS PRICE AT ISSUANCE,
AND GREATER THAN THE PREVAILING APPRECIATION CAP (WHICH IS
LESS THAN THE ISSUE PRICE), AND THE EXCHANGE RATE HAS BEEN
RESET PRIOR TO MATURITY:
(a) The current market price of the common stock is greater
than the price of the common stock when the TARGETS are
issued, and greater than the prevailing appreciation cap and
(b) the initial exchange rate of 0.20 has been reset to 0.13
during the term of the security (i.e., the closing price of
the common stock on at least one reset date was greater than
the prevailing appreciation cap, as set at the beginning of
the relevant reset period). Because the current market price
of the common stock at maturity is greater than the prevailing
appreciation cap, the exchange rate is reset at maturity, as
follows:
11
<PAGE> 12
<TABLE>
<S> <C>
Hypothetical market price of common stock upon issuance of
TARGETS..................................................... $ 70.00
Hypothetical closing price of the common stock on the last
quarterly reset date prior to maturity.................... $ 50.00
Hypothetical exchange rate as of the last quarterly reset
date prior to maturity.................................... 0.13
Hypothetical prevailing appreciation cap at maturity........ $ 60.00
Hypothetical current market price at maturity............... $100.00
</TABLE>
<TABLE>
<S> <C> <C>
Exchange rate = 0.13 X $60.00 = 0.078, since the current market price is greater than the
--------------- prevailing appreciation cap, as set on the last quarterly
$100.00 reset date prior to maturity.
</TABLE>
MATURITY PAYMENT = $100.00 x 0.078 = $7.80 PER TARGETS, LESS THAN THE
AMOUNT OF YOUR INITIAL INVESTMENT.
ACCELERATION OF MATURITY
If one of the acceleration events described below occurs, the treasury
securities will be sold and Trust V will be liquidated. You will receive for
each TARGETS the accelerated maturity payment and a pro rata portion of the
proceeds of the sale of the treasury securities, plus any accrued and unpaid
yield enhancement payments.
The accelerated maturity payment per TARGETS will be calculated in the same
manner as the maturity payment and as though the date on which the acceleration
event occurred were the maturity date.
You will receive payment before holders of the common securities if an
acceleration event occurs or Salomon Smith Barney Holdings defaults on any of
its obligations under its guarantee.
Any of the following will constitute an acceleration event:
- the occurrence of certain adverse tax consequences to Trust V,
- the classification of Trust V as an "investment company" under the
Investment Company Act, or
- the initiation of bankruptcy proceedings regarding Salomon Smith Barney
Holdings.
TARGETS PAYMENTS GUARANTEE
Salomon Smith Barney Holdings has guaranteed that if a payment on the
forward contract or the treasury securities is made to Trust V but, for any
reason, Trust V does not make the corresponding payment to you, then Salomon
Smith Barney Holdings will make the payment directly to you. You should refer to
the section "Description of the Guarantee" in this prospectus.
VOTING RIGHTS
You will have limited voting rights with respect to Trust V and will not be
entitled to vote to appoint, remove or replace, or increase or decrease the
number of, the trustees. These voting rights will be held exclusively by Salomon
Smith Barney Holdings, as the holder of the common securities. You will,
however, have the right to direct The Chase Manhattan Bank, as trustee of Trust
V and as holder of the forward contract and the treasury securities, to exercise
its rights as trustee and to direct the time, method and place of any proceeding
for any remedy available to the trustee.
You will have no voting rights and no ownership interest in any common
stock of Sun Microsystems.
12
<PAGE> 13
HISTORICAL PERFORMANCE OF THE COMMON STOCK
We have provided a table showing the high and low sales prices for the
common stock of Sun Microsystems for each quarter since the first quarter of
1994. You can find this table in the section "Historical Data on the Common
Stock" in this prospectus. We have provided this historical information to help
you evaluate the behavior of the common stock in recent years. However, past
performance is not necessarily indicative of how the common stock will perform
in the future. You should also refer to the section "Risk Factors -- You Have No
Rights Against Sun Microsystems Even Though the Maturity Payment on the TARGETS
is Based on the Price of Sun Microsystems' Stock" in this prospectus.
The TARGETS are obligations of Trust V and, to the extent of the guarantee,
of Salomon Smith Barney Holdings. Even though the maturity payment will reflect
the market price of the common stock of Sun Microsystems at maturity, Sun
Microsystems has no obligations under the TARGETS or Salomon Smith Barney
Holdings' guarantee.
THE FORWARD CONTRACT
The forward contract will be issued under an indenture between Salomon
Smith Barney Holdings and The Chase Manhattan Bank, as trustee. Salomon Smith
Barney Holdings conducts other business with The Chase Manhattan Bank.
Trust V will purchase the forward contract from Salomon Smith Barney
Holdings on the date the TARGETS are issued. Under the forward contract, Salomon
Smith Barney Holdings will be required to pay to Trust V the total maturity
payments, or the total accelerated maturity payments, and any yield enhancement
payments. The forward contract is a prepaid "cash-settled" forward contract
under which Salomon Smith Barney Holdings will settle its obligations in cash
rather than in securities. The proceeds from the sale of the forward contract
will be used by Salomon Smith Barney Holdings for general corporate purposes.
You should refer to the sections in this prospectus "Use of Proceeds and Hedging
Activities", "Description of the Forward Contract" and "Risk Factors -- Because
Purchases and Sales by Affiliates of Salomon Smith Barney Holdings May Reduce
the Price of the Common Stock, Your Maturity Payment or the Price You Receive if
You Sell Your TARGETS May Be Reduced".
U.S. FEDERAL INCOME TAXES
If you are a U.S. individual or taxable entity, you generally will be
required to pay taxes on only a relatively small portion of each quarterly cash
distribution you receive from Trust V, which will be ordinary income. The
remaining portion of each quarterly cash distribution that you receive from
Trust V will be treated as a tax-free return of your investment in the TARGETS
and will reduce your tax basis in them. If you hold your TARGETS until they
mature or if you sell your TARGETS, you will have a capital gain or loss equal
to the difference between your tax basis in the TARGETS and the cash you
receive. You should refer to the section "United States Federal Income Tax
Considerations" in this prospectus.
THE ROLE OF SALOMON SMITH BARNEY'S SUBSIDIARY, SALOMON SMITH BARNEY INC.
Salomon Smith Barney Holdings' subsidiary, Salomon Smith Barney Inc., is
the underwriter for the offering and sale of the TARGETS. After the initial
offering, Salomon Smith Barney Inc. and/or other broker-dealer affiliates of
Salomon Smith Barney Holdings intend to buy and sell TARGETS to create a
secondary market for holders of the TARGETS, and may engage in other activities
described in "Underwriting". However, neither Salomon Smith Barney Inc. nor any
of these affiliates will be obligated to engage in any market-making activities,
or continue them once it has started.
13
<PAGE> 14
SALOMON SMITH BARNEY HOLDINGS
Salomon Smith Barney Holdings Inc. is a holding company that provides
investment banking, securities and commodities trading, brokerage, asset
management and other financial services through its subsidiaries. Salomon Smith
Barney Holdings is a subsidiary of Citigroup Inc. (formerly Travelers Group
Inc.), a diversified financial services holding company. On October 8, 1998,
Travelers Group and Citicorp completed a merger, pursuant to which Citicorp was
merged into a subsidiary of Travelers Group and Travelers Group changed its name
to Citigroup Inc.
Salomon Smith Barney Holdings' ratios of earnings to fixed charges and
preferred stock dividends since 1994 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
NINE MONTHS ENDED ------------------------------------
SEPTEMBER 30, 1999 1998 1997 1996 1995 1994
------------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges and
preferred stock dividends........... 1.46 1.11 1.17 1.37 1.20 0.98
</TABLE>
For the year ended December 31, 1994, earnings as defined were inadequate
to cover fixed charges. The amount by which fixed charges exceeded earnings as
defined for the year was $173 million.
ERISA
It is our view that employee benefit plans subject to ERISA and individual
retirement accounts, Keogh plans and other similar plans can, generally,
purchase TARGETS. However, each plan and account should consider whether the
purchase of TARGETS is prudent and consistent with the documents governing the
plan or account. The fiduciary rules governing plans and accounts are complex
and individual considerations may apply to a particular plan or account.
Accordingly, any fiduciary of any plan or account should consult with its legal
advisers to determine whether the purchase of TARGETS is permissible under the
fiduciary rules. Each employee benefit plan subject to the fiduciary
responsibility provisions of ERISA and each individual retirement account, Keogh
plan and other similar plan will be deemed to have made certain representations
concerning its purchase or other acquisition of TARGETS. You should refer to the
section "ERISA Considerations" in this prospectus.
14
<PAGE> 15
RISK FACTORS
You should carefully consider the following risk factors in addition to the
other information contained in this prospectus before investing in the TARGETS.
Hypothetical examples illustrating certain of the risks described in each of the
first four risk factors can be found in the section "Maturity Payment --
Hypothetical Examples" beginning on page 5.
YOUR INVESTMENT IN THE TARGETS WILL RESULT IN A LOSS IF THE PRICE OF THE COMMON
STOCK DECLINES
The amount of cash that you receive at maturity will depend on the current
market price of the common stock at the time of maturity and the prevailing
exchange rate. The amount of the maturity payments may be less than the amount
you paid for your TARGETS, except to the extent of any quarterly distributions.
For example, if the initial exchange rate of 0.20 has not been reset during the
term of the TARGETS or at maturity, and the current market price of the common
stock at maturity is less than the price of the common stock at the time the
TARGETS are issued (even if the price of the common stock had been greater than
that price at some time during the term of the TARGETS), the maturity payment
for each TARGETS will be less than the initial offering price of each TARGETS,
in which case your investment in the TARGETS will result in a loss, except to
the extent of any quarterly distributions. If Sun Microsystems becomes insolvent
or bankrupt, an investment in the TARGETS could result in a total loss of the
amount invested, except to the extent of any quarterly distributions.
YOUR INVESTMENT IN THE TARGETS MAY RESULT IN A LOSS EVEN IF THE PRICE OF THE
COMMON STOCK RISES
The maturity payment on the TARGETS is dependent on the exchange rate at
maturity as well as the current market price of the common stock at that time.
The exchange rate is subject to quarterly resets and will be reduced if the
price of the common stock on any reset date exceeds the prevailing appreciation
cap. Resets will not increase the exchange rate in any circumstances. As a
result, the amount of any maturity payments may be less than the amount you paid
for your TARGETS even if the price of the common stock at maturity is equal to,
or higher than, the price of the common stock at the time you bought your
TARGETS.
THE APPRECIATION OF YOUR INVESTMENT IN THE TARGETS WILL BE CAPPED
As a result of the limitation provided by the appreciation cap, the TARGETS
provide less opportunity for equity appreciation than a direct investment in the
common stock because the appreciation cap (as reset quarterly) will operate to
limit the portion of any appreciation in the price of the common stock in which
you will share to approximately the first 20% of the increase in any quarter,
but will not limit your exposure to any depreciation in the price of the common
stock. If the price of the common stock increases by more than 20% in any single
quarter during the term of the TARGETS, your return on the TARGETS will
therefore be less than your return on a similar security that was directly
linked to the common stock but was not subject to an appreciation cap.
IF THE EXCHANGE RATE IS RESET, YOU WILL RECEIVE LESS AT MATURITY THAN YOU WOULD
HAVE RECEIVED HAD THE EXCHANGE RATE NOT BEEN RESET
The exchange rate will be reset only if the closing price of the common
stock on a reset date (or the current market price of the common stock as of the
maturity date) exceeds the prevailing appreciation cap on that date (i.e., the
price of the common stock has increased by more than 20% during the relevant
quarter). Any reset of the exchange rate will lower the exchange rate from its
initial value of 0.20, and every subsequent periodic reset of the exchange rate
will further lower the exchange rate. Each time the exchange rate is reset and a
lower rate is in effect, any subsequent resets will never cause the exchange
rate to rise above this lower rate.
Your maturity payment is calculated by multiplying the exchange rate by the
current market price of the common stock at maturity. If the exchange rate is
reset at any time, you will receive less at maturity than you would have
received if the exchange rate had never been reset.
15
<PAGE> 16
YOU HAVE NO RIGHTS AGAINST SUN MICROSYSTEMS EVEN THOUGH THE MATURITY PAYMENT ON
THE TARGETS IS BASED ON THE PRICE OF SUN MICROSYSTEMS' STOCK
The historical common stock price is not an indicator of the future
performance of the common stock during the term of the TARGETS. Changes in the
price of the common stock will affect the trading price of the TARGETS, but it
is impossible to predict whether the price of the common stock will rise or
fall.
The yield on the TARGETS is higher than the current dividend yield on the
common stock. However, it may not remain higher through the term of the TARGETS
if Sun Microsystems increases its dividends. In addition, you will not receive
dividends or other distributions paid on the common stock.
Sun Microsystems is not in any way involved with this offering and has no
obligations relating to the TARGETS or holders of the TARGETS. In addition, you
will have no voting rights with respect to the common stock of Sun Microsystems.
Sun Microsystems is currently subject to SEC reporting requirements, and
distributes reports, proxy statements and other information to its stockholders.
In the event that Sun Microsystems ceases to be subject to these reporting
requirements, pricing information for the TARGETS may be more difficult to
obtain and the value, trading price and liquidity of the common stock and the
TARGETS may be adversely affected.
THE PRICE AT WHICH YOU WILL BE ABLE TO SELL YOUR TARGETS PRIOR TO MATURITY MAY
BE SUBSTANTIALLY LESS THAN THE AMOUNT YOU ORIGINALLY INVEST
We believe that the trading value of the TARGETS will depend on the price
of the common stock and on a number of other factors. Some of these factors are
interrelated in complex ways. As a result, the effect of any one factor may be
offset or magnified by the effect of another factor. The price at which you will
be able to sell the TARGETS prior to maturity may be substantially less than the
amount you originally invest if the value of the common stock at that time is
less than the price of the common stock when the TARGETS are purchased. The
following paragraphs describe what we expect to be the impact on the market
value of the TARGETS of a change in a specific factor, assuming all other
conditions remain constant.
Common Stock Price. We expect that the market value of the TARGETS will
depend substantially on the amount, if any, by which the current common stock
price changes from the price of the common stock when the TARGETS are issued. If
you choose to sell your TARGETS when the current common stock price exceeds the
common stock price at the time the TARGETS were issued, you may receive
substantially less than the amount that would be payable at maturity based on
that current common stock price because of expectations that the common stock
will continue to fluctuate until the maturity payment is determined. Increases
in the price of the common stock above the prevailing appreciation cap also may
not be reflected in the trading price of the TARGETS. If you choose to sell your
TARGETS when the current common stock price is below the common stock price at
the time the TARGETS were issued, you can expect to receive less than the amount
you originally invested, except to the extent of any quarterly distributions.
Trading prices of the common stock will be influenced by Sun Microsystems'
results of operations and by complex and interrelated political, economic,
financial and other factors that can affect the capital markets generally, Sun
Microsystems' market segment and the stock exchange on which the common stock is
traded. Salomon Smith Barney Holdings' hedging activities in the common stock of
its obligations under the forward contract, the issuance of securities similar
to the TARGETS and other trading activities by Salomon Smith Barney Holdings,
its affiliates and other market participants, can affect the price of the common
stock.
Interest Rates. Because the TARGETS pay quarterly distributions, we expect
that the trading value of the TARGETS will be affected by changes in interest
rates. In general, if U.S. interest rates increase, the trading value of the
TARGETS may decrease. If U.S. interest rates decrease, the trading value of the
TARGETS may increase. Interest rates may also affect the U.S. economy and, in
turn, the price of the common stock, which, for the reasons discussed above,
would affect the value of the TARGETS. Rising U.S. interest rates may result in
a lower common stock price and, thus, a lower value of the TARGETS. Falling U.S.
interest rates may result in a higher common stock price and, thus, a higher
value of the TARGETS.
16
<PAGE> 17
Dividend Yields. If the dividend yield on the common stock increases, we
expect that the value of the TARGETS may decrease, since the TARGETS do not
incorporate the value of such payments. Conversely, if the dividend yield on the
common stock decreases, the value of the TARGETS may increase.
Salomon Smith Barney Holdings' Credit Ratings, Financial Condition and
Results. Actual or anticipated changes in Salomon Smith Barney Holdings' credit
ratings, financial condition or results may affect the market value of the
TARGETS.
Economic Conditions and Earnings Performance of Sun Microsystems. General
economic conditions and the earnings results of Sun Microsystems and real or
anticipated changes in such conditions or results may affect the market value of
the TARGETS.
The impact of one of the factors specified above, such as an increase in
interest rates, may offset some or all of any change in the trading value of the
TARGETS attributable to another factor, such as an increase in the price of the
common stock.
