<PAGE> 1
Filed Pursuant to Rule 424(b)(4)
Registration Nos. 333-45529 and 333-45529-01
PROSPECTUS
TARGETS TRUST I
1,451,871 TARGETED GROWTH ENHANCED TERMS SECURITIES ("TARGETS(SM)")
WITH RESPECT TO THE COMMON STOCK OF CISCO SYSTEMS, INC.
DUE ON AUGUST 15, 2000
FULLY AND UNCONDITIONALLY GUARANTEED TO THE EXTENT SET FORTH HEREIN BY
SALOMON SMITH BARNEY HOLDINGS INC.
------------------------
The 1,451,871 Targeted Growth Enhanced Terms Securities ("TARGETS") offered
hereby represent preferred undivided beneficial ownership interests in the
assets of TARGETS Trust I, a statutory business trust formed under the laws of
the State of Delaware (the "Trust" or "TARGETS Trust I"). Salomon Smith Barney
Holdings Inc., a Delaware corporation ("Salomon Smith Barney"), will own all the
common securities (the "Common Securities" and, together with the TARGETS, the
"Trust Securities") representing undivided beneficial ownership interests in the
assets of the Trust. The Trust exists for the sole purpose of issuing the Trust
Securities and investing the proceeds as described below and engaging in
activities incident thereto. Approximately 89.8% of the proceeds from the sale
of the Trust Securities will be used by the Trust to purchase from Salomon Smith
Barney a forward contract (the "Forward Contract") with respect to the common
stock (the "Common Stock") of Cisco Systems, Inc., a California corporation
("Cisco"), as more fully described herein. In addition, approximately 10.2% of
the proceeds from the sale of the Trust Securities will be used by the Trust to
purchase a portfolio of stripped self-amortizing U.S. Treasury securities (the
"Treasury Securities"). See "Description of the TARGETS", "TARGETS Trust I" and
"Description of the Treasury Securities".
The TARGETS will mature on August 15, 2000 (the "Maturity Date"), subject to
acceleration to an earlier maturity date (the "Accelerated Maturity Date") upon
an Acceleration Event as described herein under "Description of the
TARGETS -- Acceleration of Maturity Date; Enforcement of Rights". On the
Maturity Date, holders of the TARGETS will be entitled to receive, to the extent
the Trust has funds available therefor, a cash maturity payment (the "Maturity
Payment") with respect to each TARGETS in an amount equal to the product of (i)
the then Current Market Price (as defined herein) of the Common Stock multiplied
by (ii) an exchange rate (the "Exchange Rate") as described in the following
paragraph. On the Maturity Date, holders of TARGETS will also receive a final
quarterly Periodic Distribution (as defined herein) with respect to each
TARGETS. See "Description of the TARGETS -- Maturity Payment", "-- Acceleration
of Maturity Date; Enforcement of Rights", "-- Periodic Distributions" and
"-- Dilution Adjustments".
(CONTINUED ON NEXT PAGE)
The Common Stock is listed on the Nasdaq National Market of the Nasdaq Stock
Market, Inc. (the "NNM") under the symbol "CSCO". The last reported sales price
of the Common Stock on the NNM on June 8, 1998 was $77 1/2 per share.
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE TARGETS OFFERED
HEREBY.
The TARGETS have been approved for listing on the Chicago Board Options
Exchange (the "CBOE") under the symbol "TCX", subject to official notice of
issuance.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
==============================================================================================================================
PRICE TO UNDERWRITING(2) PROCEEDS TO
PUBLIC(1) COMMISSIONS THE TRUST(3)
- ------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
Per TARGETS..................... $38.75 (3) $38.75
- ------------------------------------------------------------------------------------------------------------------------------
Total........................... $56,260,001.25 (3) $56,260,001.25
==============================================================================================================================
</TABLE>
(1) Plus accrued distributions, if any, from June 12, 1998.
(2) The Trust and Salomon Smith Barney have agreed to indemnify the
Underwriter against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting".
