Pricing Supplement No. 975 Dated April 30, 1997 Rule 424(b)(3)
(To Prospectus Dated April 5, 1996 and File No. 333-01807
Prospectus Supplement Dated April 5, 1996)
315,000 ELKS SM (Equity-Linked Securities SM)
Salomon Inc
Medium-Term Notes, Series D
(Registered Notes - Fixed Rate)
5.00% CPQ Common Equity-Linked Securities Due April 28, 1999
(Issue Price Based on the Per Share Price of Compaq Computer
Corporation Common Stock)
The 5.00% CPQ Common Equity-Linked Securities Due April 28,
1999 (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 April 5, 1996 (the "Prospectus")
and its Prospectus Supplement dated April 5, 1996 (the
"Prospectus Supplement").
The principal amount of each of the ELKS offered hereby will be
$79.25 (the closing price of the common stock, par value $.01
(the "CPQ Common Stock"), of Compaq Computer Corporation ("CPQ")
on April 28, 1997, as reported on the New York Stock Exchange)
(the "Issue Price"). The ELKS will mature on April 28, 1999.
Interest on the ELKS, at the rate of 5.00% of the principal
amount per annum (equal to $3.9625 per ELK per annum) is payable
quarterly on each January 28, April 28, July 28 and October 28,
beginning July 28, 1997. The ELKS are not subject to redemption
or any sinking fund prior to Maturity (as defined herein).
At maturity (including as a result of acceleration or otherwise)
("Maturity"), the principal amount of each ELK will be
mandatorily exchanged by the Company into an amount of shares of
CPQ 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) 155% of the Issue Price (or $122.8375
per ELK) or (B) the Maturity Price. The "Maturity Price" means
the average Closing Price (as defined herein) of CPQ 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 CPQ 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
CPQ Common Stock to be received at Maturity (or the cash
equivalent thereof) 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." CPQ 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
CPQ 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 .... $79.25 $0.00 $79.25
Total ...... $24,963,750.00 $0.00 $24,963,750.00
- -----------------------------------------------------------------
(1) Plus accrued interest, if any, from May 1, 1997 to the date
of delivery.
- ----------------
Salomon Brothers Inc
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<PAGE>
RISK FACTORS RELATING TO ELKS
As described in more detail below, the trading price of the
ELKS may vary considerably prior to Maturity, due to, among other
things, fluctuations in the market price of CPQ 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 CPQ 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 CPQ 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 CPQ 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 CPQ Common Stock
It is impossible to predict whether the price of CPQ Common
Stock will rise or fall. Trading prices of CPQ Common Stock will
be influenced by CPQ'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 CPQ Common Stock is traded and the market segment of
which CPQ is a part. See "Compaq Computer Corporation" herein.
Trading prices of CPQ Common Stock also may be influenced if the
Company or another principal shareholder of CPQ hereafter issues
securities with terms similar to those of the ELKS or otherwise
transfers shares of CPQ Common Stock.
Holders of the ELKS will not be entitled to any rights with
respect to CPQ 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 CPQ 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 CPQ 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 CPQ 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 CPQ 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 CPQ that modify its capital structure as
well as a merger or consolidation in which CPQ is not the
surviving or resulting corporation, a sale or transfer of all or
substantially all of the assets of CPQ and the liquidation,
dissolution, winding up or bankruptcy of CPQ. 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 CPQ Common Stock for cash or in
connection with acquisitions, that may adversely affect the price
of CPQ Common Stock and, because of the relationship of such
Amount Receivable at Maturity to the price of CPQ Common Stock,
such other events may adversely affect the trading price of the
ELKS. There can be no assurance that CPQ will not make offerings
of CPQ Common Stock or take such other action in the future or as
to the amount of such offerings, if any.
PS-2
<PAGE>
Lack of Affiliation Between the Company and CPQ
The Company is not affiliated with CPQ and, although the
Company has no knowledge that any of the events described in the
preceding subsection are currently being contemplated by CPQ or
of any that would have a material adverse effect on CPQ or on the
price of CPQ Common Stock, such events are beyond the Company's
ability to control and are difficult to predict.
