Pricing Supplement No. 933 Rule 424(b)(3)
Dated February 21, 1996 File No. 33-54929
(To Prospectus Dated and 33-51269
October 12, 1994 and
Prospectus Supplement
Dated October 12, 1994)
325,000 ELKS SM (Equity-Linked Securities SM)
Salomon Inc
Medium-Term Notes, Series D
(Registered Notes - Fixed Rate)
4.50% AMP Common Equity-Linked Securities Due February 26, 1998
(Issue Price Based on the Per Share Price of AMP Incorporated
Common Stock)
The 4.50% AMP Common Equity-Linked Securities Due February 26,
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 and its
Prospectus Supplement dated October 12, 1994.
The principal amount of each of the ELKS offered hereby will be
$43.00 (the closing price of the common stock, without par value
(the "AMP Common Stock"), of AMP Incorporated ("AMP") on February
21, 1996, as reported on the New York Stock Exchange) (the "Issue
Price"). The ELKS will mature on February 26, 1998. Interest on
the ELKS, at the rate of 4.50% of the principal amount per annum
(or $1.935 per annum), is payable quarterly on each May 26,
August 26, November 26 and February 26, beginning May 26, 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 AMP 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)
145.50% of the Issue Price or (B) the Maturity Price. The
"Maturity Price" means the average Closing Price (as defined
herein) of AMP Common Stock, subject to adjustment as a result of
certain dilution events (see "Description of the ELKS - Dilution
Adjustments" herein), for the 10 Trading Days (as defined herein)
immediately prior to maturity. Accordingly, the value of the AMP
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 AMP
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."
"AMP" is a trade name used by AMP. AMP 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 AMP and the
Company."
"ELKS" and "Equity-Linked Securities" are service marks of
Salomon Brothers Inc.
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Price to Agent's Proceeds to
Public(1) Commission Company(1)
Per ELK.... $43.00 $0.00 $43.00
Total...... $13,975,000 $0.00 $13,975,000
- ----------------------------------------------------------------
(1) Plus accrued interest, if any, from February 26, 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 AMP 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 the AMP 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 AMP 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 AMP 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 AMP Common Stock
It is impossible to predict whether the price of AMP Common
Stock will rise or fall. Trading prices of AMP Common Stock will
be influenced by AMP'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 AMP Common Stock is traded and the market segment of
which AMP is a part. See "AMP Incorporated" herein. Trading
prices of AMP Common Stock also may be influenced if the Company
or another principal shareholder of AMP hereafter issues
securities with terms similar to those of the ELKS or otherwise
transfers shares of AMP Common Stock.
Holders of the ELKS will not be entitled to any rights with
respect to AMP 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 AMP 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 AMP 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 AMP 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 AMP 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 AMP that modify its capital structure as
well as a merger or consolidation in which AMP is not the
surviving or resulting corporation, a sale or transfer of all or
substantially all of the assets of AMP and the liquidation,
dissolution, winding up or bankruptcy of AMP. See "Description
of the ELKS--Dilution Adjustments." Such Amount Receivable at
Maturity may not be adjusted for other events, such as offerings
of AMP Common Stock for cash or in connection with acquisitions,
that may adversely affect the price of AMP Common Stock and,
because of the relationship of such Amount Receivable at Maturity
to the price of AMP Common Stock, such other events may adversely
affect the trading price of the ELKS. There can be no assurance
that AMP will not make offerings of AMP 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 AMP
The Company is not affiliated with AMP and, although the
Company has no knowledge that any of the events described in the
preceding subsection are currently being contemplated by AMP or
of any that would have a material adverse effect on AMP or on the
price of AMP Common Stock, such events are beyond the Company's
ability to control and are difficult to predict.
AMP 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. AMP 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. AMP 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 AMP Common Stock or listed or
over-the-counter options contracts in, or other derivative or
synthetic instruments related to, AMP 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 AMP 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 AMP Common Stock, in listed or over-the-
counter options contracts in, or other derivative or synthetic
instruments related to, AMP 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 AMP Common Stock or options contracts in, or other
derivative or synthetic instruments related to, AMP 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.
AMP INCORPORATED
According to publicly available documents, AMP, a
Pennsylvania corporation, is engaged, together with its
consolidated subsidiaries, in the design, manufacture and
marketing of a broad range of electronic, electrical and electro-
optic connection devices. AMP is subject to the informational
requirements of the Securities Exchange Act of 1934, as amended.