(3) In view of the fact that a portion of the proceeds of the sale of the
TARGETS will be used by the Trust to purchase the Forward Contract from
Salomon Smith Barney, Salomon Smith Barney has agreed to pay to the
Underwriter as compensation (the "Underwriter Compensation") $.96875 per
TARGETS (or $1,406,500.03 in the aggregate). See "Underwriting". Expenses
of the offering which are payable by Salomon Smith Barney are estimated
to be $540,000.
------------------------
The TARGETS offered hereby are being offered by the Underwriter named
herein, subject to prior sale, when, as and if accepted by it and subject to
certain conditions. It is expected that delivery of the TARGETS will be made
only in book-entry form through the facilities of The Depository Trust Company
("DTC") on or about June 12, 1998.
SALOMON SMITH BARNEY
June 9, 1998
"TARGETS(SM)" is a service mark of Salomon Smith Barney Holdings Inc.
<PAGE> 2
(continued from cover page)
If the Current Market Price of the Common Stock (which is determined by
reference to an average stock price over the 10 preceding Trading Days (as
defined herein)) as of the Maturity Date or the Accelerated Maturity Date, as
the case may be, is less than or equal to $100.75 (130% of the market price of
the Common Stock on June 8, 1998) (the "Appreciation Threshold Price"), then the
Exchange Rate shall be one-half (0.5), and if the Current Market Price of the
Common Stock as of the Maturity Date or the Accelerated Maturity Date, as the
case may be, is greater than the Appreciation Threshold Price, then the Exchange
Rate shall be a fraction, the numerator of which is the Appreciation Threshold
Price times 0.5, and the denominator of which is the Current Market Price of the
Common Stock as of the Maturity Date or the Accelerated Maturity Date, as the
case may be.
Upon acceleration of maturity to an Accelerated Maturity Date, the
Institutional Trustee (as defined herein) will sell the Treasury Securities and,
holders of the TARGETS will be entitled to receive an accelerated maturity
amount (the "Accelerated Maturity Payment") and a pro rata (as defined herein)
portion of the net proceeds received from the sale of the unamortized Treasury
Securities (the "Treasury Proceeds"). The Accelerated Maturity Payment with
respect to each TARGETS will be an amount equal to the product of (i) the
Current Market Price of the Common Stock as of the Accelerated Maturity Date
multiplied by (ii) the Exchange Rate as of the Accelerated Maturity Date.
Accordingly, the amount of the Maturity Payment or Accelerated Maturity Payment,
as the case may be, with respect to each TARGETS to be received by holders of
the TARGETS at maturity will not necessarily be equal to the amount originally
invested by such holders in the TARGETS and may be less than the amount of such
initial investment. Under no circumstances will the Forward Contract or the
Treasury Securities held by the Trust or any Common Stock be distributed in-kind
to the holders of the TARGETS. See "Description of the TARGETS -- Maturity
Payment", "-- Acceleration of Maturity Date; Enforcement of Rights",
"-- Periodic Distributions" and "-- Dilution Adjustments".
Holders of the TARGETS will be entitled to receive cash distributions (the
"Periodic Distributions") of $.3390 per TARGETS on August 15, 1998 and $.4844
per TARGETS payable quarterly in arrears thereafter on each November 15,
February 15, May 15 and August 15, commencing November 15, 1998, if, as and when
the Trust has funds available for payment. See "Description of the
TARGETS -- Periodic Distributions". The aggregate amount of and the payment
dates for the Periodic Distributions will correspond to the aggregate amount of
and payment dates for distributions of payments to be received by the Trust with
respect to the Treasury Securities held by the Trust. The Treasury Securities
and the Forward Contract will be the sole assets of the Trust. See "Description
of the TARGETS -- Periodic Distributions".
The Maturity Payment or the Accelerated Maturity Payment, as the case may
be, with respect to each TARGETS will be paid by the Trust out of funds received
by the Trust from Salomon Smith Barney with respect to the Forward Contract. The
Treasury Proceeds will be paid by the Trust out of funds received by the Trust
from the sale of the Treasury Securities upon an Acceleration Event.