CPQ 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. CPQ 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. CPQ 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 offered hereby 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 CPQ Common
Stock or listed or over-the-counter options contracts in, or
other derivative or synthetic instruments related to, CPQ 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 of the ELKS offered
hereby and prior to the Maturity of the ELKS, depending on market
conditions (including the market price of CPQ 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 CPQ Common
Stock, in listed or over-the-counter options contracts in, or
other derivative or synthetic instruments related to, CPQ 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, resell or retire 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 CPQ Common
Stock or options contracts in, or other derivative or synthetic
instruments related to, CPQ 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. Although the Company has no reason to believe
PS-3
<PAGE>
that any such hedging activity will have a material impact on the
price of such options, futures contracts and options on futures
contracts, on the market price of CPQ Common Stock or on the
trading price of the ELKS, there can be no assurance that the
Company or one or more of its subsidiaries will not affect such
prices as a result of such hedging activities.
COMPAQ COMPUTER CORPORATION
According to publicly available documents, CPQ, a Delaware
corporation, is principally engaged in the design, manufacture
and marketing of a wide range of computing products. CPQ is
subject to the informational requirements of the Exchange Act.
Accordingly, CPQ 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. Such material filed with the Commission now may
also be accessed electronically by means of the Commission's home
page on the world wide web on the Internet at
"http://www.sec.gov."
This Pricing Supplement relates only to the ELKS offered
hereby and does not relate to the CPQ Common Stock. All
disclosures contained in this Pricing Supplement regarding CPQ
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 CPQ 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 CPQ 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 CPQ 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 CPQ Common Stock.
The Company or its affiliates may presently or from time to
time engage in business with CPQ including extending loans to, or
making equity investments in, CPQ or providing advisory services
to CPQ, 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 CPQ and, in
addition, one or more affiliates of the Company may publish
research reports with respect to CPQ. The Company does not make
any representation to any purchaser of ELKS with respect to any
matters whatsoever relating to CPQ. Any prospective purchaser of
ELKS should undertake an independent investigation of CPQ as in
its judgment is appropriate to make an informed decision with
respect to an investment in CPQ Common Stock.
PS-4
<PAGE>
PRICE RANGE AND DIVIDEND HISTORY OF CPQ COMMON STOCK
CPQ Common Stock is traded and is quoted on the New York
Stock Exchange (the "NYSE") under the symbol CPQ. The following
table sets forth, for the indicated periods, the reported high
and low sales prices of the shares of CPQ Common Stock as
reported on the NYSE and the quarterly cash dividend per share
for the indicated periods.
Sales Prices
-------------------- Dividends
High Low Paid
---- --- ----
1992
1st Quarter $11.833 $8.542 $0.00
2nd Quarter 9.833 7.417 0.00
3rd Quarter 11.708 8.083 0.00
4th Quarter 16.625 10.333 0.00
1993
1st Quarter 19.500 13.917 0.00
2nd Quarter 20.583 15.375 0.00
3rd Quarter 19.875 14.375 0.00
4th Quarter 25.250 19.000 0.00
1994
1st Quarter 34.958 24.167 0.00
2nd Quarter 39.875 30.750 0.00
3rd Quarter 39.375 29.500 0.00
4th Quarter 42.125 30.750 0.00
1995
1st Quarter 44.375 31.750 0.00
2nd Quarter 46.250 31.125 0.00
3rd Quarter 54.750 42.750 0.00
4th Quarter 56.750 42.750 0.00
1996
1st Quarter 54.000 35.875 0.00
2nd Quarter 50.375 36.750 0.00
3rd Quarter 66.375 40.500 0.00
4th Quarter 87.125 63.625 0.00
1997
1st Quarter 87.875 71.875 0.00
2nd Quarter
(through
April 29, 1997) 84.125 71.000 0.00
The Company makes no representations as to the amount of
dividends, if any, that CPQ will pay in the future. In any event,
holders of ELKS will not be entitled to receive any dividends
that may be payable on CPQ Common Stock until such time as the
Company, if it so elects, delivers CPQ 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 CPQ 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.
PS-5
<PAGE>
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 (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 and offered
hereby is 315,000. The ELKS will mature on April 28, 1999. 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
$79.25, will bear interest at the annual rate of 5.00% of the
principal amount per annum (equal to $3.9625 per ELK per annum)
from May 1, 1997, or from the most recent Interest Payment Date
(as defined herein) 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 January 28, April 28, July
28 and October 28, commencing July 28, 1997 (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 herein), 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, the principal amount of each ELK will be
mandatorily exchanged by the Company into an amount of shares of
CPQ Common Stock having a value equal to the lesser of (A) 155%
of the Issue Price or (B) the Maturity Price (as defined herein).