Accordingly, AMP 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 and at the offices of the New York Stock Exchange,
Inc. 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 AMP Common Stock. All
disclosures contained in this Pricing Supplement regarding AMP
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 AMP 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 AMP 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 AMP 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 AMP Stock.
The Company or its affiliates may presently or from time to
time engage in business with AMP including extending loans to, or
making equity investments in, AMP or providing advisory services
to AMP, 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 AMP and, in
addition, one or more affiliates of the Company may publish
research reports with respect to AMP. The Company does not make
any representation to any purchaser of ELKS with respect to any
matters whatsoever relating to AMP. Any prospective purchaser of
ELKS should undertake an independent investigation of AMP as in
its judgment is appropriate to make an informed decision with
respect to an investment in AMP Common Stock.
PRICE RANGE AND DIVIDEND HISTORY OF AMP COMMON STOCK
AMP Common Stock is traded and is quoted on the New York
Stock Exchange ("NYSE") under the symbol AMP. The following
table sets forth, for the indicated periods, the reported high
and low sales prices of the shares of AMP Common Stock as
reported on the New York Stock Exchange Composite Tape and the
quarterly cash dividend per share for the indicated periods.
Sales Prices
-------------------------
High Low Dividends Paid
------ ------ --------------
1994
1st Quarter $32.75 $29.625 $0.21
2nd Quarter 34.75 28.8125 0.21
3rd Quarter 39.125 34.375 0.21
4th Quarter 39.6875 33.6875 0.21
1995
1st Quarter $38.1875 $35.0625 $0.23
2nd Quarter 46.25 35.875 0.23
3rd Quarter 44.625 37.50 0.23
4th Quarter 42.125 36.00 0.23
1996
1st Quarter
(through
February 21,
1996) $43.625 $36.375 -
For a recent sales price of the AMP Common Stock, see the
cover page of this Pricing Supplement.
The Company makes no representations as to the amount of
dividends, if any, that AMP will pay in the future. In any
event, holders of ELKS will not be entitled to receive any
dividends that may be payable on AMP Common Stock until such time
as the Company, if it so elects, delivers AMP 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 AMP
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 325,000.
The ELKS will mature on February 26, 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
$43.00, will bear interest at the annual rate of 4.50% of the
principal amount per annum (or $1.935 per annum) from February
26, 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 26, August 26, November
26 and February 26, commencing May 26, 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 the NYSE 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 AMP Common
Stock having a value equal to the lesser of (A) 145.50% of the
Issue Price or (B) the Maturity Price (as defined below).
ACCORDINGLY, THE VALUE OF THE AMP 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 AMP
Common Stock delivered by the Company to the holders of the ELKS
that are not affiliated with AMP 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 AMP Common Stock
will be issued at Maturity. See "--Fractional Shares" below.
Although it is the Company's current intention to deliver shares
of AMP Common Stock at Maturity, the Company may at its option
deliver cash, in lieu of delivering such shares of AMP 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) 145.50% 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 AMP
Common Stock. On or prior to the fifteenth Business Day prior to
February 26, 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 AMP 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.
The "Maturity Price" is defined as the average Closing Price
per share of AMP 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 the AMP 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 the AMP Common
Stock may be determined for any of such 10 Trading Days,
"Maturity Price" shall be defined as the market value per share
of the AMP 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) on the NYSE on such
date or, if such security is not listed for trading on the NYSE
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, as reported by The
NASDAQ National Market, or, if such security is not so reported,
the last quoted bid price for such security in the over-the-
counter market as reported by the National Quotation Bureau or
similar organization. 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 AMP
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 11, May 11,
August 11 and November 11. 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 the AMP Common Stock held by it or its subsidiaries,
and no such shares of AMP 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 AMP 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
AMP 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
AMP Common Stock. As a result, there can be no assurance that
the Company will elect at Maturity to deliver AMP Common Stock
or, if it so elects, that it will use all or any portion of its
current holdings of AMP Common Stock to make such delivery.
Consequently, holders of the ELKS will not be entitled to any
rights with respect to AMP 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 AMP Common Stock to
holders of the ELKS at Maturity thereof.