In general, assuming all relevant factors are held constant, we expect that
the effect on the trading value of the TARGETS of a given change in most of the
factors listed above will be less if it occurs later in the term of the TARGETS
than if it occurs earlier in the term of the TARGETS, except that we expect that
the effect on the trading value of the TARGETS of a given increase in the price
of the common stock will be greater if it occurs later in the term of the
TARGETS than if it occurs earlier in the term of the TARGETS.
BECAUSE THE MATURITY OF THE TARGETS CAN BE ACCELERATED, THE TRADING PRICE OF THE
TARGETS MAY BE LESS THAN YOU WOULD OTHERWISE EXPECT
If an acceleration event occurs, the maturity of the TARGETS will be
accelerated and you will receive with respect to each TARGETS the accelerated
maturity payment and a pro rata portion of the proceeds of the sale of the
treasury securities. Because the amount that would be payable on the accelerated
maturity date is uncertain, since it would depend on when an acceleration event
occurs, the trading price of the TARGETS may be less than what you would
otherwise expect based on the price of the common stock and the level of
interest rates at a particular time.
YOU MAY NOT RECEIVE YIELD ENHANCEMENT PAYMENTS ON THE DATE THEY ARE DUE BECAUSE
THEY CAN BE DEFERRED
The failure by Salomon Smith Barney Holdings to make any yield enhancement
payments on the date they are due will not constitute an acceleration event.
Salomon Smith Barney Holdings will be allowed under the forward contract to
delay making any unpaid yield enhancement payments until the maturity date or
the accelerated maturity date.
YOU WILL HAVE LIMITED VOTING RIGHTS WITH RESPECT TO TRUST V AND THE TRUSTEES
You will have limited voting rights with respect to Trust V and will not be
entitled to vote to appoint, remove or replace, or increase or decrease the
number of, the trustees. These voting rights will be held exclusively by Salomon
Smith Barney Holdings, as the holder of the common securities of Trust V. You
should refer to the section "Description of the TARGETS -- Voting Rights" in
this prospectus.
THE MATURITY PAYMENT ON THE TARGETS MAY BE REDUCED IF THE COMMON STOCK IS
DILUTED BECAUSE THE MATURITY PAYMENT WILL NOT BE ADJUSTED FOR ALL EVENTS THAT
DILUTE THE COMMON STOCK
The maturity payment and accelerated maturity payment are subject to
adjustment for a number of events arising from stock splits and combinations,
stock dividends, a number of other actions of Sun Microsystems that modify its
capital structure and a number of other transactions involving Sun Microsystems,
as well as for a liquidation, dissolution or winding up of Sun Microsystems. You
should refer to the section "Description of the TARGETS -- Dilution
Adjustments". The maturity payment and accelerated maturity payment will not be
adjusted for other events that may adversely affect the price of the common
stock, such as offerings of common stock for cash or in connection with
acquisitions. Because of the
17
<PAGE> 18
relationship of the maturity payment and accelerated maturity payment to the
price of the common stock, such other events may reduce the maturity payment on
the TARGETS.
IF THE INTERNAL REVENUE SERVICE ASSERTS THAT OUR TAX CHARACTERIZATION OF THE
TARGETS IS INCORRECT, YOU MAY BE REQUIRED TO PAY TAXES ON INCOME BEFORE YOU
ACTUALLY RECEIVE IT OR AT A HIGHER RATE THAN YOU WOULD OTHERWISE EXPECT
No statutory, judicial or administrative authority directly addresses the
characterization of the TARGETS or instruments similar to the TARGETS for U.S.
federal income tax purposes. As a result, significant aspects of the U.S.
federal income tax consequences of an investment in the TARGETS are not certain.
There is no ruling from the Internal Revenue Service with respect to the TARGETS
and the Internal Revenue Service may not agree with the conclusions expressed
under the section "United States Federal Income Tax Considerations" in this
prospectus.
YOU MAY NOT BE ABLE TO SELL YOUR TARGETS IF AN ACTIVE TRADING MARKET FOR THE
TARGETS DOES NOT DEVELOP
We will apply to list the TARGETS on the Chicago Board Options Exchange.
However, there may not be a secondary market in the TARGETS and, if there is a
secondary market, it may not be liquid. If the secondary market for the TARGETS
is limited, there may be few buyers should you choose to sell your TARGETS prior
to maturity. This may affect the price you receive.
In addition, any market that develops for the TARGETS may influence and is
likely to be influenced by the market for the common stock. For example, the
price of the common stock could be affected by (i) sales of common stock by
investors who view the TARGETS as a more attractive means of equity
participation in Sun Microsystems and (ii) hedging or arbitrage trading activity
that may develop involving the TARGETS and the common stock.
BECAUSE PURCHASES AND SALES BY AFFILIATES OF SALOMON SMITH BARNEY HOLDINGS MAY
REDUCE THE PRICE OF THE COMMON STOCK, YOUR MATURITY PAYMENT OR THE PRICE YOU
RECEIVE IF YOU SELL YOUR TARGETS MAY BE REDUCED
Salomon Smith Barney Holdings' affiliates, including Salomon Smith Barney
Inc., may from time to time buy or sell the common stock or derivative
instruments relating to the common stock for their own accounts in connection
with their normal business practices or in connection with hedging Salomon Smith
Barney Holdings' obligations under the forward contract. These transactions
could affect the price of the common stock. You should refer to the section "Use
of Proceeds and Hedging Activities" in this prospectus.
Salomon Smith Barney Inc. or an affiliate may enter into a swap agreement
with one of Salomon Smith Barney Holdings' other affiliates in connection with
the sale of the TARGETS and may earn additional income as a result of payments
pursuant to the swap or related hedge transactions.
THE PAYMENTS YOU RECEIVE ON THE TARGETS WILL LIKELY BE DELAYED OR REDUCED IN THE
EVENT OF A BANKRUPTCY OF SALOMON SMITH BARNEY HOLDINGS
Although the TARGETS are securities of Trust V, the ability of Trust V to
make payments under the TARGETS depends upon its receipt from Salomon Smith
Barney Holdings under the forward contract of (i) the total maturity payments or
total accelerated maturity payments and (ii) any yield enhancement payments. The
ability of Salomon Smith Barney Holdings to meet its obligations under the
forward contract and, in turn, the ability of Trust V to meet its obligations
under the TARGETS, therefore depends on the solvency and creditworthiness of
Salomon Smith Barney Holdings. In the event of a bankruptcy of Salomon Smith
Barney Holdings, any recovery by the holders of TARGETS will likely be
substantially delayed and may be less than each holder's pro rata portion of the
forward contract.
18
<PAGE> 19
AVAILABLE INFORMATION
Salomon Smith Barney Holdings files annual, quarterly and special reports,
proxy statements and other information (File No. 1-4346) with the Securities and
Exchange Commission. You may read and copy any document Salomon Smith Barney
Holdings files at the SEC's public reference rooms in Washington, D.C., New
York, New York and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for
further information on the public reference rooms. Salomon Smith Barney
Holdings' SEC filings are also available to the public from the SEC's web site
at http://www.sec.gov.
Separate financial statements of Trust V have not been included in this
prospectus. Salomon Smith Barney Holdings does not believe that these financial
statements would be material to you because (i) Salomon Smith Barney Holdings,
an SEC reporting company, owns all the voting securities of Trust V, (ii) Trust
V has no independent operations, (iii) Salomon Smith Barney Holdings is the
obligor under the forward contract, and (iv) Salomon Smith Barney Holdings has
fully and unconditionally guaranteed Trust V's obligations under the TARGETS to
the extent that Trust V has funds available to meet its obligations.
In its future filings under the Securities Exchange Act of 1934, a footnote
to Salomon Smith Barney Holdings' annual financial statements will state that
Trust V is consolidated with Salomon Smith Barney Holdings, that the sole assets
of Trust V are the forward contract and the treasury securities, and that the
guarantee when taken together with the forward contract, the related indenture,
the declaration of trust of Trust V and Salomon Smith Barney Holdings'
obligations to pay all fees and expenses of Trust V constitutes a full and
unconditional guarantee by Salomon Smith Barney Holdings of Trust V's
obligations under the TARGETS.
Salomon Smith Barney Holdings and Trust V have filed with the SEC a
registration statement (No. 333-71667) which contains additional information not
included in this prospectus. A copy of the registration statement can be
obtained from the SEC as described above or from Salomon Smith Barney Holdings.
The SEC allows Salomon Smith Barney Holdings to "incorporate by reference"
the information it files, which means that Salomon Smith Barney Holdings can
disclose important information to you by referring you to those documents. The
information incorporated by reference is considered to be part of this
prospectus, and later information filed with the SEC will update and supersede
this information. We incorporate by reference the documents filed by Salomon
Smith Barney Holdings listed below and any future filings made by Salomon Smith
Barney Holdings with the SEC under Section 13(a), 13(c), 14, or 15(d) of the
Securities Exchange Act until the later of (i) the completion of the offering of
the TARGETS and (ii) the cessation of market making activities in the TARGETS by
Salomon Smith Barney Inc. and its broker-dealer affiliates:
(a) Annual Report on Form 10-K for the year ended December 31, 1998,
(b) Quarterly Reports on Form 10-Q for the quarters ended March 31,
1999, June 30, 1999 and September 30, 1999, and
(c) Current Reports on Form 8-K filed on January 25, 1999, February 25,
1999, April 19, 1999, May 27, 1999, July 19, 1999, October 13, 1999
and October 18, 1999.
You may request a copy of these filings, at no cost, by writing or
telephoning Salomon Smith Barney Holdings at the following address:
Treasurer
Salomon Smith Barney Holdings Inc.
388 Greenwich Street
New York, NY 10013
212-816-6000
You should rely only on the information incorporated by reference or
provided in this prospectus. We have authorized no one to provide you with
different information. We are not making an offer of these securities in any
state where the offer is not permitted. You should not assume that the
information in this prospectus is accurate as of any date other than the date on
the front of the document.
19
<PAGE> 20
SALOMON SMITH BARNEY HOLDINGS
Salomon Smith Barney Holdings operates through its subsidiaries in two
business segments: (i) Investment Services and (ii) Asset Management. Salomon
Smith Barney Holdings provides investment banking, securities and commodities
trading, capital raising, asset management, advisory, research and brokerage
services to its customers, other financial services and executes proprietary
trading strategies on its own behalf. As used in this section, unless the
context otherwise requires, Salomon Smith Barney Holdings refers to Salomon
Smith Barney Holdings Inc. and its consolidated subsidiaries.
Citigroup Inc., Salomon Smith Barney Holdings' parent, is a diversified
holding company whose businesses provide a broad range of financial services to
consumer and corporate customers around the world. Citigroup Inc.'s activities
are conducted through Global Consumer, Global Corporate and Investment Bank,
Asset Management, and Investment Activities.
Salomon Smith Barney Holdings is a global, full-service investment banking
and securities brokerage firm with more than 514 offices in 26 countries
worldwide. Salomon Smith Barney Holdings provides a full range of financial
advisory, research and capital raising services to corporations, governments and
individuals. The firm's 10,800 Financial Consultants, located in approximately
450 offices across the United States, service over 5.7 million client accounts,
representing over $770 billion in assets.
Salomon Smith Barney Holdings' global investment banking services encompass
a full range of capital market activities, including the underwriting and
distribution of debt and equity securities for United States and foreign
corporations and for state, local and other governmental and government
sponsored authorities. Salomon Smith Barney Holdings frequently acts as an
underwriter or private placement agent in corporate and public securities
offerings and provides alternative financing options. It also provides financial
advice to investment banking clients on a wide variety of transactions including
mergers and acquisitions, divestitures, leveraged buyouts, financial
restructurings and a variety of cross-border transactions.
The Private Client Division provides investment advice and financial
planning and brokerage services for almost six million client accounts,
primarily through the network of Salomon Smith Barney Financial Consultants.
The Asset Management segment is comprised of two primary asset management
business platforms: Salomon Brothers Asset Management and the Smith Barney Asset
Management division of Salomon Smith Barney Inc. These companies offer a broad
range of asset management products and services from global investment centers,
including mutual funds, closed-end funds, managed accounts and unit investment
trusts.
The principal offices of Salomon Smith Barney Holdings are located at 388
Greenwich Street, New York, New York 10013, telephone number (212) 816-6000.
Salomon Smith Barney Holdings was incorporated in New York in 1977.
20
<PAGE> 21
USE OF PROCEEDS AND HEDGING ACTIVITIES
Of the total proceeds to be received by Trust V from the sale of the
TARGETS and the common securities (together, the "Trust Securities")*,
approximately 85% to 90% (approximately $ ) will be used by Trust V to
purchase the Forward Contract from Salomon Smith Barney Holdings and
approximately 10% to 15% (approximately $ ) will be used by Trust V to
purchase the Treasury Securities. A portion of the net proceeds to be received
by Salomon Smith Barney Holdings from the sale of the Forward Contract will be
used for general corporate purposes, which may include capital contributions to
subsidiaries of Salomon Smith Barney Holdings and/or the reduction or
refinancing of borrowings of Salomon Smith Barney Holdings or its subsidiaries.
In order to fund its investment brokerage business, Salomon Smith Barney
Holdings expects to incur additional indebtedness in the future. To the extent
that TARGETS being purchased for resale by the underwriter are not sold, the
aggregate proceeds to Salomon Smith Barney Holdings and its subsidiaries would
be reduced. Salomon Smith Barney Holdings or an affiliate may enter into a swap
agreement with one of Salomon Smith Barney Holdings' affiliates in connection
with the sale of the TARGETS and may earn additional income as a result of
payments pursuant to such swap or related hedge transactions.
The remainder of the net proceeds to be received by Salomon Smith Barney
Holdings from the sale of the Forward Contract will be used, in part, by Salomon
Smith Barney Holdings or one or more of its subsidiaries for hedging activities
related to Salomon Smith Barney Holdings' obligations under the Forward
Contract. On or prior to the closing date of the TARGETS offering, Salomon Smith
Barney Holdings, directly or through its subsidiaries, will hedge its
anticipated exposure under the Forward Contract by the purchase or sale of
common stock of Sun Microsystems, Inc. ("Common Stock") or options, futures
contracts, forward contracts or swaps or options on the foregoing, or other
derivative or synthetic instruments related to, the Common Stock. From time to
time after the initial sale of the TARGETS and prior to the maturity date or
Accelerated Maturity Date, depending on market conditions, including the price
of the Common Stock, Salomon Smith Barney Holdings expects that it or its
subsidiaries will increase or decrease their initial hedge positions through
various transactions and may purchase or sell Common Stock or options, swaps,
futures contracts, forward contracts or other derivative or synthetic
instruments related to the Common Stock. In addition, Salomon Smith Barney
Holdings and its subsidiaries may purchase or sell TARGETS from time to time.
Salomon Smith Barney Holdings or its subsidiaries may also take positions in
other types of appropriate financial instruments that may become available in
the future. To the extent that Salomon Smith Barney Holdings or its subsidiaries
have a long or short hedge position in the Common Stock or options, swaps,
futures contracts, forward contracts or other derivative or synthetic
instruments related to the Common Stock, Salomon Smith Barney Holdings or one or
more of its subsidiaries may liquidate all or a portion of their holdings close
to maturity of the Forward Contract and the TARGETS. Depending on, among other
things, future market conditions, the aggregate amount and composition of such
positions are likely to vary over time. Profits or losses from any such position
cannot be ascertained until such position is closed out and any offsetting
position or positions are taken into account. Although Salomon Smith Barney
Holdings has no reason to believe that such hedging activity will have a
material effect on the price of TARGETS, such options, swaps, futures contracts,
forward contracts or other derivative or synthetic instruments or on the value
of the Common Stock, there can be no assurance that the hedging activities of
Salomon Smith Barney Holdings and its subsidiaries will not affect such prices
or value.
- ---------------
* Please refer to the "Index of Terms" attached as Appendix A for a listing of
certain technical terms and the pages on which they are defined in this
prospectus.
21
<PAGE> 22
CAPITALIZATION
The following table sets forth the consolidated capitalization of Salomon
Smith Barney Holdings at September 30, 1999.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1999
---------------------
(DOLLARS IN MILLIONS)
(UNAUDITED)
<S> <C>
Short-term borrowings....................................... 11,890
Notes payable............................................... 10
Long-term debt.............................................. 19,109
------
Total debt........................................ 31,009
======
Salomon Smith Barney Holdings -- Obligated Mandatorily
Redeemable Securities of Subsidiary Trusts holding solely
junior subordinated debt securities of Salomon Smith
Barney Holdings(1)........................................ 745
Stockholder's equity:
Common Stock(2) and additional paid-in capital............ 1,621
Retained earnings......................................... 8,241
Cumulative translation adjustment......................... 17
------
Total stockholder's equity........................ 9,879
------
Total capitalization........................................ 41,633
======
</TABLE>
- ---------------
(1) The sole asset of SI Financing Trust I is $355,700,000 aggregate principal
amount of 9.25% Subordinated Debt Securities issued by Salomon Smith Barney
Holdings due June 30, 2026. The sole asset of SSBH Capital I is $412,372,000
aggregate principal amount of 7.200% junior subordinated deferrable interest
debt securities issued by Salomon Smith Barney Holdings due January 28,
2038.