ACCORDINGLY, THE VALUE OF CPQ 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 CPQ
Common Stock delivered by the Company to the holders of the ELKS
that are not affiliated with CPQ 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 CPQ Common Stock
will be issued at Maturity. See "--Fractional Shares" below.
Although it is the Company's current intention to deliver shares
of CPQ Common Stock at Maturity, the Company may at its option
deliver cash, in lieu of delivering such shares of CPQ 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) 155% 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 CPQ Common
Stock. On or prior to the fifteenth Business Day prior to April
28, 1999, 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 CPQ 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 CPQ Common Stock for a Calculation Period (as defined herein)
of 10 Trading Days occurring immediately prior to (but not including)
the date of Maturity; provided, however, that if no Closing Price
for CPQ Common Stock may be determined for one or more (but not
all) of such Trading Days, such Trading Days shall be disregarded
PS-6
<PAGE>
in the calculation of the Maturity Price (but no additional
Trading Days shall be added to the Calculation Period). If no
Closing Price for CPQ Common Stock may be determined for any of
such 10 Trading Days, "Maturity Price" shall be defined as the
market value per share of CPQ 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, 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 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 on such date 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 CPQ
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 the fifteenth business day
preceding the relevant Interest Payment Date (or, in the case of
interest payable at Maturity, to the person to whom the principal
is payable). 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 CPQ Common Stock held by it or its subsidiaries, and
no such shares of CPQ 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 CPQ 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 CPQ 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 CPQ Common Stock. As a
result, there can be no assurance that the Company will elect at
Maturity to deliver CPQ Common Stock or, if it so elects, that it
will use all or any portion of its current holdings of CPQ Common
Stock to make such delivery. Consequently, holders of the ELKS
will not be entitled to any rights with respect to CPQ 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 CPQ Common Stock to holders of the ELKS at Maturity
thereof.
Dilution Adjustments; Reorganization Events
Dilution Adjustments. The Closing Price of CPQ 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 (A) on any class of CPQ's capital stock payable in
shares of CPQ Common Stock or (B) on CPQ Common Stock
payable in cash in an amount greater than 10% of the
average Closing Prices of CPQ Common Stock on the date
fixed for the determination of the shareholders of CPQ
entitled to receive such cash dividend (an "Extraordinary
Cash Dividend"), any Closing Price of CPQ Common Stock used
to calculate the Maturity Price on any Trading Day that
follows the date (the "CPQ Record Date") fixed for the
PS-7
<PAGE>
determination of the shareholders of CPQ 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 CPQ Common Stock
outstanding on the CPQ 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
CPQ Common Stock that could be purchased with the amount of
such Extraordinary Cash Dividend at the Closing Price of
CPQ Common Stock on the Trading Day immediately subsequent
to such CPQ Record Date (if no Closing Price for CPQ Common
Stock may be determined for such Trading Day, such Closing
Price shall be defined as the market value per share of CPQ
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 CPQ Common Stock outstanding on the
CPQ Record Date.
(ii) In the event that the outstanding shares of CPQ Common
Stock are subdivided into a greater number of shares, the
Closing Price of CPQ 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 CPQ Common Stock are
combined into a smaller number of shares, such Closing
Price will be proportionately reduced.
(iii) In the event that CPQ 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 CPQ Common Stock was changed on any Trading Day
that follows the effectiveness of such change.
(iv) In the event that CPQ shall issue rights or warrants
to all holders of CPQ Common Stock entitling them to
subscribe for or purchase shares of CPQ Common Stock at a
price per share less than the market price of CPQ Common
Stock (other than rights to purchase CPQ Common Stock
pursuant to a plan for the reinvestment of dividends or
interest), any Closing Price of CPQ Common Stock used to
calculate the Maturity Price on any Trading Day following
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 CPQ 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 CPQ 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 CPQ 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 CPQ
Common Stock which the aggregate offering price of the
total number of shares of CPQ 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 CPQ 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 CPQ 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 CPQ 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 CPQ 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 CPQ 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 CPQ Common Stock actually
delivered.
(v) In the event that CPQ shall pay a dividend or make a
distribution to all holders of CPQ 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
PS-8
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reclassification referred to in clause (iii) above) or
issue to all holders of CPQ 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 CPQ Common Stock used to calculate the Maturity
Price on any Trading Day that follows the CPQ Record Date
fixed for the determination of the shareholders of CPQ
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 CPQ Common Stock on such CPQ Record Date (such market
price being determined as the average Closing Price per
share of CPQ Common Stock on the 10 Trading Days
immediately prior to such CPQ Record Date; provided,
however, that if no Closing Price for CPQ 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 CPQ 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 CPQ
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 CPQ 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 CPQ 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 CPQ Common Stock.