Dilution Adjustments
The Closing Price of AMP 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) AMP Common Stock Dividends, Extraordinary Cash
Dividends and Other Distributions. In the event that a
dividend or other distribution is declared (i) on any class
of AMP's capital stock (or on the capital stock of any AMP
Survivor, as defined in (iv) below) payable in shares of AMP
Common Stock (or the common stock of any AMP Survivor) or
(ii) on AMP Common Stock payable in cash in an amount
greater than 10% of the Closing Price of AMP Common Stock on
the date fixed for the determination of the shareholders of
AMP entitled to receive such cash dividend (an
"Extraordinary Cash Dividend"), any Closing Price of AMP
Common Stock (or the common stock of any AMP Survivor) used
to calculate the Maturity Price on any Trading Day that
follows the date (the "AMP Record Date") fixed for the
determination of the shareholders of AMP (or any AMP
Survivor) 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 AMP
Common Stock (or the common stock of any AMP Survivor)
outstanding on the AMP 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
AMP Common Stock that could be purchased with the amount of
such Extraordinary Cash Dividend at the Closing Price of AMP
Common Stock on the Trading Day immediately subsequent to
such AMP Record Date, and the denominator shall be the
number of shares of AMP Common Stock (or the common stock of
any AMP Survivor) outstanding on the AMP Record Date.
(ii) Subdivisions and Combinations of AMP Common Stock. In
the event that the outstanding shares of AMP Common Stock
(or the common stock of any AMP Survivor) are subdivided
into a greater number of shares, the Closing Price of AMP
Common Stock (or the common stock of any AMP Survivor) 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 AMP Common Stock (or
the common stock of any AMP Survivor) are combined into a
smaller number of shares, such Closing Price will be
proportionately reduced.
(iii) Reclassifications of AMP Common Stock. In the event
that AMP Common Stock (or the common stock of any AMP
Survivor) 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 consolidation, merger, sale, transfer, lease or
conveyance, liquidation, dissolution or winding up, as
described in (iv) below), the Maturity Price shall be
calculated by using the Closing Prices of the shares of
stock into which a share of AMP Common Stock (or the common
stock of any AMP Survivor) was changed on any Trading Day
that follows the effectiveness of such change.
(iv) Dissolution of AMP; Mergers, Consolidations or Sales
of Assets in which AMP is Not the Surviving Entity; Spin-
Offs. In the event of any (A) consolidation or merger of
AMP, or any surviving entity or subsequent surviving entity
of AMP (an "AMP Survivor") with or into another entity
(other than a consolidation or merger in which AMP is the
surviving entity), (B) sale, transfer, lease, or conveyance
of all or substantially all of the assets of AMP or any AMP
Survivor, (C) liquidation, dissolution or winding up of AMP
or any AMP Survivor or (D) any declaration of a distribution
on AMP Common Stock or the common stock of any subsidiary of
AMP (an "AMP Spin-Off") (any of the events described in (A),
(B), (C) or (D), a "Reorganization Event"), for purposes of
determining the Maturity Price, the Closing Price of AMP
Common Stock on any Trading Day subsequent to the effective
time of any Reorganization Event will be deemed to be the
value of the cash and other property (including securities)
received by a holder of a share of AMP Common Stock in any
such Reorganization Event plus, in the case of an AMP Spin-
Off, the value of a share of AMP Common Stock, or, to the
extent that such holder obtains securities in any
Reorganization Event, the value of the cash and other
property received by the holder of such securities in any
subsequent Reorganization Event. For purposes of
determining any such Closing Prices, the value of (A) any
cash and other property (other than securities) received in
any such Reorganization Event will be an amount equal to the
value of such cash and other property at the effective time
of such Reorganization Event and (B) any property consisting
of securities received in any such Reorganization Event will
be an amount equal to the Closing Prices of such securities.
Notwithstanding the foregoing, the Amount Receivable at
Maturity for each ELK will not, under any circumstances, exceed
145.50% of the Issue Price (or $62.565 per ELK).
No adjustments will be made for certain other events, such
as offerings of AMP Common Stock by AMP for cash or in connection
with acquisitions.
Fractional Shares
No fractional shares of AMP Common Stock will be issued if
the Company exchanges the ELKS for shares of AMP 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 AMP 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, AMP 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 AMP 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 AMP 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 the AMP 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 AMP 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 the AMP 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.