(2) Par value $.01 per share; 1,000 shares authorized; 1,000 shares issued and
outstanding.
ISSUER OF THE COMMON STOCK
According to publicly available documents, Sun Microsystems, Inc. ("Sun
Microsystems") is a leading worldwide provider of products, services and support
solutions for building and maintaining network computing environments. Sun
Microsystems is currently subject to the informational requirements of the
Securities Exchange Act. Accordingly, Sun Microsystems files reports (including
its Annual Report on Form 10-K for the fiscal year ended June 30, 1999 and its
Quarterly Report on Form 10-Q for the fiscal quarter ended September 26, 1999),
proxy statements and other information with the SEC. Copies of Sun Microsystems'
registration statements, reports, proxy statements and other information may be
inspected and copied at offices of the SEC at the addresses listed above under
"Available Information".
Sun Microsystems is not affiliated with Trust V, will not receive any of
the proceeds from the sale of the TARGETS and will have no obligations with
respect to the TARGETS, the Treasury Securities or the Forward Contract. This
prospectus relates only to the TARGETS offered hereby and does not relate to Sun
Microsystems or the Common Stock.
22
<PAGE> 23
HISTORICAL DATA ON THE COMMON STOCK
The Common Stock is quoted on the Nasdaq National Market under the symbol
"SUNW". The following table sets forth, for each of the quarterly periods
indicated, the high and low sales price for the Common Stock, as reported on the
Nasdaq National Market and adjusted to reflect stock splits and stock dividends.
Sun Microsystems has never paid cash dividends on its Common Stock.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1994
Quarter
First..................................................... $ 1 59/64 $ 1 35/64
Second.................................................... 1 58/99 1 4/27
Third..................................................... 1 7/8 1 17/75
Fourth.................................................... 2 21/64 1 13/18
1995
Quarter
First..................................................... 2 17/64 1 29/32
Second.................................................... 3 5/32 2 16/89
Third..................................................... 4 2 39/64
Fourth.................................................... 6 15/64 3 27/64
1996
Quarter
First..................................................... 7 1/64 4 43/64
Second.................................................... 8 21/64 5 45/64
Third..................................................... 8 1/8 5 63/64
Fourth.................................................... 8 3/4 6 27/64
1997
Quarter
First..................................................... 8 3/4 6 37/64
Second.................................................... 9 31/64 6 23/32
Third..................................................... 13 21/64 9 9/64
Fourth.................................................... 11 11/16 7 15/16
1998
Quarter
First..................................................... 12 15/32 9 4/9
Second.................................................... 11 9/32 9 45/64
Third..................................................... 13 3/16 9 29/32
Fourth.................................................... 21 23/32 10
1999
Quarter
First..................................................... 31 31/64 22 27/64
Second.................................................... 35 3/4 25 1/16
Third..................................................... 47 9/32 33 19/32
Fourth (through December 27, 1999)........................ 81 7/8 44 11/16
</TABLE>
The closing price of the Common Stock on December 27, 1999 was 76.
According to Sun Microsystems' Quarterly Report on Form 10-Q for the fiscal
quarter ended September 26, 1999, as of September 26, 1999, there were
781,058,867 shares of Common Stock outstanding. During the period reflected in
the above table, Sun Microsystems split its Common Stock 2-for-1 on each of
December 12, 1995, December 11, 1996, April 9, 1999 and December 8, 1999. The
data appearing in the above table has been adjusted to reflect each of these
splits.
Holders of TARGETS will not be entitled to any rights with respect to the
Common Stock (including, without limitation, voting rights or rights to receive
dividends or other distributions in respect thereof).
23
<PAGE> 24
TARGETS TRUST V
TARGETS Trust V ("Trust V") is a statutory business trust formed under
Delaware law pursuant to a declaration of trust executed by Salomon Smith Barney
Holdings, as sponsor, and the trustees of TARGETS Trust V (as described below),
and the filing of a certificate of trust with the Secretary of State of the
State of Delaware. The declaration will be amended and restated in its entirety
(as so amended and restated, the "Declaration") substantially in the form filed
as an exhibit to the Registration Statement of which this prospectus forms a
part. The Declaration will be qualified as an indenture under the Trust
Indenture Act of 1939. Upon issuance of the TARGETS, the purchasers thereof will
own all the TARGETS. See "Description of the TARGETS -- Book-Entry Only
Issuance". Salomon Smith Barney Holdings will directly or indirectly acquire all
of the common securities in an aggregate amount equal to 3% or more of the total
capital of Trust V (the "Common Securities"). Trust V will use all the proceeds
derived from the issuance of the TARGETS and the Common Securities to purchase
the Forward Contract and Treasury Securities and, accordingly, the assets of
Trust V will consist solely of the Forward Contract and Treasury Securities. Of
the total proceeds from the sale of the Trust Securities, approximately $
will be invested by Trust V in the Forward Contract and approximately $ will
be invested by Trust V in the Treasury Securities. Trust V exists for the
exclusive purposes of
- issuing the Trust Securities representing undivided beneficial interests
in the assets of Trust V,
- investing the gross proceeds of the Trust Securities in the Forward
Contract and the Treasury Securities, and
- engaging only in activities incidental to the above.
Trust V's business and affairs are conducted by its trustees, each
appointed by Salomon Smith Barney Holdings as holder of the Common Securities.
Pursuant to the Declaration, the number of trustees of the Trust will be four:
The Chase Manhattan Bank, a New York banking corporation that is unaffiliated
with Salomon Smith Barney Holdings, as the institutional trustee, Chase
Manhattan Bank Delaware, a Delaware state banking corporation with its principal
place of business in the State of Delaware, as the Delaware trustee, and two
individual trustees (the "Regular Trustees") who will be persons who are
employees or officers of, or who are affiliated with Salomon Smith Barney
Holdings. Initially the Regular Trustees will be Michael J. Day and Charles W.
Scharf, each of whom is an officer of Salomon Smith Barney Holdings. The
institutional trustee will act as the sole indenture trustee under the
Declaration for purposes of compliance with the Trust Indenture Act until
removed or replaced by the holder of the Common Securities. The Chase Manhattan
Bank will also act as indenture trustee under each of the Forward Contract and
the Guarantee. See "Description of the Forward Contract" and "Description of the
Guarantee".
The institutional trustee will hold title to the Forward Contract for the
benefit of the holders of the Trust Securities and, in its capacity as the
holder, the institutional trustee will have the power to exercise all rights,
powers and privileges under the Indenture pursuant to which the Forward Contract
is issued. In addition, the institutional trustee will maintain exclusive
control of a segregated non-interest bearing bank account to hold all payments
made in respect of the Forward Contract and the Treasury Securities for the
benefit of the holders of the Trust Securities. The institutional trustee will
make payments of distributions and payments on liquidation and otherwise to the
holders of the Trust Securities out of funds from the segregated bank account.
The Indenture trustee will act as trustee for the Forward Contract under the
Indenture for purposes of compliance with the provisions of the Trust Indenture
Act. The Guarantee trustee will hold the Guarantee for the benefit of the
holders of the TARGETS. Salomon Smith Barney Holdings, as direct or indirect
holder of all the Common Securities, will have the right, subject to certain
restrictions contained in the Declaration, to appoint, remove or replace any
trustees and to increase or decrease the number of trustees. Salomon Smith
Barney Holdings will pay all fees and expenses related to Trust V and the
offering of the Trust Securities. See "Description of the
TARGETS -- Miscellaneous".
The rights of the holders of the TARGETS, including economic rights, rights
to information and voting rights, are set forth in the Declaration, the Delaware
Business Trust Act and the Trust Indenture Act. See "Description of the
TARGETS".
24
<PAGE> 25
The location of the principal executive office of Trust V is c/o Salomon
Smith Barney Holdings Inc., 388 Greenwich Street, New York, New York 10013 and
its telephone number is (212) 816-6000.
DESCRIPTION OF THE TARGETS
The TARGETS will be issued pursuant to the terms of the Declaration. The
Declaration will be qualified as an indenture under the Trust Indenture Act. The
institutional trustee, The Chase Manhattan Bank, will act as the institutional
trustee for the TARGETS under the Declaration for purposes of compliance with
the provisions of the Trust Indenture Act. The terms of the TARGETS will include
those stated in the Declaration and those made part of the Declaration by the
Trust Indenture Act. Pursuant to the Declaration, every holder of TARGETS will
be deemed to have expressly assented and agreed to the terms of, and will be
bound by, the Declaration. The following summary of the material terms and
provisions of the TARGETS does not purport to be complete and is subject to, and
qualified in its entirety by reference to, the Declaration and the Guarantee
(forms of which are filed as exhibits to the Registration Statement of which
this prospectus is a part), the Delaware Business Trust Act and the Trust
Indenture Act.
GENERAL
The Declaration authorizes the Regular Trustees to issue, on behalf of
Trust V, the Trust Securities, which represent undivided beneficial interests in
the assets of Trust V. All of the Common Securities will be owned, directly or
indirectly, by Salomon Smith Barney Holdings. The Common Securities rank pari
passu with, and payments will be made thereon on a pro rata basis with, the
TARGETS, except that upon the occurrence of an Acceleration Event, the rights of
the holders of the Common Securities to receive payments will be subordinated to
the rights of the holders of the TARGETS. The Declaration does not permit the
issuance by Trust V of any securities other than the Trust Securities or the
incurrence of any indebtedness by Trust V. Pursuant to the Declaration, the
institutional trustee will hold title to the Forward Contract and the Treasury
Securities for the benefit of the holders of the Trust Securities. The payment
of distributions out of money held by Trust V and payments upon maturity of the
TARGETS out of money held by Trust V are guaranteed by Salomon Smith Barney
Holdings to the extent described under "Description of the Guarantee". The
Guarantee will be held by The Chase Manhattan Bank, the Guarantee trustee, for
the benefit of the holders of the TARGETS. The Guarantee does not cover payment
of distributions when Trust V does not have sufficient available funds to pay
such distributions. In such event, the remedies of a holder of the TARGETS are
to
- vote to direct the institutional trustee to enforce the institutional
trustee's rights under the Forward Contract and Treasury Securities,
- if the institutional trustee fails to enforce its rights against Salomon
Smith Barney Holdings, initiate a proceeding against Salomon Smith Barney
Holdings to enforce the institutional trustee's rights under the Forward
Contract or
- if the failure by Trust V to pay distributions is attributable to the
failure of Salomon Smith Barney Holdings to pay amounts in respect of the
Forward Contract, institute a proceeding directly against Salomon Smith
Barney Holdings for enforcement of payment to such holder of the amounts
owed on such holder's pro rata interest in the Forward Contract.
The aggregate number of TARGETS to be issued will be , as described in
"Underwriting". The TARGETS will be issued in fully registered form. TARGETS
will not be issued in bearer form. See "-- Book-Entry Only Issuance".
MATURITY PAYMENT
The TARGETS will mature on , 2003, subject to acceleration to
the Accelerated Maturity Date upon an Acceleration Event. See "-- Acceleration
of Maturity Date; Enforcement of Rights". On the maturity date, holders of the
TARGETS will be entitled to receive, to the extent Trust V has assets available,
the Maturity Payment with respect to each TARGETS. On the maturity date, holders
of TARGETS will also
25
<PAGE> 26
receive a final Quarterly Distribution with respect to each TARGETS, plus any
accrued and unpaid Yield Enhancement Payments.
The "Maturity Payment" with respect to each TARGETS will be an amount equal
to the product of (A) the Current Market Price of the Common Stock as of the
maturity date multiplied by (B) the Exchange Rate as of the maturity date.
The "Current Market Price" will be the average daily closing sale price or,
if no closing sale price is reported, the last reported sale price of the Common
Stock as reported on the Nasdaq National Market for the 10 Trading Days
immediately prior to but not including the date one business day before the
maturity date or the Accelerated Maturity Date, as the case may be, or, if the
Common Stock is not quoted on the Nasdaq National Market on any such date, as
reported in the composite transactions for the principal United States
securities exchange on which the Common Stock is so listed, or if the Common
Stock is not so listed on a United States national or regional securities
exchange, the last quoted bid price for the Common Stock in the over-the-counter
market as reported by the National Quotation Bureau or similar organization.
RESET OF THE EXCHANGE RATE AND THE APPRECIATION CAP
The "Exchange Rate" will be set to equal 0.20 on the date the TARGETS are
priced for initial sale to the public and will be subject to automatic reset
downward on Reset Dates occurring on each quarterly payment date (February 15,
May 15, August 15 and November 15, beginning May 15, 2000) and on the maturity
date. Prior to maturity, the exchange rate will only be reset if the closing
price of the common stock on the relevant reset date is greater than the
prevailing Appreciation Cap (as defined below), as set at the immediately
preceding quarterly reset date (or, in the case of the first reset period, the
initial Appreciation Cap). At maturity, the Exchange Rate will only be reset if
the Current Market Price of the Common Stock (as defined below) is greater than
the prevailing Appreciation Cap, as set at the immediately preceding quarterly
reset date.
The "Appreciation Cap" will initially be set to equal 120% of the market
price of the common stock as of the date the TARGETS are priced for initial sale
to the public and will be automatically reset at the beginning of each
subsequent quarter (but not at maturity) to a price that is 20% above the
closing price of the Common Stock as of the end of the previous quarter.
A "Reset Date" for the TARGETS will occur on each quarterly payment date
(February 15, May 15, August 15 and November 15, beginning May 15, 2000) and the
maturity date. If any such date is not a Trading Day (as defined below), the
relevant Reset Date will be the immediately preceding Trading Day.
Resets Prior to Maturity. Prior to maturity, automatic resets of the
Exchange Rate will depend on the Closing Price of the Common Stock on the
relevant Reset Date. The Exchange Rate in effect following any Reset Date other
than the maturity date will be (A) if the Closing Price of the Common Stock as
of the Reset Date is less than or equal to the prevailing Appreciation Cap, the
then-current Exchange Rate (i.e., the initial Exchange Rate, or if the initial
Exchange Rate has been reset, the Exchange Rate in effect immediately preceding
that Reset Date), and (B) if the Closing Price of the Common Stock as of the
Reset Date is greater than the prevailing Appreciation Cap, the following
fraction:
prevailing Appreciation Cap x then-current Exchange Rate
----------------------------------------------------------------
Closing Price of the Common Stock as of the Reset Date
The "Closing Price" used to calculate resets of the exchange rate on Reset
Dates prior to maturity will be the closing sale price of the common stock on
the relevant Reset Date, or if no closing sale price is reported on that Trading
Day, the closing sale price of the common stock on the most recent Trading Day
for which a closing sale price was reported.
Resets at Maturity. At maturity, an automatic reset of the Exchange Rate
will depend on the Current Market Price of the Common Stock as of the maturity
date. The Exchange Rate at the maturity date will be (A) if the Current Market
Price of the Common Stock as of the maturity date is less than or equal to the
prevailing Appreciation Cap, the then-current Exchange Rate (i.e., the initial
Exchange Rate, or if the initial
26
<PAGE> 27
Exchange Rate has been reset, the Exchange Rate in effect immediately preceding
the maturity date), and (B) if the Current Market Price of the Common Stock as
of the maturity date is greater than the prevailing Appreciation Cap, the
following fraction:
prevailing Appreciation Cap x then-current Exchange Rate
------------------------------------------------------------------------
Current Market Price of the Common Stock as of the maturity date
ACCELERATION OF MATURITY DATE; ENFORCEMENT OF RIGHTS
If at any time an Acceleration Event occurs, the Regular Trustees will give
written instructions to the institutional trustee to sell the Treasury
Securities, dissolve Trust V and, after satisfaction of creditors of Trust V,
cause to be distributed, as soon as is practicable following the occurrence of
such Acceleration Event, to the holders of the TARGETS in liquidation of such
holders' interests in Trust V, the Accelerated Maturity Payment with respect to
each TARGETS and a pro rata portion of the Treasury Proceeds, plus any accrued
and unpaid Yield Enhancement Payments.