In the case of the reclassification of any shares of CPQ
Common Stock into any shares of any class or classes of stock
other than CPQ Common Stock, such shares of common stock shall be
deemed shares of CPQ 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 CPQ, or any surviving entity or
subsequent surviving entity of CPQ (a "CPQ Successor"), with or
into another entity (other than a merger or consolidation in
which CPQ is the continuing corporation and in which CPQ Common
Stock outstanding immediately prior to the merger or
consolidation is not exchanged for cash, securities or other
property of CPQ or another corporation), (B) any sale, transfer,
lease or conveyance to another corporation of the property of CPQ
or any CPQ Successor as an entirety or substantially as an
entirety, (C) any statutory exchange of securities of CPQ or any
CPQ Successor with another corporation (other than in connection
with a merger or acquisition) or (D) any liquidation, dissolution
or winding up of CPQ or any CPQ Successor (any such event, a
"Reorganization Event"), each holder of ELKS will receive at
Maturity, in lieu of shares of CPQ Common Stock, as described
above, cash in an amount equal to the lesser of (A) 155% of the
Issue Price or (B) the Transaction Value (as defined herein).
"Transaction Value" means (i) for any cash received in any such
Reorganization Event, the amount of cash received per share of
CPQ 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 CPQ 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 CPQ 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 CPQ 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.
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NOTWITHSTANDING THE FOREGOING, THE AMOUNT RECEIVABLE AT
MATURITY FOR EACH ELK WILL NOT, UNDER ANY CIRCUMSTANCES, EXCEED
155% OF THE ISSUE PRICE (OR $122.8375 PER ELK).
No adjustments will be made for certain other events, such
as offerings of CPQ Common Stock by CPQ for cash or in connection
with acquisitions.
Fractional Shares
No fractional shares of CPQ Common Stock will be issued if
the Company exchanges the ELKS for shares of CPQ 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 CPQ 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.
CUSIP Number
The CUSIP number for the ELKS offered hereby is 79549QDG6.
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, an estate the income of which is subject to U.S. federal
income taxation regardless of its source, or a trust if (i) a
U.S. court is able to exercise primary supervision over the
trust's administration or (ii) one or more U.S. fiduciaries have
the authority to control all of the trust's substantial decisions
(any of the foregoing, a "U.S. person") who is the beneficial
owner of an 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, 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, CPQ 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
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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 capped forward purchase contract to
purchase CPQ Common Stock at Maturity (including as a result of
acceleration or otherwise), under the terms of which contract (a)
at the time of issuance of the ELKS the holder deposits
irrevocably with the Company a fixed amount of cash equal to the
purchase price of the ELKS to assure the fulfillment of the
holder's purchase obligation described in clause (c) below, which
deposit will unconditionally and irrevocably be applied at
Maturity to satisfy such obligation, (b) until Maturity the
Company will be obligated to pay interest on such deposit at a
rate equal to the stated rate of interest on the ELKS as
compensation to the holder for the Company's use of such cash
deposit during the term of the ELKS and (c) at Maturity such cash
deposit unconditionally and irrevocably will be applied by the
Company in full satisfaction of the holder's obligation under the
forward purchase contract and the Company will deliver to the
holder the number of shares of CPQ Common Stock that the holder
is entitled to receive at that time pursuant to the terms of the
ELKS (subject to the Company's right to deliver cash in lieu of
the CPQ Common Stock). (Prospective investors should note that
cash proceeds of this offering will not be segregated by the
Company during the term of the ELKS, but instead will be
commingled with the Company's other assets and applied in a
manner consistent with the "Use of Proceeds" discussion above.)
Consistent with the above characterization, (i) amounts paid to
the Company in respect of the original issue of an ELKS will be
treated as allocable in their entirety to the amount of the cash
deposit attributable to such ELKS, and (ii) amounts denominated
as interest that are payable with respect to the ELKS will be
characterized as interest payable on the amount of such deposit,
includible annually in the income of a U.S. Holder as interest
income in accordance with such holder's method of accounting.
Under the above characterization of the ELKS, a holder's
tax basis in an ELKS generally will equal the holder's cost for
that ELKS. Upon the sale or other taxable disposition of an ELKS,
a U.S. Holder generally will recognize gain or loss equal to the
difference between the amount realized on the sale or other
taxable disposition and the U.S. Holder's tax basis in the ELKS.
