Pricing Supplement No. 934 Rule 424(b)(3)
Dated February 26, 1996 File No. 33-54929
(To Prospectus Dated October 12, 1994 and and 33-51269
Prospectus Supplement Dated October 12, 1994)
515,000 ELKS SM (Equity-Linked Securities SM)
Salomon Inc
Medium-Term Notes, Series D
(Registered Notes - Fixed Rate)
8.50% AMAT Common Equity-Linked Securities Due February 27, 1998
(Issue Price Based on the Per Share Price of Applied Materials,
Inc. Common Stock)
The 8.50% AMAT Common Equity-Linked Securities Due February 27,
1998 (each, an "ELK," and in the aggregate, the "ELKS") being
offered hereby are Medium-Term Notes, Series D of Salomon Inc
("Salomon" or the "Company"), as further described below and in the
Company's Prospectus dated October 12, 1994 (the "Prospectus") and
its Prospectus Supplement dated October 12, 1994 (the "Prospectus
Supplement").
The principal amount of each of the ELKS offered hereby will be
$42.375 (the closing price of the common stock, par value $0.01
(the "AMAT Common Stock"), of Applied Materials, Inc. ("AMAT") on
February 22, 1996, as reported on the NASDAQ National Market) (the
"Issue Price"). The ELKS will mature on February 27, 1998.
Interest on the ELKS, at the rate of 8.50% of the principal amount
per annum (or $3.601875 per annum), is payable quarterly on each
May 27, August 27, November 27 and February 27, beginning May 27,
1996. The ELKS are not subject to redemption or any sinking fund
prior to maturity.
At maturity (including as a result of acceleration or otherwise),
the principal amount of each ELK will be mandatorily exchanged by
the Company into an amount of shares of AMAT Common Stock (or, at
the Company's option under the circumstances described herein, the
cash equivalent) with a value equal to the lesser of (A) 162.00% of
the Issue Price or (B) the Maturity Price. The "Maturity Price"
means the average Closing Price (as defined herein) of AMAT Common
Stock, subject to adjustment as a result of certain dilution events
(see "Description of the ELKS--Dilution Adjustments; Reorganization
Events" herein), for the 10 Trading Days (as defined herein)
immediately prior to maturity. Accordingly, the value of AMAT
Common Stock to be received by holders of the ELKS at maturity will
not necessarily equal the Issue Price thereof. If the Maturity
Price is less than the Issue Price, the value of AMAT Common Stock
to be received at maturity will be less than the price paid for the
ELKS.
See "Risk Factors Relating to ELKS" beginning on page PS-2 for a
discussion of certain factors that should be carefully considered
by prospective purchasers.
For a discussion of certain United States federal income tax
consequences for holders of ELKS, see "Certain United States
Federal Income Tax Considerations."
"AMAT" is a trade name used by AMAT. AMAT is not affiliated with
the Company, is not involved in this offering of ELKS and will have
no obligations with respect to the ELKS. See "Risk Factors
Relating to ELKS--Lack of Affiliation Between AMAT and the
Company."
"ELKS" and "Equity-Linked Securities" are service marks of Salomon
Brothers Inc.
- ------------------------------------------------------------
Price to Agent's Proceeds to
Public(1) Commission Company(1)
--------- ---------- -----------
Per ELK...... $42.375 $0.00 $42,375
Total........ $21,823,125 $0.00 $21,823,125
- ------------------------------------------------------------
(1) Plus accrued interest, if any, from February 27, 1996 to the
date of delivery.
- --------------------
Salomon Brothers Inc
- -------------------------------------------------------------------
<PAGE>
RISK FACTORS RELATING TO ELKS
As described in more detail below, the trading price of the
ELKS may vary considerably prior to maturity (including by
acceleration or otherwise, "Maturity") due to, among other things,
fluctuations in the market price of AMAT Common Stock and other
events that are difficult to predict and beyond the Company's
control.
Comparison to Other Debt Securities
The terms of the ELKS differ from those of ordinary debt
securities in that the amount of AMAT Common Stock (or cash
equivalent thereof) that a holder of the ELKS will receive upon
mandatory exchange of the principal amount thereof at Maturity (the
"Amount Receivable at Maturity") is not fixed, but is based on the
market price of AMAT Common Stock. There can be no assurance that
the Amount Receivable at Maturity will be equal to or greater than
the Issue Price and, if the price of AMAT Common Stock at Maturity
is less than the Issue Price, the Amount Receivable at Maturity
will be less, in which case an investment in ELKS may result in a
loss.
Relationship of the ELKS and AMAT Common Stock
It is impossible to predict whether the price of AMAT Common
Stock will rise or fall. Trading prices of AMAT Common Stock will
be influenced by AMAT's operational results and by complex and
interrelated political, economic, financial and other factors that
can affect the capital markets generally, the stock exchange on
which AMAT Common Stock is traded and the market segment of which
AMAT is a part. See "Applied Materials, Inc." herein. Trading
prices of AMAT Common Stock also may be influenced if the Company
or another principal shareholder of AMAT hereafter issues
securities with terms similar to those of the ELKS or otherwise
transfers shares of AMAT Common Stock.