The "Accelerated Maturity Payment" with respect to each TARGETS will be
paid out of amounts received by Trust V from Salomon Smith Barney Holdings in
respect of the Forward Contract and will be equal to the product of (A) the
Current Market Price of the Common Stock as of the Accelerated Maturity Date
multiplied by (B) the Exchange Rate as of the Accelerated Maturity Date. The
"Accelerated Maturity Date" will be the date of the occurrence of the event or
events constituting such Acceleration Event.
The "Treasury Proceeds" will be the amount received by Trust V as proceeds
from the sale of the Treasury Securities upon the occurrence of an Acceleration
Event. The Regular Trustees will send the institutional trustee written notice
and instructions to liquidate the Treasury Securities on an Accelerated Maturity
Date. Upon receiving such notice, the institutional trustee will solicit at
least three bids and sell and transfer the Treasury Securities to the highest of
the three bidders.
There can be no assurance as to the amount of either any Accelerated
Maturity Payment or the Treasury Proceeds which, in either case, may be
distributed to holders of the TARGETS upon a dissolution and liquidation of
Trust V. Accordingly, there can be no assurance as to the amount that a holder
of TARGETS may receive on the Accelerated Maturity Date.
"Acceleration Event" means (1) a Tax Event, (2) an Investment Company Event
or (3) a Bankruptcy Event.
"Tax Event" means that Salomon Smith Barney Holdings will have requested
and received and will have delivered to the Regular Trustees an opinion of
nationally recognized independent tax counsel experienced in such matters to the
effect that there has been
- an amendment to, change in or announced proposed change in the laws, or
any regulations thereunder, of the United States or any political
subdivision or taxing authority thereof or therein,
- a judicial decision interpreting, applying, or clarifying such laws or
regulations,
- an administrative pronouncement or action that represents an official
position, including a clarification of an official position, of the
governmental authority or regulatory body making such administrative
pronouncement or taking such action, or
- a threatened challenge asserted in connection with an audit of Salomon
Smith Barney Holdings or any of its subsidiaries or Trust V, or a
threatened challenge asserted in writing against any other taxpayer that
has raised capital through the issuance of securities that are
substantially similar to the Forward Contract or the TARGETS,
which amendment or change is adopted or which proposed change, decision or
pronouncement is announced or which action, clarification or challenge occurs on
or after the date of this prospectus , and that there is more than an
insubstantial risk that (a) Trust V is, or will be, subject to United States
federal income tax with
27
<PAGE> 28
respect to income accrued or received on the Forward Contract or the Treasury
Securities, or (b) Trust V is, or will be, subject to more than a de minimis
amount of other taxes, duties or other governmental charges.
"Investment Company Event" means that Salomon Smith Barney Holdings will
have requested and received and will have delivered to the Regular Trustees an
opinion of nationally recognized independent legal counsel experienced in such
matters to the effect that as a result of the occurrence on or after the date
hereof of a change in law or regulation or a change in interpretation or
application of law or regulation by any legislative body, court, governmental
agency or regulatory authority, the Trust is or will be considered an
"investment company" which is required to be registered under the Investment
Company Act of 1940.
"Bankruptcy Event" means either of the following shall have occurred: (1)
the entry of a decree or order
- of relief in respect of Salomon Smith Barney Holdings by a court having
jurisdiction in the premises in an involuntary case under the federal
bankruptcy laws, as now or hereafter constituted, or any other applicable
federal or state bankruptcy, insolvency or other similar law,
- appointing a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or other similar official) of Salomon Smith Barney Holdings
or of any substantial part of its property, or
- ordering the winding up or liquidation of its affairs, and, in each case,
the continuance of any such decree or order unstayed and in effect for a
period of 90 consecutive days; or
(2) the commencement by Salomon Smith Barney Holdings of a voluntary case
under the federal bankruptcy laws, as now or hereafter constituted, or any other
applicable federal or state bankruptcy, insolvency or other similar law, or the
consent by it to the entry of an order for relief in an involuntary case under
any such law or to the appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator or other similar official of Salomon Smith
Barney Holdings or of any substantial part of its property, or the making by it
of an assignment for the benefit of its creditors, or the admission by it in
writing of its inability to pay its debts generally as they become due, or the
taking of corporate action by Salomon Smith Barney Holdings in furtherance of
any action.
"Pro rata" means, with respect to any payment, distribution, or treatment,
proportionately to each holder of Trust Securities according to the aggregate
beneficial interests in the assets of Trust V represented by the Trust
Securities held by the relevant holder in relation to the aggregate beneficial
interests in the assets of Trust V represented by all Trust Securities
outstanding unless, in relation to a payment, an Acceleration Event has occurred
and is continuing, in which case any funds available to make such payment will
be paid first to each holder of the TARGETS proportionately according to the
aggregate beneficial interests in the assets of Trust V represented by the
TARGETS held by the relevant holder relative to the aggregate beneficial
interests in the assets of Trust V represented by all TARGETS outstanding, and
then only after satisfaction of all amounts owed to the holders of the TARGETS,
to each holder of Common Securities proportionately according to the aggregate
beneficial interests in the assets of Trust V represented by the Common
Securities held by the relevant holder relative to the aggregate beneficial
interests in the assets of Trust V represented by all Common Securities
outstanding.
On the date fixed for any payment of the Accelerated Maturity Payment or
the Treasury Proceeds, the TARGETS and the Common Securities will no longer be
deemed to be outstanding and each TARGETS and Common Security will be deemed to
represent the right to receive an Accelerated Maturity Payment and a pro rata
portion of the Treasury Proceeds, plus any accrued and unpaid Yield Enhancement
Payments. If the Accelerated Maturity Payments or any accrued and unpaid Yield
Enhancement Payments can be paid only in part because Trust V has insufficient
assets available to pay in full such amounts, then the amounts payable directly
by Trust V in respect of the TARGETS will be paid on a pro rata basis. In
addition, in the case of a default by Salomon Smith Barney Holdings on its
obligations under the Guarantee, the holders of the TARGETS will have a
preference over the holders of the Common Securities with respect to amounts
owed on the Trust Securities.
Subject to the requirements of the institutional trustee obtaining a tax
opinion in certain circumstances set forth in the last sentence of this
paragraph, the holders of a majority of the TARGETS have the right to
28
<PAGE> 29
direct the time, method and place of conducting any proceeding for any remedy
available to the institutional trustee, or direct the exercise of any trust or
power conferred upon the institutional trustee under the Declaration, including
the right to direct the institutional trustee, as holder of the Forward Contract
and the Treasury Securities, to
- direct the time, method and place of conducting any proceeding for any
remedy available to the Indenture trustee, or exercising any trust or
power conferred on the Indenture trustee with respect to the Forward
Contract,
- direct the time, method and place of conducting any proceeding for any
remedy available to the institutional trustee or exercise any trust or
power conferred on the institutional trustee with respect to the Treasury
Securities,
- waive the consequences of any Acceleration Event under the Indenture that
are waivable under the Indenture,
- exercise any right to rescind or annul a declaration that any Accelerated
Maturity Payment shall be due and payable or
- consent to any amendment, modification or termination of the Indenture or
the Forward Contract, where such consent shall be required,
provided, however, that, where a consent or action under the Indenture would
require the consent or act of holders of a majority of the beneficial interests
in the Forward Contract, only the holders of at least a super majority of the
TARGETS may direct the institutional trustee to give such consent or take such
action. The institutional trustee shall notify all holders of TARGETS of any
notice of default received from the Indenture trustee with respect to the
Forward Contract. Except with respect to directing the time, method and place of
conducting a proceeding for a remedy available to the institutional trustee, the
institutional trustee, as holder of the Forward Contract and the Treasury
Securities, shall not take any of the actions described above unless the
institutional trustee has obtained an opinion of a nationally recognized
independent tax counsel experienced in such matters to the effect that as a
result of such action, Trust V will not fail to be classified as a grantor trust
for United States federal income tax purposes.
If the institutional trustee fails to enforce its rights under the Forward
Contract, any holder of TARGETS may directly institute a legal proceeding
against Salomon Smith Barney Holdings to enforce the institutional trustee's
rights under the Forward Contract, without first instituting a legal proceeding
against the institutional trustee or any other person or entity. If Salomon
Smith Barney Holdings fails to pay amounts owed on the Forward Contract on the
date such amounts are otherwise payable, then a holder of TARGETS may also
directly institute a direct action in respect of the amounts owed on such
holder's pro rata interest in the Forward Contract on or after the due date
specified in the Forward Contract, without first directing the institutional
trustee to enforce the terms of the Forward Contract or instituting a legal
proceeding directly against Salomon Smith Barney Holdings to enforce the
institutional trustee's rights under the Forward Contract. Except as provided in
the preceding sentence, the holders of TARGETS will not be able to exercise
directly any other remedy available to the holder of the Forward Contract. In
connection with such direct action, Salomon Smith Barney Holdings will be
subrogated to the rights of such holder of TARGETS under the Declaration to the
extent of any payment made by Salomon Smith Barney Holdings to such holder of
TARGETS in such direct action.
A waiver of an Acceleration Event under the Indenture by the institutional
trustee at the direction of the holders of the TARGETS will constitute a waiver
of the corresponding Acceleration Event under the Declaration.
Any required approval or direction of holders of TARGETS may be given at a
separate meeting of holders of TARGETS convened for such purpose, at a meeting
of holders of Trust Securities or pursuant to written consent. The Regular
Trustees will cause a notice of any meeting at which holders of TARGETS are
entitled to vote, or of any matter upon which action by written consent of such
holders is to be taken, to be mailed to each holder of record of TARGETS. Each
such notice will include a statement setting forth the date
29
<PAGE> 30
of such meeting or the date by which such action is to be taken, a description
of any resolution proposed for adoption at such meeting on which such holders
are entitled to vote or of such matter upon which written consent is sought and
instructions for the delivery of proxies or consents. No vote or consent of the
holders of TARGETS will be required for the Trust to cancel TARGETS in
accordance with the Declaration. It is anticipated that the only holder of
TARGETS issued in book-entry form will be Cede & Co., as nominee of DTC, and
each beneficial owner of TARGETS will be permitted to exercise the rights of
holders of TARGETS only indirectly through DTC and its participants.
Notwithstanding that holders of TARGETS are entitled to vote or consent
under any of the circumstances described above, any of the TARGETS that are
owned at such time by Salomon Smith Barney Holdings or any entity directly or
indirectly controlling or controlled by, or under direct or indirect common
control with, Salomon Smith Barney Holdings, will not be entitled to vote or
consent and will, for purposes of such vote or consent, be treated as if they
were not outstanding.
QUARTERLY DISTRIBUTIONS
Holders of TARGETS will be entitled to receive "Quarterly Distributions" at
the rate per TARGETS of $ per quarter (except that the quarterly
distribution payment payable on May 15, 2000 will be $ per TARGETS),
payable on each February 15, May 15, August 15, November 15, beginning May 15,
2000.
The Quarterly Distributions will be paid by Trust V out of payments under
the Treasury Securities and the Yield Enhancement Payments made to Trust V by
Salomon Smith Barney Holdings under the Forward Contract (each as defined
below). Depending on market conditions at the time of pricing of the TARGETS for
initial sale to the public, the amount of the Yield Enhancement Payments may be
zero or a nominal amount. Of each Quarterly Distribution payable to holders of
the TARGETS, % will be paid out of payments received by Trust V under the
Treasury Securities and % will be paid out of Yield Enhancement Payments
received by Trust V from Salomon Smith Barney Holdings under the Forward
Contract.
The Treasury Securities and the Forward Contract will be the sole assets of
Trust V and will be held by the Institutional Trustee on behalf of Trust V. The
ability of Trust V to make Quarterly Distributions on the TARGETS is therefore
entirely dependent on receipt by Trust V of payments with respect to both the
Treasury Securities and the Forward Contract.
Under the Forward Contract, any Yield Enhancement Payments which are
payable, but are not punctually paid, by Salomon Smith Barney Holdings on their
scheduled due date will cease to be due and payable and may instead by paid,
together with interest thereon at % per annum compounded quarterly, on a
future date chosen by Salomon Smith Barney Holdings in its sole discretion. Any
such Yield Enhancement Payments that are not paid by Salomon Smith Barney
Holdings prior to maturity will become due and payable on the maturity date or
the Accelerated Maturity Date, as the case may be.
Assuming Quarterly Distributions on the TARGETS with a hypothetical yield
of 8.00% per annum, a hypothetical offering size of $100,000,000, a hypothetical
settlement date of November 15, 1999 and a hypothetical maturity date of
November 15, 2002, set forth below is an example of how the cash flows on the
TARGETS would be comprised. Trust IV will invest approximately 10% to 15% of the
proceeds of the offering in the Treasury Securities. Quarterly Distributions
providing the assumed yield may require a larger cash flow than will be provided
by the Treasury Securities, in which case Yield Enhancement Payments would be
paid by the obligor of the Forward Contract pursuant to the following schedule
and based on the following assumptions:
<TABLE>
<S> <C>
Hypothetical Offering Size:...................... $100,000,000
Hypothetical Annual Cash Flow:................... 8.00%
Hypothetical Payment Frequency:.................. Quarterly
Hypothetical Settlement Date:.................... November 15, 1999
Hypothetical Maturity Date:...................... November 15, 2002
</TABLE>
30
<PAGE> 31
<TABLE>
<CAPTION>
TREASURY TREASURY TREASURY TREASURY YIELD
SECURITY SECURITY SECURITY SECURITY ENHANCEMENT ANNUALIZED
MATURITY UNIT PURCHASE CASH PAYMENTS TOTAL EQUIVALENT
DATE COST COST FLOW CASH FLOW CASH FLOW COUPON
-------- -------- -------------- -------------- ------------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
02/15/00 98.708% $ 1,295,542.50 $ 1,312,500.00 $ 687,500.00 $ 2,000,000.00 8.00%
05/15/00 97.352% $ 1,277,745.00 $ 1,312,500.00 $ 687,500.00 $ 2,000,000.00 8.00%
08/15/00 95.939% $ 1,259,199.38 $ 1,312,500.00 $ 687,500.00 $ 2,000,000.00 8.00%
11/15/00 94.554% $ 1,241,021.25 $ 1,312,500.00 $ 687,500.00 $ 2,000,000.00 8.00%
02/15/01 93.202% $ 1,223,276.25 $ 1,312,500.00 $ 687,500.00 $ 2,000,000.00 8.00%
05/15/01 91.836% $ 1,205,347.50 $ 1,312,500.00 $ 687,500.00 $ 2,000,000.00 8.00%
08/15/01 90.477% $ 1,187,510.63 $ 1,312,500.00 $ 687,500.00 $ 2,000,000.00 8.00%
11/15/01 89.172% $ 1,170,382.50 $ 1,312,500.00 $ 687,500.00 $ 2,000,000.00 8.00%
02/15/02 87.900% $ 1,153,687.50 $ 1,312,500.00 $ 687,500.00 $ 2,000,000.00 8.00%
05/15/02 86.604% $ 1,136,677.50 $ 1,312,500.00 $ 687,500.00 $ 2,000,000.00 8.00%
08/15/02 85.334% $ 1,120,008.75 $ 1,312,500.00 $ 687,500.00 $ 2,000,000.00 8.00%
11/15/02 84.109% $ 1,103,930.63 $ 1,312,500.00 $ 687,500.00 $ 2,000,000.00 8.00%
-------------- -------------- ------------- --------------
$14,374,329.39 $15,750,000.00 $8,250,000.00 $24,000,000.00
============== ============== ============= ==============
</TABLE>
A portion of each Quarterly Distribution should represent a return to the
holder of a TARGETS of that holder's initial investment in the TARGETS for tax
purposes. A table in the following form, setting forth information regarding the
distributions to be received on the Treasury Securities to be acquired by Trust
V with a portion of the proceeds received by Trust V from the sale of the Trust
Securities, the portion of each year's distributions that should constitute a
return of capital for U.S. federal income tax purposes and the amount of
original issue discount that should accrue on such Treasury Securities with
respect to a holder who acquires its Trust Securities at the issue price from
the underwriters pursuant to the original offering will be included in the final
prospectus. See "United States Federal Income Tax Considerations".
<TABLE>
<CAPTION>
ANNUAL GROSS ANNUAL INCLUSION OF
ANNUAL GROSS DISTRIBUTIONS FROM ANNUAL RETURN OF ORIGINAL ISSUE
DISTRIBUTIONS FROM TREASURY SECURITIES CAPITAL PER DISCOUNT IN INCOME
YEAR TREASURY SECURITIES PER TARGETS TARGETS PER TARGETS
- ---- ------------------- ------------------- ---------------- -------------------
<S> <C> <C> <C> <C>
$ $ $ $
</TABLE>
DILUTION ADJUSTMENTS
The Exchange Rate and the Appreciation Cap will be subject to adjustment
from time to time in certain situations. Any such adjustments could have an
impact on the Maturity Payments or Accelerated Maturity Payments to be paid by
Salomon Smith Barney Holdings to Trust V upon maturity of the Forward Contract
and, therefore, on the Maturity Payments or Accelerated Maturity Payments to be
paid by Trust V to the holders of TARGETS.