This Prospectus sets forth information about the Trust that a prospective
investor should consider before investing. Potential investors are advised to
read this Prospectus and to retain it for future reference.
TARGETS may be a suitable investment for those investors who are capable of
evaluating the risks regarding the Common Stock of Cisco and the advantages and
disadvantages of making an indirect investment in the Common Stock of Cisco in a
manner which will give investors in the TARGETS a potentially higher yield but a
lesser opportunity for equity appreciation than would be afforded by a direct
investment in the Common Stock. There is no assurance that the yield on the
TARGETS will be higher than the dividend yield on the Common Stock over the term
of the TARGETS.
The obligations of the Trust with respect to the TARGETS are, as described
more fully herein, guaranteed by Salomon Smith Barney (the "Guarantee") to the
extent the Trust has funds available to meet such obligations. See "Description
of the Guarantee". The Guarantee, when taken together with the Forward Contract
and Salomon Smith Barney's obligations to pay all fees and expenses of the
Trust, constitutes a full
2
<PAGE> 3
and unconditional guarantee by Salomon Smith Barney of all payments to be made
to the holders of the TARGETS.
Upon the occurrence of either an Acceleration Event or the failure by
Salomon Smith Barney to satisfy any of its obligations under the Guarantee, the
holders of the TARGETS will have a preference over the holders of the Common
Securities with respect to payments of any amounts owed by the Trust in respect
of the Trust Securities. See "Description of the TARGETS -- Acceleration of
Maturity Date; Enforcement of Rights".
The TARGETS have been approved for listing on the CBOE, subject to official
notice of issuance.
This Prospectus may be used by Salomon Smith Barney, the Underwriter,
Salomon Brothers Inc or other affiliates of Salomon Smith Barney in connection
with offers and sales of the TARGETS (subject to obtaining any necessary
approval of the CBOE for such offers and sales) in market-making transactions at
negotiated prices relating to prevailing market prices at the time of sale. Any
such entity may act as principal or agent in such transactions. No such entity
is obligated to make a market in the TARGETS and any such entity may discontinue
any market-making at any time without notice, at its sole discretion. There can
be no assurance of the liquidity or existence of a secondary market for any
TARGETS.
The purchase of TARGETS by employee benefit plans that are subject to ERISA
(as defined herein), and entities the assets of which are deemed to constitute
assets of such plans, is prohibited. The purchase of TARGETS by individual
retirement accounts is permitted.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE TARGETS OFFERED
HEREBY, INCLUDING PURCHASES OF SUCH TARGETS TO STABILIZE THEIR MARKET PRICE AND
TO COVER ALL OR SOME OF A SHORT POSITION IN THE TARGETS MAINTAINED BY THE
UNDERWRITER. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING".
AVAILABLE INFORMATION
Salomon Smith Barney and the Trust have filed with the Securities and
Exchange Commission (the "Commission") a Registration Statement on Form S-3 (the
"Registration Statement", which term shall include all amendments, exhibits and
schedules thereto), pursuant to the Securities Act of 1933, as amended (the
"Securities Act"), and the rules and regulations promulgated thereunder, with
respect to the TARGETS offered hereby as well as the Forward Contract and the
Guarantee. This Prospectus does not contain all the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. For further information, reference
is hereby made to the Registration Statement and to the exhibits thereto.
Statements contained herein concerning the provisions of certain documents are
not necessarily complete, and in each instance, reference is made to the copy of
such document filed as an exhibit to the Registration Statement or otherwise
filed with the Commission. Each such statement is qualified in its entirety by
such reference.