Holders of the ELKS will not be entitled to any rights with
respect to AMAT Common Stock (including, without limitation, voting
rights and the rights to receive any dividends or other
distributions in respect thereof) until such time, if any, as the
Company shall deliver shares of AMAT Common Stock to holders of the
ELKS at Maturity thereof and the applicable record date, if any,
for the exercise of such rights occurs after such date.
There can be no assurance that AMAT will continue to be
subject to the reporting requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act") and distribute
reports, proxy statements and other information required thereby to
its stockholders. In the event that AMAT ceases to be subject to
such reporting requirements and the ELKS continue to be
outstanding, pricing information for the ELKS may be more difficult
to obtain and the value and liquidity of the ELKS may be adversely
affected.
Dilution of AMAT Common Stock
The Amount Receivable at Maturity is subject to adjustment for
certain events arising from, among others, stock splits and
combinations, stock dividends, extraordinary cash dividends and
certain other actions of AMAT that modify its capital structure as
well as a merger or consolidation in which AMAT is not the
surviving or resulting corporation, a sale or transfer of all or
substantially all of the assets of AMAT and the liquidation,
dissolution, winding up or bankruptcy of AMAT. See "Description of
the ELKS--Dilution Adjustments; Reorganization Events." Such Amount
Receivable at Maturity may not be adjusted for other events, such
as offerings of AMAT Common Stock for cash or in connection with
acquisitions, that may adversely affect the price of AMAT Common
Stock and, because of the relationship of such Amount Receivable at
Maturity to the price of AMAT Common Stock, such other events may
adversely affect the trading price of the ELKS. There can be no
assurance that AMAT will not make offerings of AMAT Common Stock or
take such other action in the future or as to the amount of such
offerings, if any.
Lack of Affiliation Between the Company and AMAT
The Company is not affiliated with AMAT and, although the
Company has no knowledge that any of the events described in the
preceding subsection are currently being contemplated by AMAT or of
any that would have a material adverse effect on AMAT or on the
price of AMAT Common Stock, such events are beyond the Company's
ability to control and are difficult to predict.
AMAT is not involved in the offering of ELKS and has no
obligations with respect to the ELKS, including any obligation to
take the needs of the Company or of holders of ELKS into
consideration for any reason. AMAT will not receive any of the
proceeds of the offering of the ELKS made hereby and is not
responsible for, and has not participated in, the determination of
the timing of, prices for, or quantities of, the ELKS to be issued
or in the determination or calculation of the Amount Receivable at
Maturity. AMAT is not involved with the administration, marketing
or trading of the ELKS and has no obligations with respect to the
Amount Receivable at Maturity.
Possible Illiquidity of the Secondary Market
It is not possible to predict how the ELKS will trade in the
secondary market or whether such market will be liquid or illiquid.
ELKS are novel and innovative securities and there is currently no
secondary market for the ELKS. The ELKS will not be listed or
traded on any securities exchange or trading market. Accordingly,
pricing information for the ELKS may be difficult to obtain and the
liquidity of the ELKS may be limited. The Agent currently intends,
but is not obligated, to make a market in the ELKS. There can be
no assurance that a secondary market will develop or, if a
secondary market does develop, that it will provide the holders of
the ELKS with liquidity or that it will continue for the life of
the ELKS.
Uncertainty of Federal Income Tax Consequences
No statutory, judicial or administrative authority directly
addresses the characterization of the ELKS or instruments similar
to the ELKS 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 ELKS are not certain. No ruling is being
requested from the Internal Revenue Service with respect to the
ELKS and no assurance can be given that the Internal Revenue
Service will agree with the conclusions expressed under "Certain
United States Federal Income Tax Considerations."
USE OF PROCEEDS AND HEDGING
A portion of the proceeds to be received by the Company from
the sale of the ELKS is being used by the Company or one or more of
its subsidiaries before and immediately following the initial
offering of the ELKS to acquire AMAT Common Stock or listed or
over-the-counter options contracts in, or other derivative or
synthetic instruments related to, AMAT Common Stock in connection
with hedging the Company's obligations under the ELKS. The balance
of such proceeds will be used for general corporate purposes. See
"Use of Proceeds" in the Prospectus. From time to time after the
initial offering and prior to the maturity of the ELKS, depending
on market conditions (including the market price of AMAT Common
Stock), in connection with hedging with respect to the ELKS, the
Company expects that it or one or more of its subsidiaries will
increase or decrease their initial hedging positions using dynamic
hedging techniques and may take long or short positions in AMAT
Common Stock, in listed or over-the-counter options contracts in,
or other derivative or synthetic instruments related to, AMAT
Common Stock. In addition, the Company or one or more of its
subsidiaries may purchase or otherwise acquire a long or short
position in ELKS from time to time and may, in their sole
discretion, hold or resell such ELKS. The Company or one or more
of its subsidiaries may also take positions in other types of
appropriate financial instruments that may become available in the
future. To the extent that the Company or one or more of its
subsidiaries have a long hedge position in AMAT Common Stock or
options contracts in, or other derivative or synthetic instruments
related to, AMAT Common Stock, the Company or one or more of its
subsidiaries may liquidate a portion of their holdings at or about
the time of the maturity of the ELKS. Depending, among other
things, on future market conditions, the aggregate amount and the
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.