If Sun Microsystems, after the closing date of the offering contemplated
hereby,
(1) pays a stock dividend or makes a distribution with respect to the
Common Stock in shares of such stock,
(2) subdivides or splits the outstanding shares of the Common Stock into a
greater number of shares,
(3) combines the outstanding shares of the Common Stock into a smaller
number of shares, or
(4) issues by reclassification of shares of the Common Stock any shares of
other common stock of Sun Microsystems,
then, in each such case, the Exchange Rate will be multiplied by a dilution
adjustment equal to the number of shares of Common Stock, or in the case of a
reclassification referred to in (4) above, the number of shares of other common
stock of Sun Microsystems issued pursuant thereto, or the fraction thereof, that
a holder who held one share of Common Stock immediately prior to such event
would be entitled solely by reason of such event to hold immediately after such
event. The Appreciation Cap will also be adjusted in such case in the manner
described below.
If Sun Microsystems, after the closing date, issues, or declares a record
date in respect of an issuance of, rights or warrants to all holders of Common
Stock entitling them to subscribe for or purchase shares of Common Stock at a
price per share less than the Then-Current Market Price of the Common Stock
other
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<PAGE> 32
than rights to purchase Common Stock pursuant to a plan for the reinvestment of
dividends or interest, then, in each such case, the Exchange Rate will be
multiplied by a dilution adjustment equal to a fraction, the numerator of which
will be the number of shares of Common Stock outstanding immediately prior to
the time the adjustment is effected by reason of the issuance of such rights or
warrants, plus the number of additional shares of Common Stock offered for
subscription or purchase pursuant to such rights or warrants, and the
denominator of which will be the number of shares of Common Stock outstanding
immediately prior to the time the adjustment is effected, plus the number of
additional shares of Common Stock which the aggregate offering price of the
total number of shares of Common Stock so offered for subscription or purchase
pursuant to such rights or warrants would purchase at the Then-Current Market
Price of the Common Stock, which will be determined by multiplying the total
number of shares so offered for subscription or purchase by the exercise price
of such rights or warrants and dividing the product so obtained by such
Then-Current Market Price. To the extent that, after the expiration of such
rights or warrants, the shares of Common Stock offered thereby have not been
delivered, the Exchange Rate will be further adjusted to equal the Exchange Rate
which would have been in effect had such adjustment for the issuance of such
rights or warrants been made upon the basis of delivery of only the number of
shares of Common Stock actually delivered. The Appreciation Cap will also be
adjusted in the manner described below.
If Sun Microsystems, after the closing date, declares or pays a dividend or
makes a distribution to all holders of Common Stock, in either case, of
evidences of its indebtedness or other non-cash assets, excluding any dividends
or distributions referred to above, or issues to all holders of Common Stock
rights or warrants to subscribe for or purchase any of its securities other than
rights or warrants referred to above, then, in each such case, the Exchange Rate
will be multiplied by a dilution adjustment equal to a fraction, the numerator
of which will be the Then-Current Market Price of the Common Stock, and the
denominator of which will be such Then-Current Market Price less the fair market
value (as determined by a nationally recognized independent investment banking
firm retained for this purpose by Salomon Smith Barney Holdings, whose
determination will be final) as of the time the adjustment is effected of the
portion of the assets, evidences of indebtedness, rights or warrants so
distributed or issued applicable to one share of Common Stock. The Appreciation
Cap will also be adjusted in the manner described below. Notwithstanding the
foregoing, in the event that, with respect to any dividend or distribution to
which this paragraph would otherwise apply, the denominator in the fraction
referred to in the above formula is less than $1.00 or is a negative number,
then Salomon Smith Barney Holdings may, at its option, elect to have the
adjustment provided by this paragraph not be made and in lieu of such
adjustment, on the maturity date, the holders of the TARGETS will be entitled to
receive an additional amount of cash equal to the product of the number of
TARGETS held by such holder multiplied by the fair market value of such
indebtedness, assets, rights or warrants (determined, as of the date such
dividend or distribution is made, by a nationally recognized independent
investment banking firm retained for this purpose by Salomon Smith Barney
Holdings, whose determination will be final) so distributed or issued applicable
to one share of Common Stock.
If, after the closing date, Sun Microsystems declares a record date in
respect of a distribution of cash, other than any permitted dividends described
below, any cash distributed in consideration of fractional shares of Common
Stock and any cash distributed in a Reorganization Event, by dividend or
otherwise, to all holders of the Common Stock, or makes an excess purchase
payment, then the Exchange Rate will be multiplied by a dilution adjustment
equal to a fraction, the numerator of which will be the Then-Current Market
Price of the Common Stock on such record date, and the denominator of which will
be such Then-Current Market Price less the amount of such distribution
applicable to one share of Common Stock which would not be a permitted dividend,
or, in the case of an excess purchase payment, less the aggregate amount of such
excess purchase payment for which adjustment is being made at such time divided
by the number of shares of Common Stock outstanding on such record date.
For purposes of these adjustments, a permitted dividend is any quarterly
cash dividend in respect of the Common Stock, other than a quarterly cash
dividend that exceeds the immediately preceding quarterly cash dividend, and
then only to the extent that the per share amount of such dividend results in an
annualized dividend yield on the Common Stock in excess of 10%. An excess
purchase payment is the excess, if any, of (x) the cash and the value (as
determined by a nationally recognized independent investment banking firm
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<PAGE> 33
retained for this purpose by Salomon Smith Barney Holdings, whose determination
will be final) of all other consideration paid by Sun Microsystems with respect
to one share of Common Stock acquired in a tender offer or exchange offer by Sun
Microsystems, over (y) the Then-Current Market Price of the Common Stock. The
Appreciation Cap will also be adjusted in the manner described in the following
paragraph. Notwithstanding the foregoing, in the event that, with respect to any
dividend or distribution or excess purchase payment to which this paragraph
would otherwise apply, the denominator in the fraction referred to in the
formula in the preceding paragraph is less than $1.00 or is a negative number,
then Salomon Smith Barney Holdings may, at its option, elect to have the
adjustment provided by this paragraph not be made and in lieu of such
adjustment, on the maturity date, the holders of the TARGETS will be entitled to
receive an additional amount of cash equal to the product of the number of
TARGETS held by such holder multiplied by the sum of the amount of cash plus the
fair market value of such other consideration (determined, as of the date such
dividend or distribution is made, by a nationally recognized independent
investment banking firm retained for this purpose by Salomon Smith Barney
Holdings, whose determination will be final) so distributed or applied to the
acquisition of the Common Stock in such a tender offer or exchange offer
applicable to one share of Common Stock.
If any adjustment is made to the Exchange Rate pursuant to the preceding
five paragraphs, an adjustment will also be made to the Appreciation Cap. The
required adjustment will be made by dividing the Appreciation Cap by the
relevant dilution adjustment. If, during any Calculation Period used in
calculating the Current Market Price, the Then-Current Market Price or the
Transaction Value, there occurs any event requiring an adjustment to be effected
as described herein, then the Closing Price for each Trading Day in such
Calculation Period occurring prior to the day on which such adjustment is
effected will be adjusted by being divided by the relevant dilution adjustment.
Each dilution adjustment shall be effected as follows:
- in the case of any dividend, distribution or issuance, at the opening of
business on the business day next following the record date for
determination of holders of Common Stock entitled to receive such
dividend, distribution or issuance or, if the announcement of any such
dividend, distribution, or issuance is after such record date, at the
time such dividend, distribution or issuance shall be announced by Sun
Microsystems;
- in the case of any subdivision, split, combination or reclassification,
on the effective date of such transaction;
- in the case of any excess purchase payment for which Sun Microsystems
announces, at or prior to the time it commences the relevant share
repurchase, the repurchase price per share for shares proposed to be
repurchased, on the date of such announcement; and
- in the case of any other excess purchase payment on the date that the
holders of the repurchased shares become entitled to payment in respect
thereof.
All dilution adjustments will be rounded upward or downward to the nearest
1/10,000th or, if there is not a nearest 1/10,000th, to the next lower
1/10,000th. No adjustment in the Exchange Rate will be required unless such
adjustment would require an increase or decrease of at least one percent
therein, provided, however, that any adjustments which by reason of this
sentence are not required to be made will be carried forward and taken into
account in any subsequent adjustment. If any announcement or declaration of a
record date in respect of a dividend, distribution, issuance or repurchase
requiring an adjustment as described herein is subsequently canceled by Sun
Microsystems, or such dividend, distribution, issuance or repurchase fails to
receive requisite approvals or fails to occur for any other reason, then, upon
such cancellation, failure of approval or failure to occur, the Exchange Rate
will be further adjusted to the Exchange Rate which would then have been in
effect had adjustment for such event not been made. If a Reorganization Event
occurs after the occurrence of one or more events requiring an adjustment as
described herein, the dilution adjustments previously applied to the Exchange
Rate in respect of such events will not be rescinded but will be applied to the
new Exchange Rate provided for below.
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<PAGE> 34
"Then-Current Market Price" of the Common Stock, for the purpose of
applying any dilution adjustment, means the average closing price per share of
Common Stock for the Calculation Period of 10 Trading Days immediately prior to
the time such adjustment is effected or, in the case of an adjustment effected
at the opening of business on the business day next following a record date,
immediately prior to the earlier of the time such adjustment is effected and the
related ex-date, provided that if no closing price for the Common Stock is
determined for one or more, but not all, of such Trading Days, such Trading Day
will be disregarded in the calculation of the Then-Current Market Price, but no
additional trading days will be added to the Calculation Period. If no closing
price for the Common Stock may be determined for any of such Trading Days, the
Then-Current Market Price will be the closing price for the Common Stock for the
most recent Trading Day prior to such 10 Trading Days for which a closing price
for the Common Stock may be determined. The "ex-date" with respect to any
dividend, distribution or issuance is the first date on which the shares of the
Common Stock trade regular way on their principal market without the right to
receive such dividend, distribution or issuance.
"Trading Day" means a day on which the Common Stock (A) is not suspended
from trading on any national or regional securities exchange, securities market
or association or over-the-counter market at the close of business and (B) has
traded at least once on the national or regional securities exchange or
association or over-the-counter market that is the primary market for the
trading of such security. "Calculation Period" means any period of Trading Days
for which an average security price must be determined pursuant to the
Indenture. The closing price of the Common Stock or any marketable security on
any Trading Day in the Calculation Period will be the daily closing sale price
or, if no closing sale price is reported, the last reported sale price of such
security as reported on the Nasdaq National Market on any such day in the
Calculation Period or, if such security is not traded on the Nasdaq National
Market on any such date, as reported in the composite transactions for the
principal United States securities exchange on which if such security is so
listed, or if such security is not so listed on a United States national or
regional securities exchange, the last quoted bid price in the over-the-counter
market as reported by the National Quotation Bureau or similar organization.
In the event of any of the following "Reorganization Events"
- any consolidation or merger of Sun Microsystems, or any surviving entity
or subsequent surviving entity of Sun Microsystems, with or into another
entity, other than a merger or consolidation in which Sun Microsystems is
the continuing corporation and in which the Common Stock outstanding
immediately prior to the merger or consolidation is not exchanged for
cash, securities or other property of Sun Microsystems or another issuer,
- any sale, transfer, lease or conveyance to another corporation of the
property of Sun Microsystems or any successor as an entirety or
substantially as an entirety,
- any statutory exchange of securities of Sun Microsystems or any Sun
Microsystems successor with another issuer, other than in connection with
a merger or acquisition, or
- any liquidation, dissolution or winding up of Sun Microsystems or any Sun
Microsystems successor,
the Exchange Rate will be adjusted so that, on the maturity date or Accelerated
Maturity Date, each holder of the TARGETS will receive cash in an amount equal
to the product of the number of TARGETS held by such holder multiplied by (1) if
the Transaction Value is less than or equal to the prevailing Appreciation Cap,
the Transaction Value times the Exchange Rate in effect immediately prior to
such Reorganization Event, and (2) if the Transaction Value is greater than the
prevailing Appreciation Cap, the prevailing Appreciation Cap. times the Exchange
Rate in effect immediately prior to such Reorganization Event.
"Transaction Value" means the sum of:
(1) for any cash received in a Reorganization Event, the amount of cash
received per share of Common Stock;
(2) for any property other than cash or marketable securities received in a
Reorganization Event, an amount equal to the market value on the date
the Reorganization Event is consummated of such
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<PAGE> 35
property received per share of Common Stock (as determined by a
nationally recognized independent investment banking firm retained for
this purpose by Salomon Smith Barney Holdings, whose determination will
be final); and
(3) for any marketable securities received in a Reorganization Event, an
amount equal to the average closing price per share of such marketable
securities for the Calculation Period of 10 Trading Days immediately
prior to the maturity date or Accelerated Maturity Date multiplied by
the number of such marketable securities received for each share of
Common Stock, provided that if no closing price for such marketable
securities may be determined for one or more, but not all, of such
Trading Days such Trading Day shall be disregarded in the calculation
of such average closing price, but no additional Trading Days shall be
added to the Calculation Period.
If no closing price for the marketable securities can be determined for all such
Trading Days, the calculation in the preceding clause (3) will be based on the
most recently available closing price for the marketable securities prior to
such 10 Trading Days.
Marketable securities are any perpetual equity securities or debt
securities with a stated maturity after the maturity date, in each case that are
listed on a U.S. national securities exchange or reported by the Nasdaq Stock
Market, Inc. The number of shares of any equity securities constituting
marketable securities included in the calculation of Transaction Value pursuant
to clause (3) of the preceding paragraph will be subject to adjustment if any
event that would, had it occurred with respect to the Common Stock or Sun
Microsystems, have required an adjustment as described above occurs with respect
to such marketable securities or the issuer thereof between the time of the
Reorganization Event and the maturity date or Accelerated Maturity Date.
Adjustment for such subsequent events shall be as nearly equivalent as
practicable to the adjustments described above.
Salomon Smith Barney Holdings will be responsible for the effectuation and
calculation of any adjustment described herein and will furnish the Indenture
trustee with notice of any such adjustment.
PAYMENT PROCEDURES
Distributions on the TARGETS will be payable to the holders thereof as they
appear on the books and records of Trust V at the close of business on the
relevant record dates. While the TARGETS remain in book-entry only form, the
relevant record dates for distributions of any Maturity Payments or Accelerated
Maturity Payments and any accrued and unpaid Yield Enhancement Payments with
respect to the TARGETS will be one business day prior to the date such Maturity
Payments or Accelerated Maturity Payments, as the case may be, are received by
Trust V with respect to the Forward Contract. While the TARGETS remain in book-
entry only form, the relevant record date for distribution of the Treasury
Proceeds to holders of TARGETS will be one business day prior to the date such
Treasury Proceeds are received by Trust V upon liquidation of the Treasury
Securities. While the TARGETS remain in book-entry only form, the relevant
record dates for any Quarterly Distributions will be one business day prior to
the relevant payment dates, which payment dates will correspond to the dates on
which payments are received by Trust V in respect of, and in accordance with the
terms of, the Treasury Securities and the Forward Contract. The relevant record
dates for the Common Securities will be the same record dates as for the
TARGETS. If the TARGETS will not continue to remain in book-entry only form, the
relevant record dates will conform to the rules of any securities exchange on
which they are listed and, if none, will be 15 days before the relevant payment
dates, which payment dates will correspond to the dates on which payments are
made in respect of, and in accordance with the terms of, the Treasury Securities
and the Forward Contract. Distributions payable on any TARGETS that are not
punctually paid on any payment date, as a result of either Salomon Smith Barney
Holdings having failed to make a payment under the Forward Contract or the U.S.
Government having failed to make a payment in respect of the Treasury
Securities, will cease to be payable to the person in whose name such TARGETS
are registered on the relevant record date, and such defaulted distribution will
instead be payable to the person in whose name such TARGETS are registered on a
special record date which shall be the date on which the amount of the defaulted
distributions are actually received by Trust V. If any date on which
distributions are payable on the TARGETS is not a business day, then payment of
the distribution payable on such date will be
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made on the next succeeding day that is a business day (and without any interest
or other payment in respect of any such delay) except that, if such business day
is in the next succeeding calendar year, such payment will be made on the
immediately preceding business day, in each case with the same force and effect
as if made on such date. A business day is any day other than a Saturday, Sunday
or a day on which banking institutions in The City of New York are authorized or
required by law to close.