Salomon Smith Barney is subject to the informational and reporting
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") (File No. 1-4346), and in accordance therewith files reports and other
information with the Commission. Except for the listing of TARGETS that is
expected to be made on the CBOE, the Trust does not have any securities that are
listed on any national securities exchange. The Registration Statement, as well
as reports, proxy and information statements and other information filed by
Salomon Smith Barney can be inspected and copied at the public reference
facilities maintained by the Commission at: Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2551 and Seven World Trade Center, New York, New York
10048. Copies of such material can be obtained from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. The Commission also maintains a site on the World Wide Web,
the address of which is http://www.sec.gov, that contains reports, proxy and
information statements and other information concerning issuers, such as Salomon
Smith Barney, that file electronically with the Commission. Such reports and
other information may also be
3
<PAGE> 4
inspected at the offices of the New York Stock Exchange, 20 Broad Street, New
York, New York 10005 and the American Stock Exchange, 86 Trinity Place, New
York, New York 10006.
No separate financial statements of the Trust have been included or
incorporated by reference herein. Salomon Smith Barney does not consider that
such financial statements would be material to holders of the TARGETS because
(i) all of the voting securities of the Trust will be owned, directly or
indirectly, by Salomon Smith Barney, a reporting company under the Exchange Act,
(ii) the Trust has no independent operations but exists for the sole purpose of
issuing securities representing undivided beneficial interests in its respective
assets and investing the proceeds thereof in the Forward Contract issued by
Salomon Smith Barney and the Treasury Securities, and (iii) the obligations of
the Trusts under the TARGETS are fully and unconditionally guaranteed by Salomon
Smith Barney to the extent that the Trust has funds available to meet such
obligations. See "Description of the TARGETS" and "Description of the
Guarantee".
In future filings under the Exchange Act, a footnote to Salomon Smith
Barney's annual financial statements will state that the Trust is consolidated
with Salomon Smith Barney, that the sole assets of the Trust are the Forward
Contract and the Treasury Securities and that the Guarantee when taken together
with the Forward Contract and Salomon Smith Barney's obligations to pay all fees
and expenses of the Trust constitutes a full and unconditional guarantee by
Salomon Smith Barney of the distribution, liquidation and other payments payable
to the holders of the TARGETS.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Salomon Smith Barney incorporates by reference the following documents
heretofore filed by Salomon Smith Barney with the Commission pursuant to the
Exchange Act: (i) the Annual Report on Form 10-K for the year ended December 31,
1997, (ii) the Quarterly Report on Form 10-Q for the quarter ended March 31,
1998 and (iii) the Current Reports on Form 8-K filed on January 9, 1998, January
26, 1998, February 2, 1998, March 3, 1998, April 17, 1998, April 20, 1998 and
May 13, 1998.
All documents filed by Salomon Smith Barney pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus
and prior to the termination of the offering of the TARGETS shall be deemed to
be incorporated by reference in this Prospectus.
Any statement contained herein or in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
Salomon Smith Barney will provide without charge to each person, including
any beneficial owner of TARGETS, to whom a copy of this Prospectus is delivered,
on the written or oral request of any such person, a copy of any or all of the
documents incorporated herein by reference, except the exhibits to such
documents (unless such exhibits are specifically incorporated by reference in
such documents). Written requests for such copies should be directed to the
Treasurer, Salomon Smith Barney Holdings Inc., 388 Greenwich Street, New York,
New York 10013. Telephone requests for such copies should be directed to the
Treasurer at (212) 816-6000.
4
<PAGE> 5
SUMMARY
The following summary does not purport to be complete and is qualified in
its entirety by the more detailed information appearing elsewhere in this
Prospectus.
The Trust.................. TARGETS Trust I, a Delaware statutory business
trust. The sole assets of the Trust will be the
Forward Contract and the Treasury Securities. See
"TARGETS Trust I".
Securities Offered......... Targeted Growth Enhanced Terms Securities.
The TARGETS represent preferred undivided
beneficial ownership interests in the assets of the
Trust. Of the proceeds to the Trust from the sale
of the TARGETS, approximately 89.8% will be
invested by the Trust in the Forward Contract with
respect to the Common Stock and approximately 10.2%
will be invested by the Trust in the Treasury
Securities. The Forward Contract and the Treasury
Securities will be the sole assets of the Trust.