APPLIED MATERIALS, INC.
According to publicly available documents, AMAT, a Delaware
corporation, is engaged in the development, manufacture, marketing
and servicing of semiconductor wafer fabrication equipment and
related spare parts. AMAT is subject to the informational
requirements of the Exchange Act. Accordingly, AMAT files reports,
proxy and information statements and other information with the
Securities and Exchange Commission (the "Commission"). Copies of
such material can be inspected and copied at the public reference
facilities maintained by the Commission at the addresses specified
under "Available Information" in the Prospectus.
This Pricing Supplement relates only to the ELKS offered
hereby and does not relate to the AMAT Common Stock. All
disclosures contained in this Pricing Supplement regarding AMAT are
derived from the publicly available documents described in the
preceding paragraph. Neither the Company nor the Agent have
participated in the preparation of such documents or made any due
diligence inquiry with respect to the information provided therein.
Neither the Company nor the Agent makes any representation that
such publicly available documents or any of the publicly available
information regarding AMAT are accurate or complete. There can be
no assurance that all events occurring prior to the date hereof
(including events that would affect the accuracy or completeness of
the publicly available documents described in the preceding
paragraph) that would affect the trading price of AMAT Common Stock
(and therefore the Issue Price, the Maturity Price and the Amount
Receivable at Maturity) have been publicly disclosed. Subsequent
disclosure of any such events or the disclosure or failure to
disclose material future events concerning AMAT could affect the
Amount Receivable at Maturity with respect to the ELKS and
therefore the trading prices of the ELKS. Neither the Company nor
any of its affiliates makes any representation to any purchaser of
the ELKS as to the performance of AMAT Common Stock.
The Company or its affiliates may presently or from time to
time engage in business with AMAT including extending loans to, or
making equity investments in, AMAT or providing advisory services
to AMAT, including merger and acquisitions advisory services. In
the course of such business, the Company or its affiliates may
acquire non-public information with respect to AMAT and, in
addition, one or more affiliates of the Company may publish
research reports with respect to AMAT. The Company does not make
any representation to any purchaser of ELKS with respect to any
matters whatsoever relating to AMAT. Any prospective purchaser of
ELKS should undertake an independent investigation of AMAT as in
its judgment is appropriate to make an informed decision with
respect to an investment in AMAT Common Stock.
PRICE RANGE AND DIVIDEND HISTORY OF AMAT COMMON STOCK
AMAT Common Stock is traded and is quoted on the NASDAQ
National Market ("NASDAQ") under the symbol AMAT. The following
table sets forth, for the indicated periods, the reported high and
low sales prices of the shares of AMAT Common Stock as reported on
the NASDAQ Composite Tape and the quarterly cash dividend per share
for the indicated periods.
Sales Prices
-----------------
High Low Dividends Paid
---- --- --------------
1994
1st Quarter $26.000 $18.250 $0.00
2nd Quarter 24.625 18.125 0.00
3rd Quarter 27.250 20.500 0.00
4th Quarter 26.625 19.875 0.00
1995
1st Quarter $30.250 18.500 $0.00
2nd Quarter 44.250 23.125 0.00
3rd Quarter 59.875 42.750 0.00
4th Quarter 55.500 38.375 0.00
1996
1st Quarter
(through
February 23,
1996) $44.750 $30.000 $0.00
For a recent sales price of AMAT Common Stock, see the cover
page of this Pricing Supplement.
The Company makes no representations as to the amount of
dividends, if any, that AMAT will pay in the future. In any event,
holders of ELKS will not be entitled to receive any dividends that
may be payable on AMAT Common Stock until such time as the Company,
if it so elects, delivers AMAT Common Stock at maturity of the
ELKS, and then only with respect to dividends having a record date
on or after the date of delivery of such AMAT Common Stock. See
"Description of the ELKS."
DESCRIPTION OF THE ELKS
The description in this Pricing Supplement of the terms of the
ELKS supplements, and to the extent inconsistent therewith
replaces, the descriptions of the general terms and provisions of
the Registered Notes set forth in the accompanying Prospectus and
Prospectus Supplement, to which descriptions reference is hereby
made.
General
The ELKS are Medium-Term Notes, Series D (as defined in the
Prospectus Supplement), to be issued under the Senior Debt
Indenture (as defined in the Prospectus) dated as of December 1,
1988, as supplemented from time to time, and as supplemented by the
Seventh Supplemental Indenture, dated as of February 1, 1996 (the
Senior Debt Indenture, as supplemented from time to time, the
"Indenture"), between the Company and Citibank, N.A., a national
banking association, as Trustee (the "Trustee").
The aggregate number of ELKS to be issued will be 515,000.
The ELKS will mature on February 27, 1998. In the future the
Company may issue additional Debt Securities or other securities
with terms similar to those of the ELKS.