Payments in respect of the TARGETS represented by global certificates (as
defined below under "Book-Entry Only Issuance") will be made to DTC, which will
credit the relevant accounts at DTC on the scheduled payment dates or, in the
case of TARGETS in the form of certificated securities, if any, such payments
shall be made by check mailed to the address of the holder entitled thereto as
such address shall appear on the register.
VOTING RIGHTS
Except as described in this prospectus under "-- Acceleration of Maturity
Date; Enforcement of Rights" and "Description of the Guarantee -- Modifications
of the Guarantee; Assignment", and except as provided under the Delaware
Business Trust Act, the Trust Indenture Act and as otherwise required by law and
the Declaration, the holders of the TARGETS will have no voting rights.
In the event the consent of the institutional trustee, as the holder of the
Forward Contract, is required under the Indenture with respect to any amendment,
modification or termination of the Indenture, the institutional trustee shall
request the written direction of the holders of the Trust Securities with
respect to such amendment, modification or termination and shall vote with
respect to such amendment, modification or termination as directed by a majority
of the Trust Securities voting together as a single class, provided, however,
that where any amendment, modification or termination under the Indenture would
require the consent of a super majority, the institutional trustee may only give
such consent at the direction of the holders of at least the proportionate
number of the Trust Securities represented by the relevant super majority of the
aggregate beneficial interests in the Forward Contract. The institutional
trustee will be under no obligation to take any such action in accordance with
the directions of the holders of the Trust Securities unless the institutional
trustee has obtained an opinion of a nationally recognized independent tax
counsel experienced in such matters to the effect that for United States federal
income tax purposes Trust V will not be classified as other than a grantor
trust.
The procedures by which holders of TARGETS may exercise their voting rights
are described below. See "-- Book-Entry Only Issuance".
Holders of the TARGETS will have no rights to appoint or remove the
trustees, who may be appointed, removed or replaced solely by Salomon Smith
Barney Holdings as the indirect or direct holder of all of the Common
Securities.
MODIFICATION OF THE DECLARATION
The Declaration may be modified and amended if approved by the Regular
Trustees (and in certain circumstances the institutional trustee and the
Delaware trustee), provided that, if any proposed amendment to the Declaration
provides for, or the Regular Trustees otherwise propose to effect,
(a) any action that would adversely affect the powers, preferences or
special rights of the Trust Securities, whether by way of amendment to
the Declaration or otherwise, or
(b) the dissolution, winding-up or termination of Trust V other than
pursuant to the terms of the Declaration,
then the holders of the Trust Securities, voting together as a single class,
will be entitled to vote on such amendment or proposal and such amendment or
proposal will not be effective except with the approval of the holders of at
least a majority of the Trust Securities affected thereby, provided that if any
amendment or proposal referred to in (a) above would adversely affect only the
TARGETS or the Common Securities, then
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only holders of the affected class will be entitled to vote on such amendment or
proposal and such amendment or proposal will not be effective except with the
approval of a majority of such class of Trust Securities.
Notwithstanding the foregoing, no amendment or modification may be made to
the Declaration if such amendment or modification would
- cause Trust V to fail to be classified as a grantor trust for United
States federal income tax purposes,
- reduce or otherwise adversely affect the powers of the institutional
trustee in contravention of the Trust Indenture Act or
- cause Trust V to be deemed an "investment company" which is required to
be registered under the Investment Company Act.
MERGER, CONSOLIDATION OR AMALGAMATION OF TARGETS TRUST V
Trust V may not consolidate, amalgamate, merge with or into, or be replaced
by, or convey, transfer or lease its properties and assets substantially as an
entirety to, any corporation or other entity, except as described below. Trust V
may, with the consent of the Regular Trustees or, if there are more than two, a
majority of the Regular Trustees and without the consent of the holders of the
Trust Securities, the Delaware trustee or the institutional trustee consolidate,
amalgamate, merge with or into, or be replaced by a trust organized as such
under the laws of any state, provided that
- such successor entity either (A) expressly assumes all of the obligations
of Trust V under the Trust Securities or (B) substitutes for the TARGETS
other successor securities having substantially the same terms as the
Trust Securities, so long as the successor securities rank the same as
the Trust Securities with respect to distributions and payments upon
liquidation, maturity and otherwise,
- Salomon Smith Barney Holdings expressly acknowledges a trustee of such
successor entity possessing the same powers and duties as the
institutional trustee in its capacity as the holder of the Forward
Contract and the Treasury Securities,
- successor securities to the TARGETS are listed, or any successor
securities to the TARGETS will be listed upon notification of issuance,
on any national securities exchange or with any organization on which the
TARGETS are then listed or quoted,
- such merger, consolidation, amalgamation or replacement does not cause
the TARGETS, including any successor securities, to be downgraded by any
nationally recognized statistical rating organization,
- such merger, consolidation, amalgamation or replacement does not
adversely affect the rights, preferences and privileges of the holders of
the Trust Securities, including any successor securities, in any material
respect, other than with respect to any dilution of the holder's interest
in the new entity,
- such successor entity has a purpose identical to that of Trust V,
- prior to such merger, consolidation, amalgamation or replacement, Trust V
has received an opinion of a nationally recognized independent counsel to
Trust V experienced in such matters to the effect that:
(A) such merger, consolidation, amalgamation or replacement will not
adversely affect the rights, preferences and privileges of the
holders of the Trust Securities, including any successor securities,
in any material respect, other than with respect to any dilution of
the holders' interest in the new entity,
(B) following such merger, consolidation, amalgamation or replacement,
neither Trust V nor such successor entity will be required to
register as an investment company under the Investment Company Act,
and
(C) following such merger, consolidation, amalgamation or replacement,
Trust V or the successor entity will continue to be classified as a
grantor trust for U.S. federal income tax purposes, and
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- Salomon Smith Barney Holdings guarantees the obligations of such
successor entity under the successor securities at least to the extent
provided by the Guarantee.
Notwithstanding the foregoing, Trust V will not, without the consent of
holders of all of the Trust Securities, consolidate, amalgamate, merge with or
into, or be replaced by any other entity or permit any other entity to
consolidate, amalgamate, merge with or into, or replace it, if in the opinion of
a nationally recognized independent tax counsel experienced in such matters such
consolidation, amalgamation, merger or replacement would cause Trust V or the
successor entity to be classified as other than a grantor trust for United
States federal income tax purposes. In addition, so long as any TARGETS are
outstanding and are not held entirely by Salomon Smith Barney Holdings, Trust V
may not voluntarily liquidate, dissolve, wind-up or terminate except as
described above under "-- Acceleration of Maturity Date; Enforcement of Rights".
BOOK-ENTRY ONLY ISSUANCE
The Depository Trust Company will act as securities depositary for the
TARGETS. The TARGETS will be issued only as fully-registered securities
registered in the name of Cede & Co. (DTC's nominee). One or more
fully-registered global TARGETS certificates, representing the total aggregate
number of TARGETS, will be issued and will be deposited with DTC.
The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of securities in definitive form. Such laws
may impair the ability to transfer beneficial interests in the global TARGETS as
represented by a global certificate.
DTC has advised Salomon Smith Barney Holdings as follows: DTC is a
limited-purpose trust company organized under the New York Banking Law, a
"banking organization" within the meaning of the New York Banking Law, a member
of the Federal Reserve System, a "clearing corporation" within the meaning of
the New York Uniform Commercial Code and a "clearing agency" registered pursuant
to the provisions of Section 17A of the Exchange Act. DTC holds securities that
its participants deposit with DTC. DTC also facilitates the settlement among
participants of securities transactions, such as transfers and pledges, in
deposited securities through electronic computerized book-entry changes in
participants' accounts, thereby eliminating the need for physical movement of
securities certificates. Direct participants in DTC include securities brokers
and dealers, banks, trust companies, clearing corporations and certain other
organizations. DTC is owned by a number of its Direct participants and by the
New York Stock Exchange, the American Stock Exchange, Inc., and the National
Association of Securities Dealers, Inc. Access to the DTC system is also
available to others, such as securities brokers and dealers, banks and trust
companies that clear through or maintain a custodial relationship with a direct
participant, either directly or indirectly. The rules applicable to DTC and its
participants are on file with the SEC.
Purchases of TARGETS within the DTC system must be made by or through
direct participants, which will receive a credit for the TARGETS on DTC's
records. The ownership interest of each beneficial owner actually purchasing
TARGETS is in turn to be recorded on the direct participants' and indirect
participants' records. Beneficial owners will not receive written confirmation
from DTC of their purchases, but beneficial owners are expected to receive
written confirmations providing details of the transactions, as well as periodic
statements of their holdings, from the direct or indirect participants through
which the beneficial owners purchased TARGETS. Transfers of ownership interests
in the TARGETS are to be accomplished by entries made on the books of
participants and indirect participants acting on behalf of beneficial owners.
Beneficial owners will not receive certificates representing their ownership
interests in TARGETS, except in the event that use of the book-entry system for
the TARGETS is discontinued.
To facilitate subsequent transfers, all the TARGETS deposited by
participants with DTC are registered in the name of DTC's nominee, Cede & Co.
The deposit of TARGETS with DTC and their registration in the name of Cede & Co.
effect no change in beneficial ownership, and DTC has no knowledge of the actual
beneficial owners of the TARGETS. DTC's records reflect only the identity of the
direct participants to whose accounts such TARGETS are credited, which may or
may not be the beneficial owners. The participants will remain responsible for
keeping account of their holdings on behalf of their customers.
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Conveyance of notices and other communications by DTC to direct
participants and indirect participants to beneficial owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements
that may be in effect from time to time.
Although voting with respect to the TARGETS is limited, in those cases
where a vote is required, neither DTC nor Cede & Co. will itself consent or vote
with respect to TARGETS. Under its usual procedures, DTC would mail an Omnibus
Proxy to Trust V as soon as possible after the record date. The Omnibus Proxy
assigns Cede & Co. consenting or voting rights for those direct participants to
whose accounts the TARGETS are credited on the record date (identified in a
listing attached to the Omnibus Proxy). Salomon Smith Barney Holdings and Trust
V believe that the arrangements among DTC, direct and indirect participants, and
beneficial owners will enable the beneficial owners to exercise rights
equivalent in substance to the rights that can be directly exercised by a holder
of a beneficial interest in Trust V.
Payments on the TARGETS will be made to DTC. DTC's practice is to credit
direct participants' accounts on the relevant payment date in accordance with
their respective holdings shown on DTC's records unless DTC has reason to
believe that it will not receive payments on such payment date. Payments by
participants to beneficial owners will be governed by standing instructions and
customary practices, as is the case with securities held for the account of
customers in bearer form or registered in "street name," and such payments will
be the responsibility of such participant and not of DTC, Trust V or Salomon
Smith Barney Holdings, subject to any statutory or regulatory requirements to
the contrary that may be in effect from time to time. Payment of distributions
to DTC is the responsibility of Trust V, disbursement of such payments to direct
participants is the responsibility of DTC, and disbursement of such payments to
the beneficial owners is the responsibility of direct and indirect participants.
Except as provided in the next paragraph, a beneficial owner in a global
TARGETS will not be entitled to receive physical delivery of TARGETS.
Accordingly, each beneficial owner must rely on the procedures of DTC to
exercise any rights under the TARGETS.
DTC may discontinue providing its services as securities depositary with
respect to the TARGETS at any time by giving reasonable notice to Trust V. Under
such circumstances, in the event that a successor securities depositary is not
obtained, TARGETS certificates are required to be printed and delivered.
Additionally, the Regular Trustees, with the consent of Salomon Smith Barney
Holdings, may decide to discontinue use of the system of book-entry transfers
through DTC or any successor depositary with respect to the TARGETS. In that
event, certificates for the TARGETS will be printed and delivered.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that Salomon Smith Barney Holdings and Trust V
believe to be reliable, but neither Salomon Smith Barney Holdings nor Trust V
takes responsibility for the accuracy thereof.
INFORMATION CONCERNING THE INSTITUTIONAL TRUSTEE
The institutional trustee, prior to the occurrence of a default with
respect to the Trust Securities, and after the curing of all defaults that may
have occurred, undertakes to perform only such duties as are specifically set
forth in the Declaration and, after such a default of which the institutional
trustee has actual knowledge, will exercise such of the rights and powers vested
in it by the Declaration, and use the same degree of care and skill in the
exercise of such rights and powers as a prudent individual would exercise in the
conduct of his or her own affairs. Subject to such provisions, the institutional
trustee is under no obligation to exercise any of the rights or powers vested in
it by the Declaration at the request of any holder of TARGETS, unless offered
reasonable security and indemnity by such holder against the costs, expenses and
liabilities which might be incurred thereby. Notwithstanding the foregoing, the
holders of TARGETS will not be required to offer such indemnity in the event
such holders, by exercising their voting rights, direct the institutional
trustee to take any action following an Acceleration Event.
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PAYING AGENT
In the event that the TARGETS do not remain in book-entry only form, the
institutional trustee will act as paying agent for the TARGETS and may designate
an additional or substitute paying agent at any time. In addition, registration
of transfers of TARGETS will be effected without charge by or on behalf of Trust
V, but upon payment, with the giving of such indemnity as Trust V or Salomon
Smith Barney Holdings may require, in respect of any tax or other government
charges which may be imposed in relation to it.
GOVERNING LAW
The Declaration and the TARGETS will be governed by, and construed in
accordance with, the internal laws of the State of Delaware.
MISCELLANEOUS
The Regular Trustees are authorized and directed to operate Trust V in such
a way so that Trust V will not be required to register as an "investment
company" under the Investment Company Act or be characterized as other than a
grantor trust for United States federal income tax purposes. In this connection,
Salomon Smith Barney Holdings and the Regular Trustees are authorized to take
any action, not inconsistent with applicable law, the Declaration or the amended
and restated certificate of incorporation of Salomon Smith Barney Holdings, that
each of Salomon Smith Barney Holdings and the Regular Trustees in their
discretion to be necessary or desirable to achieve such end as long as such
action does not adversely affect the interests of the holders of the TARGETS or
vary the terms thereof.
Holders of the TARGETS have no preemptive rights.
DESCRIPTION OF THE FORWARD CONTRACT
Salomon Smith Barney Holdings Inc. is also by this prospectus offering its
related forward contract with respect to the Common Stock (the "Forward
Contract"). The terms of the Forward Contract will be set forth in an Indenture
(the "Indenture") between Salomon Smith Barney Holdings and The Chase Manhattan
Bank. The Indenture will be qualified under the Trust Indenture Act. The
Indenture trustee will act as trustee for the Forward Contract under the
Indenture for purposes of compliance with the provisions of the Trust Indenture
Act. The terms of the Forward Contract will include those stated in the
Indenture and those made part of the Indenture by the Trust Indenture Act. The
Forward Contract will rank equally with all other unsecured contractual
obligations of Salomon Smith Barney Holdings and the unsecured and
unsubordinated debt of Salomon Smith Barney Holdings. Since Salomon Smith Barney
Holdings is a holding company, the Forward Contract will be effectively
subordinated to the claims of creditors of Salomon Smith Barney Holdings'
subsidiaries.
Subject to certain anti-dilution adjustments, the Forward Contract relates
to an aggregate of shares of Common Stock. Pursuant to the terms of the
Forward Contract, Salomon Smith Barney Holdings will pay an amount equal to the
aggregate Maturity Payments or the aggregate Accelerated Maturity Payments, as
the case may be, to Trust V at maturity of the Forward Contract as described
above. The Forward Contract provides, among other things, for a payment by
Salomon Smith Barney Holdings to Trust V of an amount determined by reference to
the Current Market Price as of the maturity date or Accelerated Maturity Date,
as the case may be. See "Description of the TARGETS".
Pursuant to the terms of the Forward Contract, Salomon Smith Barney
Holdings will, in appropriate cases, pay additional return on the amount paid by
Trust V to Salomon Smith Barney Holdings for the Forward Contract in the form of
quarterly cash payments ("Yield Enhancement Payments") in the amount of
approximately $ , accruing from the date of issuance of the TARGETS,
computed on the basis of a 360-day year of twelve 30-day months and for any
period less than a full calendar month, the number of days elapsed in such
month. Depending on market conditions at the time of pricing of the TARGETS for
initial sale to the public, the amount of the Yield Enhancement Payments may be
zero or a nominal amount. The Yield Enhancement Payments, together with
distributions received by Trust V with respect to the Treasury
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Securities, will be used by the Trust V to pay the Quarterly Distributions to
the holders of the TARGETS. See "Description of the TARGETS -- Quarterly
Distributions".
The Forward Contract is a contract in the form of an Indenture between the
Company and a trustee for the benefit of the holder of the interests in the
Forward Contract. The Forward Contract is a prepaid "cash-settled" forward
contract, whereby the obligor settles its obligation in cash rather than in
securities. The Indenture will provide that Salomon Smith Barney Holdings will
pay all fees and expenses related to
- the offering of the Trust Securities and the Forward Contract,
- the organization, maintenance and dissolution of Trust V,
- the retention of the trustees, and
- the enforcement by the institutional trustee of the rights of the holders
of the TARGETS.