The TARGETS are designed to provide holders with a
higher yield than the current dividend yield paid
on the Common Stock, while also providing the
opportunity for holders to share in the
appreciation, if any, of the Common Stock up to the
Appreciation Threshold Price. The annual calendar
year distribution on the TARGETS is $1.9375 per
TARGETS. However, there is no assurance that the
yield on the TARGETS will be higher than the
dividend yield on the Common Stock over the term of
the TARGETS.
The Maturity Payment or Accelerated Maturity
Payment, as the case may be, payable to holders of
each TARGETS at maturity is dependent upon the
Current Market Price of the Common Stock at such
time. If the Current Market Price as of the
Maturity Date or Accelerated Maturity Date is less
than $77.50, then the value of the Maturity Payment
or Accelerated Maturity Payment with respect to
each TARGET to be received by holders of TARGETS at
maturity will be less than the amount originally
invested by such holders in the TARGETS.
In addition, the opportunity for equity
appreciation afforded by an investment in the
TARGETS is less than the opportunity for equity
appreciation afforded by a direct investment in the
Common Stock because the Maturity Payment or
Accelerated Maturity Payment with respect to each
TARGETS to be received by holders of TARGETS at
maturity will generally be limited to 130% of the
amount originally invested by such holders in the
TARGETS. See "Description of the
TARGETS -- Maturity Payment", " -- Acceleration of
Maturity Date; Enforcement of Rights" and "Risk
Factors -- Relationship to the Common
Stock, -- Potential Losses and -- Limitation on
Opportunity For Equity Appreciation".
Offering Price............. The TARGETS are being offered hereby for $38.75
each, which equals the closing price of the Common
Stock on June 8, 1998 of $77.50 per share times
0.5.
Maturity................... The TARGETS will mature on August 15, 2000, subject
to acceleration to an Accelerated Maturity Date, as
described herein.
Maturity Payment........... On the Maturity Date, holders of the TARGETS will
be entitled to receive, with respect to each
TARGETS and to the extent the Trust has funds
available therefor, the Maturity Payment. The
Maturity Payment with respect to each TARGETS will
be an amount equal to the product of (i) the
Current Market Price of the Common Stock as of the
5
<PAGE> 6
Maturity Date multiplied by (ii) the Exchange Rate.
On the Maturity Date, holders of TARGETS will also
receive the final quarterly Periodic Distribution
with respect to each TARGETS.
If the Current Market Price of the Common Stock as
of the Maturity Date is less than or equal to the
Appreciation Threshold Price, then the Exchange
Rate shall be one-half (0.5) and if the Current
Market Price of the Common Stock as of the Maturity
Date is greater than the Appreciation Threshold
Price, then the Exchange Rate shall be a fraction,
the numerator of which is the Appreciation
Threshold Price times 0.5, and the denominator of
which is the Current Market Price of the Common
Stock as of the Maturity Date. The Exchange Rate
and the Appreciation Threshold Price are subject to
certain dilution adjustments upon the occurrence of
certain events involving Cisco and its capital
structure, as described herein.
The Maturity Payment with respect to each TARGETS
will be paid by the Trust out of the funds received
by the Trust from Salomon Smith Barney in respect
of the Forward Contract. The ability of the Trust
to make any Maturity Payment is therefore entirely
dependent upon the receipt by the Trust from
Salomon Smith Barney of such payment with respect
to the Forward Contract. See "Description of the
TARGETS -- Maturity Payment" and "-- Dilution
Adjustments".
Acceleration of Maturity
Date....................... Upon an Acceleration Event, the Institutional
Trustee will sell the Treasury Securities,
liquidate the Trust and cause the Accelerated
Maturity Payment with respect to each TARGETS and a
pro rata portion of the Treasury Proceeds to be
distributed to the holders of the TARGETS. The
Accelerated Maturity Payment with respect to each
TARGETS will be an amount equal to the product of
(i) the Current Market Price of the Common Stock as
of the Accelerated Maturity Date multiplied by (ii)
the Exchange Rate as of the Accelerated Maturity
Date. If any Accelerated Maturity Payment can be
paid only in part because the Trust has
insufficient assets available to pay the
Accelerated Maturity Payment with respect to each
TARGETS in full, then the amounts payable directly
by the Trust to holders of the TARGETS will be paid
on a pro rata basis.