Each ELK, which will be issued with a principal amount of
$42.375, will bear interest at the annual rate of 8.50% of the
principal amount per annum (or $3.601875 per annum) from February
27, 1996, or from the most recent Interest Payment Date (as defined
below) to which interest has been paid or provided for until the
principal amount thereof is exchanged at Maturity pursuant to the
terms of the ELKS. Interest on the ELKS will be payable quarterly
in arrears on each May 27, August 27, November 27 and February 27,
commencing May 27, 1996 (each, an "Interest Payment Date"), to the
persons in whose names the ELKS are registered at the close of
business on the fifteenth day preceding such Interest Payment Date,
whether or not such day is a Business Day (as defined below),
provided that interest payable at Maturity shall be payable to the
person to whom the principal is payable. Interest on the ELKS will
be computed on the basis of a 360-day year of twelve 30-day months.
If an Interest Payment Date falls on a day that is not a Business
Day, the interest payment to be made on such Interest Payment Date
will be made on the next succeeding Business Day with the same
force and effect as if made on such Interest Payment Date, and no
additional interest will accrue as a result of such delayed
payment. "Business Day" means any day that is not a Saturday, a
Sunday or a day on which NASDAQ or banking institutions or trust
companies in the City of New York are authorized or obligated by
law or executive order to close.
At Maturity (including as a result of acceleration or
otherwise), the principal amount of each ELK will be mandatorily
exchanged by the Company into an amount of shares of AMAT Common
Stock having a value equal to the lesser of (A) 162.00% of the
Issue Price or (B) the Maturity Price (as defined below).
ACCORDINGLY, THE VALUE OF AMAT COMMON STOCK TO BE RECEIVED BY
HOLDERS OF THE ELKS (OR, AS DISCUSSED BELOW, THE CASH EQUIVALENT TO
BE RECEIVED IN LIEU OF SUCH SHARES) AT MATURITY WILL NOT
NECESSARILY EQUAL THE ISSUE PRICE OF SUCH ELKS. Any shares of AMAT
Common Stock delivered by the Company to the holders of the ELKS
that are not affiliated with AMAT shall be free of any transfer
restrictions and the holders of the ELKS will be responsible for
the payment of any and all brokerage costs upon the subsequent sale
of such shares. No fractional shares of AMAT Common Stock will be
issued at Maturity. See "--Fractional Shares" below. Although it
is the Company's current intention to deliver shares of AMAT Common
Stock at Maturity, the Company may at its option deliver cash, in
lieu of delivering such shares of AMAT Common Stock, except where
such delivery would violate applicable state law. The amount of
cash deliverable in respect of each ELK shall be equal to the
lesser of (A) 162.00% of the Issue Price or (B) the Maturity Price.
In the event the Company elects to deliver cash in lieu of shares
at Maturity, it will be obligated to deliver cash to all holders of
ELKS, except those holders with respect to whom it has determined
delivery of cash may violate applicable state law and as to whom it
will deliver shares of AMAT Common Stock. On or prior to the
fifteenth Business Day prior to February 27, 1998, the Company will
notify the Trustee, which will notify The Depository Trust Company
(which will notify the holders of the ELKS), stating whether the
principal amount of each ELK will be exchanged for shares of AMAT
Common Stock or cash; provided, however, that if the Company
intends to deliver cash, the Company shall have the right, as a
condition to delivery of such cash, to require certification as to
the domicile and residency of each beneficial holder of ELKS.
Notwithstanding the foregoing, (i) in the case of certain dilution
events, the Maturity Price will be subject to adjustment and (ii)
in the case of certain reorganization events, the consideration
received by holders of ELKS at Maturity will be cash or other
property. See "--Dilution Adjustments; Reorganization Events"
below.
The "Maturity Price" is defined as the average Closing Price
per share of AMAT Common Stock for a Calculation Period (as defined
below) of 10 Trading Days occurring immediately prior to (but not
including) the date of Maturity; provided, however, that if no
Closing Price for AMAT Common Stock may be determined for one or
more (but not all) of such Trading Days, such Trading Days shall be
disregarded in the calculation of the Maturity Price (but no
additional Trading Days shall be added to the Calculation Period).
If no Closing Price for AMAT Common Stock may be determined for any
of such 10 Trading Days, "Maturity Price" shall be defined as the
market value per share of AMAT Common Stock as of Maturity as
determined by a nationally recognized independent investment
banking firm retained for this purpose by the Company. The
"Closing Price" of any security on any date of determination means
the closing sale price (or, if no closing price is reported, the
last reported sale price) of such security (regular way) by NASDAQ
on such date or, if such security is not listed for trading by
NASDAQ on any such date, as reported in the composite transactions
for the principal U.S. securities exchange on which such security
is so listed, or if such security is not so listed on a U.S.
national or regional securities exchange, the last quoted bid price
for such security in the over-the-counter market as reported by the
National Quotation Bureau or similar organization. A "Trading Day"
means, with respect to any security, a day on which the principal
market for such security is open for trading or quotation. The
"Calculation Period" means the relevant period for which an average
Closing Price must be determined.
Interest on the ELKS will be payable, and delivery of AMAT
Common Stock (or, at the option of the Company, its cash
equivalent) in exchange for the ELKS at Maturity will be made upon
surrender of such ELKS, at the office or agency of the Company
maintained for such purposes; provided, however, that payment of
interest may be made at the option of the Company by check mailed
to the persons in whose names the ELKS are registered at the close
of business on February 12, May 12, August 12 and November 12. See
"Description of Registered Notes--Book-Entry System" in the
Prospectus Supplement. Initially such office will be the principal
corporate trust office of the Trustee in the City of New York.