DESCRIPTION OF THE GUARANTEE
Set forth below is a summary of information concerning the guarantee that
will be executed and delivered by Salomon Smith Barney Holdings for the benefit
of the holders of TARGETS (the "Guarantee"). The Guarantee will be qualified as
an indenture under the Trust Indenture Act. The Chase Manhattan Bank will act as
indenture trustee under the Guarantee. The terms of the Guarantee will be those
set forth in the Guarantee and those made part of the Guarantee by the Trust
Indenture Act. The summary does not purport to be complete and is subject in all
respects to the provisions of, and is qualified in its entirety by reference to,
the form of Guarantee, which is filed as an exhibit to the Registration
Statement of which this prospectus forms a part, and the Trust Indenture Act.
The Guarantee will be held by the Guarantee trustee for the benefit of the
holders of the TARGETS.
GENERAL
Pursuant to and to the extent set forth in the Guarantee, Salomon Smith
Barney Holdings will irrevocably and unconditionally agree to pay in full to the
holders of the TARGETS, except to the extent paid by Trust V, as and when due,
regardless of any defense, right of set off or counterclaim which Trust V may
have or assert, the following payments, without duplication:
- any Maturity Payment that is required to be made in respect of the
TARGETS, to the extent Trust V has funds available,
- any Accelerated Maturity Payment that is required to be made in respect
of the TARGETS, to the extent Trust V has funds available,
- any Treasury Proceeds that are required to be distributed in respect of
the TARGETS, to the extent that Trust V has funds available,
- any Quarterly Distributions that are required to be made in respect of
the TARGETS, to the extent Trust V has funds available,
- any accrued and unpaid Yield Enhancement Payments as of the maturity date
or Accelerated Maturity, as the case may be, to the extent Trust V has
funds available, and
- any other remaining assets of Trust V upon liquidation of Trust V.
Salomon Smith Barney Holdings' obligation to make a Guarantee payment may
be satisfied by direct payment of the required amounts by Salomon Smith Barney
Holdings to the holders of TARGETS or by causing Trust V to pay such amounts to
such holders.
The Guarantee will be a guarantee with respect to the TARGETS from the time
of issuance of the TARGETS but will not apply to any payment of Quarterly
Distributions, Maturity Payments, Accelerated Maturity Payments, Treasury
Proceeds, accrued and unpaid Yield Enhancement Payments or to payments upon the
dissolution, winding-up or termination of Trust V, except to the extent Trust V
shall have funds available. If Salomon Smith Barney Holdings does not pay the
aggregate Maturity Payments or the aggregate
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Accelerated Maturity Payments to Trust V upon maturity of the Forward Contract,
including maturity as a result of acceleration or otherwise, Trust V will not
pay any Maturity Payment or Accelerated Maturity Payment to holders of the
TARGETS and will not have funds available to make such payments. If either the
U.S. federal government, as the issuer of the Treasury Securities, does not make
periodic payments to Trust V with respect to the Treasury Securities, or Salomon
Smith Barney Holdings does not pay the Yield Enhancement Payments to Trust V
with respect to the Forward Contract then, in either event, Trust V will not pay
the full amount of the Quarterly Distributions to holders of the TARGETS and
will not have funds available to make such payments. See "Description of the
TARGETS" and "Description of the Forward Contract". The Guarantee, when taken
together with Salomon Smith Barney Holdings' obligations under the Forward
Contract, the Indenture and the Declaration, including its obligations to pay
costs, expenses, debts and liabilities of Trust V, other than with respect to
Trust Securities, will provide a full and unconditional guarantee by Salomon
Smith Barney Holdings of Trust V's obligations under the TARGETS.
MODIFICATIONS OF THE GUARANTEE; ASSIGNMENT
Except with respect to any changes that do not adversely affect the rights
of holders of TARGETS, in which case no vote will be required, the Guarantee may
be amended only with the prior approval of the holders of a majority of the
outstanding TARGETS. All guarantees and agreements contained in the Guarantee
shall bind the successors, assignees, receivers, trustees and representatives of
Salomon Smith Barney and shall inure to the benefit of the holders of the
TARGETS then outstanding.
GUARANTEE ENFORCEMENT EVENTS
An enforcement event under the Guarantee will occur upon the failure of
Salomon Smith Barney Holdings to perform any of its payment or other obligations
thereunder. The holders of a majority of the TARGETS have the right to direct
the time, method and place of conducting any proceeding for any remedy available
to the Guarantee trustee in respect of the Guarantee or to direct the exercise
of any trust or power conferred upon the Guarantee trustee under the Guarantee.
If the Guarantee trustee fails to enforce the Guarantee trustee's rights under
the Guarantee any holder of TARGETS may directly institute a legal proceeding
against Salomon Smith Barney Holdings to enforce the Guarantee trustee's rights
under the Guarantee, without first instituting a legal proceeding against Trust
V, the Guarantee trustee or any other person or entity. A holder of TARGETS may
also directly institute a legal proceeding against Salomon Smith Barney Holdings
to enforce such holder's right to receive payment under the Guarantee without
first directing the Guarantee trustee to enforce the terms of the Guarantee or
instituting a legal proceeding against Trust V or any other person or entity.
Salomon Smith Barney Holdings will be required to provide annually to the
Guarantee trustee a statement as to the performance by Salomon Smith Barney
Holdings of certain of its obligations under the Guarantee and as to any default
in such performance.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee trustee, prior to the occurrence of a default with respect to
the Guarantee and after the curing of all defaults that may have occurred,
undertakes to perform only such duties as are specifically set forth in the
Guarantee and, after any default with respect to the Guarantee that has not been
cured or waived of which the Guarantee trustee has actual knowledge, shall
exercise its rights and powers under the Guarantee, and use the same degree of
care and skill in the exercise of such rights and powers as a prudent individual
would exercise in the conduct of his or her own affairs. Subject to such
provision, the Guarantee trustee is under no obligation to exercise any of the
powers vested in it by the Guarantee at the request of any holder of TARGETS
unless it is offered reasonable indemnity against the costs, expenses and
liabilities that might be incurred thereby.
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TERMINATION OF THE GUARANTEE
The Guarantee will terminate as to the TARGETS upon full payment to the
holders of the TARGETS of
- the Maturity Payments and all Quarterly Distributions,
- the Accelerated Maturity Payments, the Treasury Proceeds and any accrued
but unpaid Yield Enhancement Payments or
- the amounts payable in accordance with the Declaration upon liquidation
of Trust V.
The Guarantee will continue to be effective or will be reinstated, as the case
may be, if at any time any holder of TARGETS must restore payment of any sum
paid under such TARGETS or such Guarantee.
STATUS OF THE GUARANTEE
The Guarantee will constitute a guarantee of payment and not of collection.
The guaranteed party may institute a legal proceeding directly against the
Guarantor to enforce its rights under the Guarantee without first instituting a
legal proceeding against any other person or entity.
GOVERNING LAW
The Guarantee will be governed by, and construed in accordance with, the
internal laws of the State of New York.
DESCRIPTION OF THE TREASURY SECURITIES
The "Treasury Securities" will consist of a portfolio of stripped
self-amortizing securities issued by the U.S. Treasury and maturing on a
quarterly basis through the maturity date. The Treasury Securities will bear
quarterly payments corresponding to the payment dates of the Quarterly
Distributions payable on the TARGETS. Upon acceleration of maturity to an
Accelerated Maturity Date, any Treasury Securities then held by the
institutional trustee on behalf of Trust V will be sold and the Treasury
Proceeds will be distributed to holders of the Trust Securities. See
"Description of the TARGETS -- Acceleration of Maturity Date; Enforcement of
Rights".
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain U.S. federal income tax consequences
of the purchase, ownership and disposition of TARGETS. Unless otherwise
specifically indicated herein, this summary only addresses a holder of TARGETS
that is an individual who is a citizen or resident of the United States, a U.S.
domestic corporation, or any other person that is subject to U.S. federal income
taxation on a net income basis in respect of its investment in TARGETS (a "U.S.
Holder"). The discussion below is based on the advice of Cleary, Gottlieb, Steen
& Hamilton.
The summary is based on U.S. federal income tax laws, regulations, rulings
and decisions now in effect, all of which are subject to change, possibly on a
retroactive basis. Except to the extent discussed below in "-- Tax Consequences
to Non-U.S. Holders" and "-- Backup Withholding and Information Reporting," the
summary deals only with U.S. Holders that will hold TARGETS as capital assets
and that purchased TARGETS in the initial offering. The summary does not address
tax considerations that may be relevant to a particular holder in light of such
holder's individual circumstances or that are applicable to holders subject to
special tax rules, such as banks, tax-exempt entities, insurance companies,
dealers in securities or currencies, traders in securities electing to mark to
market, persons that will hold the TARGETS as a position in a "straddle" for tax
purposes or as part of a "synthetic security" or a "conversion transaction" or
other integrated investment comprised of TARGETS and one or more other
investments, or persons that have a functional currency other than the U.S.
dollar. It does not include any description of the tax laws of any state, local
or foreign government that may be applicable to the TARGETS or to the holders
thereof. Prospective purchasers of TARGETS should consult their tax advisors in
determining the tax consequences to them of purchasing, owning or disposing of
TARGETS, including the application to their particular situation of the
43
<PAGE> 44
U.S. federal income tax considerations discussed below, as well as the
application of state, local, foreign income or other tax laws.
There are no regulations, published rulings or judicial decisions
addressing the characterization for U.S. federal income tax purposes of TARGETS
or instruments with terms substantially similar to TARGETS. Pursuant to the
Declaration, every holder of TARGETS and Trust V agree to treat TARGETS for U.S.
federal income tax purposes as a beneficial interest in a trust that holds the
Treasury Securities and the Forward Contract. In addition, pursuant to the
Forward Contract and the Declaration, every holder of TARGETS, Trust V and
Salomon Smith Barney agree to characterize for U.S. federal income tax purposes,
in the absence of an administrative determination or judicial ruling to the
contrary, (1) the Forward Contract as a cash-settled forward purchase contract
and (2) an amount equal to the purchase price of the TARGETS less the purchase
price of the Treasury Securities as a cash deposit to be applied on the maturity
date or Accelerated Maturity Date in full satisfaction of the holder's payment
obligation under the Forward Contract. Trust V intends to report holders' income
to the Internal Revenue Service in accordance with this agreed treatment.
Under this agreed approach, the tax consequences of holding a TARGETS
should be as described below. Prospective investors in the TARGETS should be
aware, however, that no ruling is being requested from the Internal Revenue
Service with respect to the TARGETS and the Internal Revenue Service might take
a different view as to the proper characterization of the TARGETS or of the
Forward Contract and of the U.S. federal income tax consequences to a holder
thereof.
TAX STATUS OF TRUST V
The Trust will be treated as a grantor trust owned solely by the present
and future holders of Trust Securities for U.S. federal income tax purposes, and
accordingly, income received by the Trust will be treated as income of the
holders of the TARGETS in the manner set forth below.
TAX CONSEQUENCES TO U.S. HOLDERS
Tax Basis in the Treasury Securities and the Forward Contract. Each U.S.
Holder should be considered the owner of its pro rata portion of the Treasury
Securities and the Forward Contract in Trust V. The cost to the U.S. Holder of
its TARGETS should be allocated among the holder's pro rata portion of the
Treasury Securities and the Forward Contract, in proportion to the fair market
values thereof on the date on which the holder acquires its TARGETS, in order to
determine the holder's tax basis in such assets. It is currently anticipated
that approximately 10% to 15% and 85% to 90% of the net proceeds of the offering
will be used by Trust V to purchase the Treasury Securities and the Forward
Contract, respectively.
Recognition of Original Issue Discount on the Treasury Securities. The
Treasury Securities in Trust V will consist of stripped, self-amortizing U.S.
Treasury securities. A U.S. Holder should be required to treat its pro rata
portion of each Treasury Security in Trust V as a bond that was originally
issued on the date the holder purchased its TARGETS and at an original issue
discount equal to the excess of the holder's pro rata portion of the amounts
payable on such Treasury Security over the holder's tax basis therein, as
discussed above. The amount of such excess, however, should constitute only a
portion of the total amounts payable with respect to the Treasury Securities
held by Trust V and, accordingly, a substantial portion of the quarterly cash
distributions from Trust V to holders should be treated as a tax-free return of
the holder's investment in the Treasury Securities and should reduce the
holder's tax basis in its pro rata portion of the Treasury Securities. A U.S.
Holder, whether using the cash or accrual method of tax accounting, should be
required to include original issue discount, other than original issue discount
on short-term Treasury Securities as described below, in gross income for U.S.
federal income tax purposes as it accrues, in accordance with a constant yield
method, prior to the receipt of cash attributable to such income. A U.S.
Holder's tax basis in a Treasury Security held by Trust V should be increased by
the amount of any original issue discount included in gross income by the holder
with respect to such Treasury Security and reduced to the extent that any
payment received on maturity, sale or other disposition of the TARGETS
represents a repayment of accrued original issue discount.
44
<PAGE> 45
With respect to any short-term Treasury Security (a Treasury Security with
a maturity of one year or less from the date it is purchased) held by the Trust,
U.S. Holders using the cash method of tax accounting should generally be
required to include interest payments on such Treasury Securities in gross
income as such payments are received. In addition, such cash method U.S. Holders
may be denied a deduction for any related interest expense until such payments
are received. U.S. Holders using the accrual method of tax accounting should be
required to include original issue discount on any short-term Treasury Security
held by Trust V in gross income as such original issue discount accrues. Unless
a U.S. Holder elects to accrue the original issue discount on a short-term
Treasury Security according to a constant yield method based on daily
compounding, such original issue discount should be accrued on a straight-line
basis.
Treatment of the Forward Contract. Each U.S. Holder should be treated as
having entered into a pro rata portion of the Forward Contract and, at the
maturity date or Accelerated Maturity Date, as having received a pro rata
portion of the Maturity Payment or Accelerated Maturity Payment, as the case may
be, received by Trust V. A U.S. Holder should not recognize income, gain or loss
upon entry into the Forward Contract and should not be required to include in
gross income additional amounts over the term of the Forward Contract, except
with respect to the Yield Enhancement Payments, as described below. See,
however, "-- Possible Alternative Characterizations" below.
Treatment of the Yield Enhancement Payments. Consistent with the agreed
characterization, any Yield Enhancement Payments, including amounts payable with
respect to any deferred Yield Enhancement Payments, should be characterized as
interest payable on the amount of the cash deposit and should generally be
includible in the income of a U.S. holder on an accrual basis.
Sale or Other Disposition of the TARGETS. Upon a sale or other disposition
of all or some of a U.S. Holder's TARGETS, such holder should be treated as
having sold its pro rata portions of the Treasury Securities and the Forward
Contract underlying the TARGETS. The selling U.S. Holder should recognize
capital gain or loss equal to the difference between the amount realized from
such sale or other disposition and the holder's aggregate tax bases in its pro
rata portions of the Treasury Securities and the Forward Contract, except to the
extent of any (i) accrued interest with respect to the holder's pro rata portion
of the Treasury Securities includible in gross income as ordinary income and
(ii) possibly any accrued but unpaid Yield Enhancement Payments, as described
above. Any such gain or loss will be long-term capital gain or loss if the U.S.
Holder's holding period for the TARGETS is more than one year. The distinction
between capital gain or loss and ordinary income or loss is important for
purposes of the limitations on a holder's ability to offset capital losses
against ordinary income. In addition, long-term capital gains recognized by an
individual U.S. Holder generally are subject to a maximum rate of 20 percent.
Distributions Of Cash at the Maturity Date or Accelerated Maturity
Date. On the receipt of cash by Trust V with respect to the Forward Contract on
the maturity date or Accelerated Maturity Date, a U.S. Holder should realize
capital gain or loss equal to the difference between the holder's pro rata
portion of the amount of cash received by Trust V and the holder's tax basis in
its pro rata portion of the Forward Contract at that time, except to the extent
such cash is attributable to Yield Enhancement Payments, as described above.
Under certain circumstances, on or following the Accelerated Maturity Date,
Trust V may sell all or a portion of the Treasury Securities and distribute the
Treasury Proceeds to holders. Upon such a sale by Trust V, a U.S. Holder should
realize capital gain or loss equal to the difference between the amount of cash
received by the holder, except to the extent of any accrued interest with
respect to the holder's pro rata portion of the Treasury Securities or accrued
but unpaid Yield Enhancement Payments includible in gross income as ordinary
income, and the holder's tax basis in its pro rata portion of the Treasury
Securities sold by Trust V. Any such capital gain or loss described in this
paragraph will be long-term capital gain or loss if the U.S. Holder's holding
period for the TARGETS is more than one year and will be subject to the same
maximum U.S. federal income tax rates for individuals discussed above under
"-- Sale or Other Disposition of the TARGETS".