The holders of the Common Securities will be
entitled to receive distributions upon any such
liquidation pro rata with the holders of the
TARGETS, except that upon (i) default by the Trust
on any of its obligations under the TARGETS or (ii)
default by Salomon Smith Barney on any of its
obligations under the Guarantee, the holders of the
TARGETS will have a preference over the holders of
the Common Securities with respect to payments upon
liquidation of the Trust. An "Acceleration Event"
will occur with respect to the TARGETS upon any of
(i) a Tax Event (as defined herein), which will
generally be considered to be the occurrence of
certain adverse tax consequences to the Trust, (ii)
an Investment Company Event (as defined herein),
which will generally be considered to be
classification of the Trust as an "investment
company" under the Investment Company Act of 1940,
as amended or (iii) a Bankruptcy Event (as defined
herein), which will generally be considered to be
the initiation of bankruptcy proceedings regarding
Salomon Smith Barney. See "Description of the
TARGETS -- Acceleration of Maturity Date;
Enforcement of Rights" and "Risk
Factors -- Acceleration of Maturity Date".
6
<PAGE> 7
Periodic Distributions..... Holders of TARGETS will be entitled to receive
Periodic Distributions of $.3390 per TARGETS on
August 15, 1998 and $.4844 per TARGETS payable
quarterly in arrears thereafter on each November
15, February 15, May 15 and August 15, commencing
November 15, 1998.
The Periodic Distributions will be paid by the
Trust out of payments to be received by the Trust
in respect of the Treasury Securities held by the
Trust.
The Treasury Securities will bear quarterly
payments corresponding to the payment dates of the
Periodic Distributions payable on the TARGETS. See
"Description of the Treasury Securities."
The Treasury Securities and the Forward Contract
will be the sole assets of the Trust. The ability
of the Trust to make Periodic Distributions on the
TARGETS is therefore entirely dependent on receipt
by the Trust of payments with respect to the
Treasury Securities held by the Trust. See
"Description of the TARGETS -- Periodic
Distributions".
Rights Upon Certain
Events..................... If, at any time, (i) the Trust has not satisfied
any of its obligations under the TARGETS or (ii)
Salomon Smith Barney has not satisfied any of its
obligations under the Guarantee, then (a) the
Institutional Trustee, as the holder of the Forward
Contract and the Treasury Securities, will have the
right to enforce the terms of the Forward Contract
and the Treasury Securities and (b) the Guarantee
Trustee (as defined herein), as the holder of the
Guarantee, will have the right to enforce the terms
of the Guarantee. See "Risk Factors -- Enforcement
of Certain Rights by Holders of TARGETS".
Guarantee.................. Salomon Smith Barney will irrevocably guarantee the
payment in full to the holders of the TARGETS of
(i) any Maturity Payment that is required to be
made in respect of the TARGETS, to the extent the
Trust has funds available therefor, (ii) any
Accelerated Maturity Payment that is required to be
made in respect of the TARGETS, to the extent the
Trust has funds available therefor, (iii) any
Periodic Distributions that are required to be made
in respect of the TARGETS, to the extent the Trust
has funds available therefor, (iv) the Treasury
Proceeds that are required to be distributed in
respect of the TARGETS, to the extent the Trust has
funds available therefor, and (v) any other
remaining assets of the Trust upon liquidation of
the Trust. See "Description of the Guarantee" and
"Risk Factors -- Rights Under the Guarantee".