The ELKS will be transferable at any time or from time to time
at the aforementioned office. No service charge will be made to
the holder for any such transfer except for any tax or governmental
charge incidental thereto.
The Indenture does not contain any restriction on the ability
of the Company to sell, pledge or convey all or any portion of AMAT
Common Stock held by it or its subsidiaries, and no such shares of
AMAT Common Stock will be pledged or otherwise held in escrow for
use at Maturity of the ELKS. Consequently, in the event of a
bankruptcy, insolvency or liquidation of the Company or its
subsidiaries, the AMAT Common Stock, if any, owned by the Company
or its subsidiaries will be subject to the claims of the creditors
of the Company or its subsidiaries, respectively. In addition, as
described herein, the Company will have the option, exercisable in
its sole discretion, to satisfy its obligations pursuant to the
mandatory exchange for the principal amount of each ELK at Maturity
by delivering to holders of the ELKS either the number of shares of
AMAT Common Stock specified above or cash in an amount equal to the
product of such number of shares multiplied by the Maturity Price.
In the event of such a sale, pledge or conveyance, a holder of the
ELKS may be more likely to receive cash in lieu of AMAT Common
Stock. As a result, there can be no assurance that the Company
will elect at Maturity to deliver AMAT Common Stock or, if it so
elects, that it will use all or any portion of its current holdings
of AMAT Common Stock to make such delivery. Consequently, holders
of the ELKS will not be entitled to any rights with respect to AMAT
Common Stock (including, without limitation, voting rights and
rights to receive any dividends or other distributions in respect
thereof) until such time, if any, as the Company shall have
delivered shares of AMAT Common Stock to holders of the ELKS at
Maturity thereof.
Dilution Adjustments; Reorganization Events
Dilution Adjustments. The Closing Price of AMAT Common Stock
on any of the 10 Trading Days used to calculate the Maturity Price
shall be subject to adjustment as described below to the extent
that any of the events requiring such adjustment occur during the
period commencing on the date hereof and ending at the maturity of
the ELKS:
(i) In the event that a dividend or other distribution is
declared (i) on any class of AMAT's capital stock payable in
shares of AMAT Common Stock or (ii) on AMAT Common Stock
payable in cash in an amount greater than 10% of the average
Closing Prices of AMAT Common Stock on the date fixed for the
determination of the shareholders of AMAT entitled to receive
such cash dividend (an "Extraordinary Cash Dividend"), any
Closing Price of AMAT Common Stock used to calculate the
Maturity Price on any Trading Day that follows the date (the
"AMAT Record Date") fixed for the determination of the
shareholders of AMAT entitled to receive such distribution
shall be increased by multiplying such Closing Price by a
fraction of which the numerator shall be the number of shares
of AMAT Common Stock outstanding on the AMAT Record Date plus
the number of shares constituting such distribution or, in the
case of an Extraordinary Cash Dividend, plus the number of
shares of AMAT Common Stock that could be purchased with the
amount of such Extraordinary Cash Dividend at the Closing
Price of AMAT Common Stock on the Trading Day immediately
subsequent to such AMAT Record Date (if no Closing Price for
AMAT Common Stock may be determined for such Trading Day, such
Closing Price shall be defined as the market value per share
of AMAT Common Stock as of such date as determined by a
nationally recognized independent investment banking firm
retained for this purpose by the Company), and the denominator
shall be the number of shares of AMAT Common Stock outstanding
on the AMAT Record Date.
(ii) In the event that the outstanding shares of AMAT Common
Stock are subdivided into a greater number of shares, the
Closing Price of AMAT Common Stock used to calculate the
Maturity Price on any Trading Day that follows the date on
which such subdivision becomes effective will be
proportionately increased, and conversely, in the event that
the outstanding shares of AMAT Common Stock are combined into
a smaller number of shares, such Closing Price will be
proportionately reduced.
(iii) In the event that AMAT Common Stock is changed into the
same or a different number of shares of any class or classes
of stock, whether by capital reorganization, reclassification
or otherwise (except to the extent otherwise provided in (i)
or (ii) above or pursuant to a Reorganization Event, as
described in the following paragraph), the Maturity Price
shall be calculated by using the Closing Prices of the shares
of stock into which a share of AMAT Common Stock was changed
on any Trading Day that follows the effectiveness of such
change.