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.
Under the above characterization of the ELKS, if the
Company delivers CPQ Common Stock at Maturity, a U.S. Holder will
recognize no gain or loss on the purchase of the CPQ Common Stock
against application of the monies received by the Company in
respect of the ELKS. A U.S. Holder will have a tax basis in such
stock equal to the U.S. Holder's tax basis in the ELKS (less the
portion of the tax basis of the ELKS allocable to any fractional
share, as described in the next sentence). A U.S. Holder will
recognize gain or loss (which will be short-term capital gain or
loss) with respect to cash received in lieu of fractional shares,
in an amount equal to the difference between the cash received
and the portion of the basis of the ELKS allocable to fractional
shares (based on the relative number of fractional shares and
full shares delivered to the holder). If at Maturity the Company
pays the ELKS in cash, a U.S. Holder will recognize capital gain
or loss equal to any difference between the amount of cash
received from the Company and the U.S. Holder's tax basis in the
ELKS at that time. 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 Maturity.
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. In
particular, the IRS could seek to analyze the federal income tax
consequences of owning ELKS under Treasury regulations
promulgated in June 1996 governing contingent payment debt
instruments (the "Contingent Payment Regulations"). The
Contingent Payment Regulations apply to debt instruments issued
on or after August 13, 1996. The Contingent Payment Regulations
are complex, but very generally apply the original issue discount
rules of the Internal Revenue Code to a contingent payment debt
instrument by requiring that original issue discount be accrued
every year at a "comparable yield" for the issuer of the
instrument, determined at the time of issuance of the obligation.
In addition, the Contingent Payment Regulations require that a
projected payment schedule, which results in such a "comparable
yield", be determined, and that adjustments to income accruals be
made to account for differences between actual payments and
projected amounts. To the extent that the comparable yield as
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<PAGE>
so determined exceeds the interest actually paid on a contingent
debt instrument in any taxable year, the owner of that instrument
will recognize ordinary interest income for that taxable year in
excess of the cash the owner receives. In addition, any gain
realized on the sale, exchange or redemption of a contingent
payment debt instrument will be treated as ordinary income. Any
loss realized on such sale, exchange or redemption will be
treated as an ordinary loss to the extent that the holder's
original issue discount inclusions with respect to the obligation
exceed prior reversals of such inclusions required by the
adjustment mechanism described above. Any loss realized in excess
of such amount generally will be treated as a capital loss.
The Company believes that the Contingent Payment
Regulations should not apply to the ELKS, because those
Regulations apply only to debt instruments that provide for
contingent payments. The ELKS are payable by the delivery of CPQ
Common Stock (unless the Company exercises its option to deliver
cash at Maturity) and provide economic returns that are indexed
to the performance of CPQ Common Stock, and offer no assurance
that a holder's investment will be returned to the holder at
Maturity. Accordingly, the Company believes that the ELKS are
properly characterized for tax purposes, not as debt instruments,
but as capped forward purchase contracts in respect of which
holders have deposited a fixed amount of cash with the Company,
on which interest is payable at a fixed rate. If, however, the
IRS were successfully to maintain that the Contingent Payment
Regulations apply to the ELKS, then, among other matters, (i)
gain realized by a holder on the sale or other taxable
disposition of an ELKS (including as a result of payments made at
Maturity) generally would be characterized as ordinary income,
rather than as short- or long-term capital gain (depending on
whether the ELKS has been held for more than one year), and (ii)
a U.S. Holder would recognize ordinary income, or ordinary or
capital loss (as the case may be, under the rules summarized
above) on the receipt of CPQ Common Stock, rather than capital
gain or loss on the ultimate sale of such stock.
Even if the Contingent Payment Regulations do not apply to
the ELKS, it is possible that the IRS could seek to characterize
the ELKS in a manner that results in tax consequences different
from those described above. Under alternative characterizations
of the ELKS, it is possible, for example, that (i) a U.S. Holder
may be required to account separately for gain or loss, or market
premium or discount, attributable to the Company's obligation to
pay a fixed rate of interest on the cash deposit, (ii) a U.S.
Holder may be taxable upon the receipt of CPQ Common Stock with a
value in excess of the holder's tax basis in the ELKS, rather
than upon the ultimate sale of such stock, or (iii) an ELKS could
be treated as including a forward contract and one or more
options.
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.
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