Voting Rights.............. Generally, holders of the TARGETS will not have any
voting rights. The holders of the TARGETS, however,
have the right to direct the time, method and place
of conducting any proceeding for any remedy
available to the Institutional Trustee, or direct
the exercise of any trust or power conferred upon
the Institutional Trustee under the Declaration (as
defined herein), including the right to direct the
Institutional Trustee, as holder of the Forward
Contract and the Treasury Securities, to exercise
its rights in the manner described above under
"Rights Upon Certain Events". See "Description of
the TARGETS -- Acceleration of Maturity Date;
Enforcement of Rights" and " -- Voting Rights" and
"Risk Factors -- Enforcement of Certain Rights by
Holders of TARGETS" and "-- Limited Voting Rights;
No Stockholders Rights".
Book-Entry Form............ The TARGETS will be represented by a global
certificate or certificates registered in the name
of Cede & Co., as nominee for DTC. Beneficial
7
<PAGE> 8
interests in the TARGETS will be evidenced by, and
transfers thereof will be effected only through,
records maintained by the participants in DTC.
Except as described herein, TARGETS in certificated
form will not be issued in exchange for the global
certificate or certificates. See "Description of
the TARGETS -- Book-Entry Only Issuance".
Obligations of the Trust... The TARGETS are obligations of the Trust and, to
the extent of the Guarantee, of Salomon Smith
Barney. Neither the TARGETS nor the Guarantee are
obligations of Cisco or any other company. See
"Risk Factors -- No Obligation on the Part of Cisco
With Respect to the TARGETS".
Listing.................... The TARGETS have been approved for listing on the
CBOE under the symbol "TCX", subject to official
notice of issuance.
Use of Proceeds............ Of the total proceeds from the sale of the Trust
Securities, the Trust will use $52,090,657 to
purchase the Forward Contract from Salomon Smith
Barney and $5,909,345 to purchase the Treasury
Securities. See "TARGETS Trust I", "Use of Proceeds
and Hedging Activities" and "Risk Factors -- Use of
Proceeds and Hedging Activities".
Forward Contract........... Pursuant to the terms of the Forward Contract,
Salomon Smith Barney will be obligated to pay to
the Trust the aggregate Maturity Payments or the
aggregate Accelerated Maturity Payments, as the
case may be. The Forward Contract provides, among
other things, for a payment by the Company to the
Trust of an amount determined by reference to the
Current Market Price as of the Maturity Date or
Accelerated Maturity Date, as the case may be. The
Forward Contract is a contract in the form of an
Indenture between the Company and a trustee for the
benefit of the holder of the interests in the
Forward Contract. The Forward Contract is a prepaid
"cash-settled" forward contract, whereby the
obligor settles its obligation in cash rather than
in securities. The proceeds from the sale of the
Forward Contract will be used by Salomon Smith
Barney for general corporate purposes. See "Use of
Proceeds and Hedging Activities", "Description of
the Forward Contract" and "Risk Factors -- Use of
Proceeds and Hedging Activities".
8
<PAGE> 9
RISK FACTORS
As described in more detail below, the trading price of the TARGETS may
vary considerably prior to maturity, due to, among other things, fluctuations in
the market price of the Common Stock and other events that are difficult to
predict and beyond the control of Salomon Smith Barney and the Trust.
Prospective purchasers of the TARGETS should consider carefully the risk factors
set forth below, as well as all other information contained or incorporated by
reference in this Prospectus, in evaluating an investment in the TARGETS.
POTENTIAL LOSSES
The amount of cash that holders of TARGETS are entitled to receive at
maturity is not fixed, but is based on the Current Market Price of the Common
Stock at the time of maturity. There can be no assurance that the amount of such
payment will be equal to or greater than the amount an investor initially paid
for its TARGETS (except to the extent of any Periodic Distributions). For
example, if at maturity, the Current Market Price of the Common Stock is less
than $77.50 per share, the Maturity Payment or Accelerated Maturity Payment, as
the case may be, with respect to each TARGETS will be less than the initial
offering price of each TARGETS, in which case an investment in TARGETS will
result in a loss (again, except to the extent of any Periodic Distributions)
equal to the percentage decrease in the Current Market Price of the Common Stock
from the price of the Common Stock at the time of issuance of the TARGETS and,
if Cisco is insolvent or bankrupt, could result in a total loss of the amount
invested in the TARGETS (again, except to the extent of any Periodic
Distributions). Investors in the TARGETS therefore bear the full risk of a
decline in the value of the Common Stock prior to maturity of the TARGETS.