(iv) In the event that AMAT shall issue rights or warrants to
all holders of AMAT Common Stock entitling them to subscribe
for or purchase shares of AMAT Common Stock at a price per
share less than the market price of AMAT Common Stock (other
than rights to purchase AMAT Common Stock pursuant to a plan
for the reinvestment of dividends or interest), any Closing
Price of AMAT Common Stock used to calculate the Maturity
Price on any Trading Day that the issuance of such rights or
warrants shall be increased by multiplying such Closing Price
by a fraction, of which the numerator shall be the number of
shares of AMAT Common Stock outstanding on the date of
issuance of such rights or warrants, immediately prior to such
issuance, plus the number of additional shares of AMAT Common
Stock offered for subscription or purchase pursuant to such
rights or warrants, and of which the denominator shall be the
number of shares of AMAT Common Stock outstanding on the date
of issuance of such rights or warrants, immediately prior to
such issuance, plus the number of additional shares of AMAT
Common Stock which the aggregate offering price of the total
number of shares of AMAT Common Stock so offered for
subscription or purchase pursuant to such rights or warrants
would purchase at the market price (determined as the average
Closing Price per share of AMAT Common Stock on the 10 Trading
Days immediately prior to the date such rights or warrants are
issued; provided, however, that if no Closing Price for AMAT
Common Stock may be determined for one or more (but not all)
of such Trading Days, such Trading Days shall be disregarded
in the calculation of such market price (but no additional
Trading Days shall be added to the Calculation Period);
provided, further, that if no Closing Price for AMAT Common
Stock may be determined for any of such 10 Trading Days, such
market price shall be defined as the market value per share of
AMAT Common Stock as of such date as determined by a
nationally recognized independent investment banking firm
retained for this purpose by the Company), which shall be
determined by multiplying such total number of shares by the
exercise price of such rights or warrants and dividing the
product so obtained by such market price. To the extent that
shares of AMAT Common Stock are not delivered after the
expiration of such rights or warrants, such Closing Prices
shall be readjusted to the Closing Prices which would then be
in effect had such adjustments for the issuance of such rights
or warrants been made upon the basis of delivery of only the
number of shares of AMAT Common Stock actually delivered.
(v) In the event that AMAT shall pay a dividend or make a
distribution to all holders of AMAT Common Stock of evidences
of its indebtedness or other assets (excluding any dividends
or distributions referred to in clause (i) above, any shares
of common stock issued pursuant to a reclassification referred
to in clause (iii) above) or issue to all holders of AMAT
Common Stock rights or warrants to subscribe for or purchase
any of its securities (other than those referred to in clause
(iv) above), any Closing Price of AMAT Common Stock used to
calculate the Maturity Price on any Trading Day that follows
the AMAT Record Date fixed for the determination of the
shareholders of AMAT entitled to receive such dividend or
distribution shall be increased by multiplying such Closing
Price by a fraction of which the numerator shall be the market
price per share of AMAT Common Stock on such AMAT Record Date
(such market price being determined as the average Closing
Price per share of AMAT Common Stock on the 10 Trading Days
immediately prior to such AMAT Record Date; provided, however,
that if no Closing Price for AMAT Common Stock may be
determined for one or more (but not all) of such Trading Days,
such Trading Days shall be disregarded in the calculation of
such market price (but no additional Trading Days shall be
added to the Calculation Period); provided, further, that if
no Closing Price for AMAT Common Stock may be determined for
any of such 10 Trading Days, such market price shall be
defined as the market value per share of AMAT Common Stock as
of such date as determined by a nationally recognized
independent investment banking firm retained for this purpose
by the Company), and of which the denominator shall be such
market price per share of AMAT Common Stock less the fair
market value (as determined by the Board of Directors of the
Company, whose determination shall be conclusive, and
described in a resolution adopted with respect thereto) as of
such AMAT Record Date of the portion of the assets or
evidences of indebtedness so distributed or of such
subscription rights or warrants applicable to one share of
AMAT Common Stock.
In the case of the reclassification of any shares of AMAT Common
Stock into any shares of any class or classes of stock other than
AMAT Common Stock, such shares of common stock shall be deemed
shares of AMAT Common Stock solely to determine the Maturity Price.
Each such adjustment to the Maturity Price shall be made
successively.
Reorganization Events. In the event of (A) any consolidation
or merger of AMAT, or any surviving entity or subsequent surviving
entity of AMAT (an "AMAT Successor"), with or into another entity
(other than a merger or consolidation in which AMAT is the
continuing corporation and in which AMAT Common Stock outstanding
immediately prior to the merger or consolidation is not exchanged
for cash, securities or other property of AMAT or another
corporation), (B) any sale, transfer, lease or conveyance to
another corporation of the property of AMAT or any AMAT Successor
as an entirety or substantially as an entirety, (C) any statutory
exchange of securities of AMAT or any AMAT Successor with another
corporation (other than in connection with a merger or acquisition)
or (D) any liquidation, dissolution or winding up of AMAT or any
AMAT Successor (any such event, a "Reorganization Event"), each
holder of ELKS will receive at Maturity, in lieu of shares of AMAT
Common Stock, as described above, cash in an amount equal to the
lesser of (A) 162.00% of the Issue Price or (B) the Transaction
Value (as defined below). "Transaction Value" means (i) for any
cash received in any such Reorganization Event, the amount of cash
received per share of AMAT Common Stock, (ii) for any property
other than cash or securities received in any such Reorganization
Event, an amount equal to the market value at Maturity of such
property received per share of AMAT Common Stock as determined by
a nationally recognized independent investment banking firm
retained for this purpose by the Company and (iii) for any
securities received in any such Reorganization Event, an amount
equal to the average Closing Price per share of such securities on
the 10 Trading Days immediately prior to Maturity multiplied by the
number of such securities received for each share of AMAT Common
Stock; provided, however, that in the case of clause (iii), (x) if
no Closing Price for such securities may be determined for one or
more (but not all) of such Trading Days, such Trading Days shall be
disregarded in the calculation of such market price (but no
additional Trading Days shall be added to the Calculation Period)
or (y) if no Closing Price for such securities may be determined
for any of such 10 Trading Days, Transaction Value shall be defined
as the market value per share of such securities as of Maturity as
determined by a nationally recognized independent investment
banking firm retained for this purpose by the Company multiplied by
the number of shares of such securities received for each share of
AMAT Common Stock. Notwithstanding the foregoing, in lieu of
delivering cash as provided above, the Company may at its option
deliver an equivalent value of securities or other property
received in such Reorganization Event, determined in accordance
with clause (ii) or (iii) above, as applicable. If the Company
elects to deliver securities or other property, holders of the ELKS
will be responsible for the payment of any and all brokerage and
other transaction costs upon the sale of such securities or other
property. The kind and amount of securities into which the ELKS
shall be exchangeable after consummation of such transaction shall
be subject to adjustment as described in the immediately preceding
paragraph following the date of consummation of such transaction.