Possible Alternative Characterizations. The Internal Revenue Service may
contend that TARGETS should be characterized for U.S. federal income tax
purposes in a manner different than the approach described above. For example,
the Internal Revenue Service might assert that the Forward Contract should be
45
<PAGE> 46
treated as a contingent debt obligation of Salomon Smith Barney Holdings that is
subject to Treasury regulations governing contingent payment debt instruments.
If the Internal Revenue Service were to prevail in making such an assertion,
original issue discount would accrue with respect to the Forward Contract at a
"comparable yield" for Salomon Smith Barney Holdings under the Forward Contract,
determined at the time the Forward Contract is entered into. A U.S. Holder's pro
rata portion of original issue discount with respect to the Forward Contract and
the Treasury Securities might exceed the aggregate amount of the Quarterly
Distributions received by the holder. In addition, under this treatment, a U.S.
Holder would be required to treat any gain realized on the sale or other
disposition of the TARGETS as ordinary income to the extent that such gain is
allocable to the holder's pro rata portion of the Forward Contract. Any loss
realized on such sale or other disposition that is allocable to the U.S.
Holder's pro rata portion of the Forward Contract would be treated as an
ordinary loss to the extent of the holder's original issue discount inclusions
with respect to the Forward Contract and as capital loss to the extent of loss
in excess of such inclusions. It is also possible that the Internal Revenue
Service could take the view that a U.S. Holder should include in gross income
the amount of cash actually received each year in respect of the TARGETS or that
the TARGETS as a whole constitute a contingent payment debt instrument subject
to the rules described above.
Recently Enacted Legislation. New legislation enacted by Congress on
December 17, 1999 recharacterizes some or all of the net long-term capital gain
arising from certain "constructive ownership" transactions entered into after
July 11, 1999 as ordinary income and would impose an interest charge on any such
ordinary income. The legislation will have no immediate application to forward
contracts in respect of the stock of a domestic operating company, including
TARGETS. The legislation does, however, grant discretionary authority to the
U.S. Treasury Department to promulgate regulations to expand the scope of
"constructive ownership" transactions to include forward contracts in respect of
the stock of all corporations. The legislation separately also directs the
Treasury to promulgate regulations excluding from the scope of the legislation a
forward contract that does not convey "substantially all" of the economic return
on an underlying asset (which category may include TARGETS). It is not possible
to predict whether such regulations will be promulgated by the Treasury, or the
form or effective date that any regulations that may be promulgated might take.
TAX CONSEQUENCES TO NON-U.S. HOLDERS
In the case of a holder of TARGETS that is a non-resident alien individual
or foreign corporation (a "Non-U.S. Holder"): (1) Quarterly Distributions made
with respect to the TARGETS should not be subject to U.S. withholding tax,
provided that such holder complies with applicable certification requirements,
including in general the furnishing of an Internal Revenue Service Form W-8 or a
substitute form; and (2) any capital gain realized upon the sale or other
disposition of the TARGETS should not be subject to U.S. federal income tax
unless (A) such gain is effectively connected with a U.S. trade or business of
such holder or (B) in the case of an individual, such individual is present in
the United States for 183 days or more in the taxable year of the sale or other
disposition or the gain is not attributable to a fixed place of business
maintained by such individual in the United States.
Recently issued Treasury regulations may change the certification
procedures relating to withholding on certain amounts paid to Non-U.S. Holders
after December 31, 2000. Prospective investors should consult their tax advisors
regarding the effect, if any, of such new Treasury regulations on an investment
in the TARGETS.
A Non-U.S. Holder that is subject to U.S. federal income taxation on a net
income basis with respect to its investment in the TARGETS should see the
discussion in "-- Tax Consequences to U.S. Holders".
BACKUP WITHHOLDING AND INFORMATION REPORTING
A holder of TARGETS, including a Non-U.S. Holder, may be subject to
information reporting and to backup withholding tax at a rate of 31 percent of
certain amounts paid to the holder unless such holder (a) is a corporation or
comes within certain other exempt categories and, when required, provides proof
of such exemption or (b) provides a correct taxpayer identification number,
certifies as to no loss of exemption from backup withholding tax and otherwise
complies with applicable requirements of the backup withholding rules. Backup
withholding is not an additional tax and any amounts withheld may be credited
against the holder's U.S. federal income tax liability, provided that the
required information is furnished to the Internal Revenue Service.
46
<PAGE> 47
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended, imposes
certain requirements on "employee benefit plans", as defined in Section 3(3) of
ERISA, subject to ERISA, including entities such as collective investment funds
and separate accounts whose underlying assets include the assets of such plans
(collectively, "ERISA Plans") and on those persons who are fiduciaries with
respect to ERISA Plans. Section 406 of ERISA and Section 4975 of the Internal
Revenue Code of 1986 prohibit certain transactions involving the assets of an
ERISA Plan or a plan, such as a Keogh plan or an individual retirement account,
that are not subject to ERISA but which are subject to Section 4975 of the
Internal Revenue Code (together with ERISA Plans, "Plans") and certain persons,
referred to as "parties in interest" under ERISA or "disqualified persons" under
the Internal Revenue Code, having certain relationships to such Plans, unless a
statutory or administrative exception or exemption is applicable to the
transaction.
The U.S. Department of Labor has promulgated a regulation, 29 C.F.R.
Section 2510.3-101, describing what constitutes the assets of a Plan with
respect to the Plan's investment in an entity for purposes of certain provisions
of ERISA, including the fiduciary responsibility provisions of Title I of ERISA
and Section 4975 of the Internal Revenue Code. Under this regulation, if a Plan
invests in a beneficial interest in a trust or a profits interest in a
partnership, the Plan's assets include both the equity interest and an undivided
interest in each of the entity's underlying assets, unless the interest is a
"publicly-offered security" or certain other conditions are satisfied. It is
anticipated that the TARGETS should constitute "publicly-offered securities"
within the meaning of the regulation, and that, consequently, transactions
engaged in by the Trust, including the Forward Contract, should not be subject
to the provisions of ERISA or Section 4975 of the Internal Revenue Code.
Any Plan fiduciary which proposes to cause a Plan to purchase the TARGETS
should consult with its counsel regarding the applicability of the fiduciary
responsibility and prohibited transaction provisions of ERISA and Section 4975
of the Internal Revenue Code to such an investment, and to confirm that such
investment will not constitute or result in a prohibited transaction or any
other violation of an applicable requirement of ERISA or the Internal Revenue
Code for which an exemption is not available. Governmental plans and certain
church plans not subject to the fiduciary responsibility provisions of ERISA or
the provisions of Section 4975 of the Internal Revenue Code but subject to state
or other federal laws that are substantially similar to the foregoing provisions
of ERISA and the Internal Revenue Code should also consult with their counsel
before purchasing any TARGETS.
By its purchase of any TARGETS, each initial purchaser and subsequent
transferee will be deemed to have represented and warranted on each day from the
date on which the purchaser or transferee acquires the TARGETS through and
including the date on which the purchaser or transferee disposes of its interest
in the TARGETS, either that (A) it is not an ERISA Plan, or other Plan, or a
governmental plan which is subject to any federal, state, or local law that is
substantially similar to the provisions of Section 406 of ERISA or Section 4975
of the Internal Revenue Code or (B) its purchase, holding and disposition of
such TARGETS will not result in a prohibited transaction under Section 406 of
ERISA or Section 4975 of the Internal Revenue Code or any other violation of an
applicable requirement of ERISA or the Internal Revenue Code (or in the case of
a governmental plan, any substantially similar federal, state or local law) for
which an exemption is not available, all of the conditions of which have been
satisfied.
47
<PAGE> 48
UNDERWRITING
Subject to the terms and conditions stated in the underwriting agreement
dated January , 2000, Salomon Smith Barney Inc., as underwriter, has agreed to
purchase from Trust V, and Trust V has agreed to sell to Salomon Smith Barney
Inc., the TARGETS.
The underwriting agreement provides that the obligation of Salomon Smith
Barney Inc. to purchase the TARGETS included in this offering is subject to
approval of certain legal matters by counsel and to certain other conditions.
Salomon Smith Barney Inc. is obligated to purchase all of the TARGETS, other
than those covered by the over-allotment option described below, if it purchases
any TARGETS.
Salomon Smith Barney Inc. proposes to offer some of the TARGETS directly to
the public at the public offering price set forth on the cover page of this
prospectus and some of the TARGETS to certain dealers at the public offering
price less a concession not in excess of $ per TARGETS. Salomon Smith Barney
Inc. may allow, and such dealers may reallow, a concession not in excess of
$ per TARGETS on sales to certain other brokers and dealers. After the
initial offering of the TARGETS to the public, the public offering price and
such concessions may be changed by Salomon Smith Barney Inc.
Trust V has granted to Salomon Smith Barney Inc. an option, exercisable for
30 days from the date of this prospectus, to purchase up to additional
TARGETS at the public offering price. Salomon Smith Barney Holdings will pay the
underwriting discount in the amount per TARGETS set forth on the cover page
hereof with respect to such additional TARGETS. Salomon Smith Barney Inc. may
exercise such option solely for the purpose of covering over-allotments, if any,
in connection with this offering.
Trust V and Salomon Smith Barney Holdings have agreed that, for the period
beginning on the date of the underwriting agreement and continuing to and
including the closing date for the purchase of the TARGETS, they will not offer,
sell, contract to sell, or otherwise dispose of, any securities, including any
backup undertakings of such securities, of Salomon Smith Barney Holdings or of
Trust V, in each case that are substantially similar to the TARGETS, or any
securities convertible into or exchangeable for the TARGETS or such
substantially similar securities of either Trust V or Salomon Smith Barney
Holdings, without the prior written consent of Salomon Smith Barney Inc.
The underwriting agreement provides that Trust V and Salomon Smith Barney
Holdings will indemnify Salomon Smith Barney Inc. against certain liabilities,
including liabilities under the Securities Act of 1933, and will make certain
contributions in respect thereof, or will contribute to payments that Salomon
Smith Barney Inc. may be required to make in respect of any of those liabilities
and will reimburse Salomon Smith Barney Inc. for certain legal and other
expenses.
Prior to this offering, there has been no public market for the TARGETS.
Consequently, the initial public offering price for the TARGETS was determined
by negotiations among the Company, Trust V and Salomon Smith Barney Inc. There
can be no assurance, however, that the prices at which the TARGETS will sell in
the public market after this offering will not be lower than the price at which
they are sold by Salomon Smith Barney Inc. or that an active trading market in
the TARGETS will develop and continue after this offering.
Salomon Smith Barney Holdings and Trust V will apply to list the TARGETS on
the Chicago Board Options Exchange under the symbol "TSW".
In view of the fact that the proceeds of the sale of the TARGETS will
ultimately be used by Trust V to purchase the Forward Contract, the underwriting
agreement provides that Salomon Smith Barney Holdings will pay to Salomon Smith
Barney Inc. an underwriting discount of $ per TARGETS for the account of
Salomon Smith Barney Inc.
In connection with the offering, Salomon Smith Barney Inc., as the
underwriter, may engage in stabilizing transactions. Stabilizing transactions
consist of certain bids or purchases of TARGETS made for the purpose of
preventing or retarding a decline in the market price of the TARGETS while the
offering is in progress. These activities may cause the price of the TARGETS to
be higher than the price that otherwise would exist in the open market in the
absence of such transactions. These transactions may be effected in the
over-the-counter market or otherwise and, if commenced, may be discontinued at
any time.
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<PAGE> 49
The offer and sale of the TARGETS will comply with the requirements of Rule
2810 of the Conduct Rules of the National Association of Securities Dealers,
Inc. regarding direct participation programs.
This prospectus may be used by Salomon Smith Barney Holdings, Salomon Smith
Barney Inc. or other affiliates of Salomon Smith Barney Holdings in connection
with offers and sales of the TARGETS (subject to obtaining any necessary
approval of the Chicago Board Options Exchange for any such offers and sales) in
market-making transactions at negotiated prices related to prevailing market
prices at the time of sale. Any such entity may act as principal or agent in
such transactions. No such entity is obligated to make a market in the TARGETS
and any such entity may discontinue any market-making at any time without
notice, at its sole discretion. There can be no assurance of the liquidity or
existence of a secondary market for any TARGETS.
LEGAL MATTERS
The validity of the TARGETS, the Forward Contract, the Guarantee and
certain matters relating thereto will be passed upon for Salomon Smith Barney
Holdings and Trust V by Joan Guggenheimer, Esq. Ms. Guggenheimer, General
Counsel of Salomon Smith Barney Holdings, beneficially owns or has rights to
acquire under Citigroup employee benefit plans, an aggregate of less than one
percent of the common stock of Citigroup. Certain legal matters will be passed
upon for the underwriters by Cleary, Gottlieb, Steen and Hamilton, New York, New
York. Cleary, Gottlieb, Steen & Hamilton has also acted as special tax counsel
to Salomon Smith Barney Holdings in connection with the TARGETS. Cleary,
Gottlieb, Steen and Hamilton has from time to time acted as counsel for Salomon
Smith Barney Holdings and certain of its affiliates and may do so in the future.
EXPERTS
The consolidated financial statements of Salomon Smith Barney Holdings and
its subsidiaries for the fiscal years ended December 31, 1998 and 1997 and for
each of the three years in the period ended December 31, 1998, have been audited
by PricewaterhouseCoopers LLP, independent certified public accountants, as set
forth in their report thereon, included therein and incorporated herein by
reference, which report states that PricewaterhouseCoopers LLP did not audit the
consolidated financial statements of Salomon Inc as of December 31, 1996 and for
the year ended December 31, 1996, and that their opinion with respect to any
amounts contained in such consolidated financial statements of Salomon Inc is
based on the report of Arthur Andersen LLP. Such financial statements are
incorporated by reference herein in reliance upon such report given upon the
authority of said firm as experts in accounting and auditing.
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APPENDIX A
INDEX OF TERMS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Accelerated Maturity Date................................... 27
Accelerated Maturity Payment................................ 27
Acceleration Event.......................................... 27
Appreciation Cap............................................ 26
Bankruptcy Event............................................ 28
Calculation Period.......................................... 34
Closing Price............................................... 26
Common Securities........................................... 24
Common Stock................................................ 21
Current Market Price........................................ 26
Declaration................................................. 24
ERISA Plans................................................. 47
Exchange Rate............................................... 26
Forward Contract............................................ 40
Guarantee................................................... 41
Indenture................................................... 40
Investment Company Event.................................... 28
Maturity Payment............................................ 26
Non-U.S. Holder............................................. 46
Plans....................................................... 47
Pro rata.................................................... 28
Quarterly Distributions..................................... 30
Regular Trustees............................................ 24
Reorganization Event........................................ 34
Reset Date.................................................. 26
Sun Microsystems............................................ 22
Tax Event................................................... 27
Then-Current Market Price................................... 34
Trading Day................................................. 34
Transaction Value........................................... 34
Treasury Proceeds........................................... 27
Treasury Securities......................................... 43
Trust V..................................................... 24
Trust Securities............................................ 21
U.S. Holder................................................. 43
Yield Enhancement Payments.................................. 40
</TABLE>
A-1
<PAGE> 51
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You should rely only on the information contained or incorporated by reference
in this prospectus. We have not authorized anyone to provide you with different
information. We are not making an offer of these securities in any state where
the offer is not permitted. You should not assume that the information
contained or incorporated by reference in this prospectus is accurate as of any
date other than the date on the cover of this prospectus.
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
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Summary 2
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Risk Factors 15
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Available Information 19
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Salomon Smith Barney Holdings 20
- -------------------------------------------------------------------------------
Use of Proceeds and Hedging Activities 21
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Capitalization 22
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Issuer of the Common Stock 22
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Historical Data on the Common Stock 23
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TARGETS Trust V 24
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Description of the TARGETS 25
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Description of the Forward Contract 40
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Description of the Guarantee 41
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Description of the Treasury Securities 43
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United States Federal Income Tax Considerations 43
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ERISA Considerations 47
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Underwriting 48
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Legal Matters 49
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Experts 49
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Index of Terms A-1
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TARGETS TRUST V
TARGETED GROWTH
ENHANCED TERMS SECURITIES
(TARGETS(R))
With respect to
the common stock of
Sun Microsystems, Inc.
Due on
, 2003
$ per TARGETS
Guaranteed by
Salomon Smith Barney
Holdings Inc.
PROSPECTUS
, 2000
Salomon Smith Barney
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