Notwithstanding the foregoing, the Amount Receivable at
Maturity for each ELK will not, under any circumstances, exceed
162.00% of the Issue Price (or $68.6475 per ELK).
No adjustments will be made for certain other events, such as
offerings of AMAT Common Stock by AMAT for cash or in connection
with acquisitions.
Fractional Shares
No fractional shares of AMAT Common Stock will be issued if
the Company exchanges the ELKS for shares of AMAT Common Stock. If
more than one ELK shall be surrendered for exchange at one time by
the same holder, the number of full shares of AMAT Common Stock
which shall be delivered upon exchange, in whole or in part, as the
case may be, shall be computed on the basis of the aggregate number
of ELKS so surrendered at Maturity. In lieu of any fractional
share otherwise issuable in respect of all ELKS of any holder which
are exchanged at Maturity, such holder shall be entitled to receive
an amount in cash equal to the value of such fractional share at
the Maturity Price.
Redemption
The ELKS are not subject to redemption prior to Maturity and
do not contain sinking fund or other mandatory redemption
provisions. The ELKS are not subject to payment prior to the date
of Maturity at the option of the holder.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following summary supplements, and to the extent
inconsistent therewith replaces, the discussion of United States
taxation set forth in the accompanying Prospectus Supplement under
the heading "United States Tax Considerations," to which discussion
reference is hereby made.
The following discussion is a summary of the principal U.S.
federal income tax consequences that may be relevant to a citizen
or resident of the United States, a corporation, partnership or
other entity created or organized under the laws of the United
States and an estate or trust the income of which is subject to
U.S. federal income taxation regardless of its source (any of the
foregoing, a "U.S. person") who is the beneficial owner of a ELKS
(a "U.S. Holder"). All references to "holders" (including U.S.
Holders) are to beneficial owners of the ELKS. This summary is
based on U.S. federal income tax laws, regulations, rulings and
decisions in effect as of the date of this Pricing Supplement (or
in the case of certain Treasury regulations now in proposed form),
all of which are subject to change at any time (possibly with
retroactive effect). As the law is technical and complex, the
discussion below necessarily represents only a general summary.
This summary addresses the U.S. federal income tax consequences to
holders who are initial holders of the ELKS and who will hold the
ELKS and, if applicable, AMAT Common Stock as capital assets. This
summary does not address all aspects of federal income taxation
that may be relevant to a particular holder in light of his or its
individual investment circumstances or to certain types of holders
subject to special treatment under the U.S. federal income tax
laws, such as dealers in securities or foreign currency, financial
institutions, insurance companies, tax-exempt organizations and
taxpayers holding the ELKS as part of a "straddle," "hedge,"
"conversion transaction," "synthetic security," or other integrated
investment. Moreover, the effect of any applicable state, local or
foreign tax laws is not discussed.
No statutory, judicial or administrative authority directly
addresses the characterization of the ELKS or instruments similar
to the ELKS 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 ELKS are not certain. No ruling is being
requested from the Internal Revenue Service (the "IRS") with
respect to the ELKS and no assurance can be given that the IRS will
agree with the conclusions expressed herein. ACCORDINGLY, A
PROSPECTIVE INVESTOR (INCLUDING A TAX-EXEMPT INVESTOR) IN THE ELKS
SHOULD CONSULT ITS TAX ADVISOR IN DETERMINING THE TAX CONSEQUENCES
OF AN INVESTMENT IN THE ELKS, INCLUDING THE APPLICATION OF STATE,
LOCAL OR OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN
FEDERAL OR OTHER TAX LAWS.
The Company intends to treat an ELKS for U.S. federal income
tax purposes as a combination of a fixed loan in an amount equal to
the issue price of the ELKS (the "Exchange Note") and the
application of the principal repayment of that loan at maturity to
a capped forward purchase contract (the "Purchase Contract") on
AMAT Common Stock. Under this approach, the Company intends to
treat each payment of interest on an ELKS as ordinary interest
income to the holder of the ELK. Any such interest income would be
includable in income in accordance with the holder's regular method
of tax accounting.
Under the approach described above, a holder will be required
to allocate the purchase price of the ELKS between the two
components of the ELKS (the Exchange Note and the Purchase
Contract) on the basis of their relative fair market values. The
purchase price so allocated will generally constitute the tax basis
for each component. The Company expects that a holder may choose
to allocate the entire purchase price of the ELKS to the Exchange
Note. Upon the sale or other disposition of an ELKS, a U.S. Holder
generally will be required to allocate the amount realized between
the two components of the ELKS on the basis of their then relative
fair market values. A U.S. Holder will recognize gain or loss
with respect to each component equal to the difference between the
amount realized on the sale or other disposition for each such
component and the U.S. Holder's tax basis in such component. Such
gain or loss generally will be long-term capital gain or loss if
the U.S. Holder has held the ELKS for more than one year at the
time of disposition.
At maturity, on the repayment of the Exchange Note, a U.S.
Holder will recognize long-term capital gain or loss equal to any
differences between its tax basis and the principal amount of the
Exchange Note. (In general, an initial holder who purchases the
ELKS for the Initial Price and therefore has allocated all of its
purchase price to the Exchange Note should not have gain or loss on
repayment because its tax basis will equal the principal amount.)
If the Company delivers AMAT Common Stock, a U.S. Holder will
recognize no additional gain or loss on the exchange, pursuant to
the Purchase Contract, of the principal payment due on the Exchange
Note for AMAT Common Stock. However, a U.S. Holder will recognize
additional gain or loss (which will be short-term capital gain or
loss rather than long-term capital gain or loss) with respect to
cash received in lieu of fractional shares. The amount of such
gain or loss recognized by a U.S. Holder will be equal to the
difference between the cash received and the portion of the
principal amount of the Exchange Note allocable to fractional
shares. A U.S. Holder will have a tax basis in stock delivered by
the Company equal to the principal amount of the Exchange Note less
the amount of the portion of the principal amount of the Exchange
Note allocable to the fractional shares and will realize capital
gain or loss upon the sale or disposition of such stock.
Alternatively, at Maturity, if the Company pays the ELKS in cash,
a U.S. Holder will have capital gain or loss equal to any
difference between the principal amount of the Exchange Note and
the amount of cash received from the Company.
Due to the absence of authority as to the proper
characterization of the ELKS, no assurance can be given that the
IRS will accept or that a court will uphold the characterization
and tax treatment described above. Proposed Treasury regulations
issued in 1994 with respect to "contingent payment" debt
instruments (the "Proposed Regulations") would provide for a
different tax result under some circumstances for instruments with
characteristics similar to the ELKS, but the Proposed Regulations
would be effective only for instruments issued 60 days or more
after publication as final regulations. Under the Proposed
Regulations, the amount of interest included in a holder's taxable
income for any year would generally be determined by projecting the
amounts of contingent payments and the yield on the instrument.
Taxable interest income would be measured with reference to the
projected yield, which might be less than or greater than the
stated interest rate under the instrument. In the event that the
amount of an actual contingent payment differed from the projected
amount of that payment, the difference would generally increase or
reduce taxable interest income, or create a loss. Because of their
prospective effective date, the Proposed Regulations, if finalized
in their current form, would not apply to the ELKS. In addition,
it is unclear whether the IRS would view a single instrument that
has "principal" that is entirely contingent as debt for U.S.
federal income tax purposes.
Even in the absence of regulations applicable to the ELKS, the
ELKS may be characterized in a manner that results in tax
consequences different from those reflected in the agreement and
described above, including treating the ELKS as a single instrument
or treating the Purchase Contract element of the ELKS as itself the
combination of a forward contract and one or more options. Under
alternative characterizations of the ELKS, it is possible, for
example, that (i) gain may be treated as ordinary income, instead
of capital gain, (ii) a U.S. Holder may be taxable upon the receipt
of AMAT Common Stock with a value in excess of the principal amount
of the Exchange Note, rather than upon the sale of such stock, or
(iii) all or part of the interest income on the Exchange Note may
be treated as nontaxable, increasing the gain (or decreasing the
loss) at Maturity or disposition of the ELKS (or disposition of
AMAT Common Stock).
Non-United States Persons
In the case of a holder of the ELKS that is not a U.S. person,
payments made with respect to the ELKS should not be subject to
U.S. withholding tax; PROVIDED that such holder complies with
applicable certification requirements. Any capital gain realized
upon the sale or other disposition of the ELKS by a holder that is
not a U.S. person will generally not be subject to U.S. federal
income tax if (i) such gain is not effectively connected with a
U.S. trade or business of such holder and (ii) in the case of an
individual, such individual is not 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.
Backup Withholding and Information Reporting
A holder of the ELKS may be subject to information reporting
and to backup withholding at a rate of 31 percent of certain
amounts paid to the holder unless such holder provides proof of an
applicable exemption or a correct taxpayer identification number,
and otherwise complies with applicable requirements of the backup
withholding rules. Any amounts withheld under the backup
withholding rules are not an additional tax and may be refunded or
credited against the U.S. Holder's U.S. federal income tax
liability, provided the required information is furnished to the
IRS.