LIMITATION ON OPPORTUNITY FOR EQUITY APPRECIATION
In addition, the opportunity for equity appreciation afforded by an
investment in the TARGETS is less than the opportunity for equity appreciation
afforded by a direct investment in the Common Stock. As a result of the
limitation provided by the Appreciation Threshold Price, Holders of the TARGETS
will only be entitled to receive at maturity an amount representing the
appreciation of the value of the Common Stock up to $100.75 (130% of the market
price of the Common Stock on June 8, 1998). Because the price of the Common
Stock is subject to market fluctuations, the Maturity Payment or Accelerated
Maturity Payment, as the case may be, with respect to each TARGETS may be more
or less than the amount initially invested in each TARGETS. In addition, because
the Current Market Price is determined by reference to an average stock price
over 10 Trading Days, the value of a share of the Common Stock on the date of
maturity may be more or less than the Current Market Price used to determine the
amount holders of TARGETS are entitled to receive at maturity. See "Description
of the TARGETS" for an illustration of the Maturity Payment with respect to each
TARGETS that a TARGETS holder would receive at various Current Market Prices for
the Common Stock at maturity.
RELATIONSHIP TO THE COMMON STOCK
The market price of the TARGETS at any time will be affected primarily by
changes in the price of the Common Stock. It is impossible to predict whether
the price of the Common Stock will rise or fall. Trading prices of the Common
Stock will be influenced by Cisco's results of operations and by complex and
interrelated political, economic, financial and other factors that can affect
the capital markets generally, the stock exchange on which the Common Stock is
traded and the market segment of which Cisco is a part. Trading prices of the
Common Stock also may be influenced if Salomon Smith Barney, another market
participant or others hereafter issue securities with terms similar to those of
the TARGETS or sell or otherwise transfer shares of the Common Stock.
The yield on the TARGETS is higher than the current dividend yield on the
Common Stock. However, there is no assurance that the yield on the TARGETS will
be higher than the dividend yield on the Common Stock through the term of the
TARGETS. In addition, holders of the TARGETS will not be entitled to any rights
with respect to the Common Stock, including, without limitation, voting rights
and the rights to receive any dividends or other distributions in respect
thereof.
9
<PAGE> 10
ACCELERATION OF MATURITY DATE
Upon the occurrence of an Acceleration Event as described herein, the
maturity of the Trust Securities will be accelerated. An Acceleration Event will
generally occur upon the occurrence of (i) certain adverse tax consequences to
the Trust, (ii) the Trust being considered an "investment company" under the
Investment Company Act of 1940 (the "1940 Act") or (iii) the bankruptcy of
Salomon Smith Barney. As a result, the Accelerated Maturity Payment with respect
to each TARGETS and a pro rata portion of the Treasury Proceeds would be
distributed to the holders of the TARGETS on the Accelerated Maturity Date. See
"Description of the TARGETS -- Acceleration of Maturity Date; Enforcement of
Rights".
There can be no assurance as to the amount of either the Accelerated
Maturity Payments or the Treasury Proceeds that may be distributed to holders of
the TARGETS on the Accelerated Maturity Date. Accordingly, the TARGETS may trade
at a discount to the price that the investor paid to purchase the TARGETS
offered hereby.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF TARGETS
If Salomon Smith Barney were to default on its obligation to pay amounts
due in respect of the Forward Contract, the Trust would lack available funds for
the payment of any Maturity Payment or any Accelerated Maturity Payment and, in
such event, the remedy of a holder of the TARGETS is to (i) vote to direct the
Institutional Trustee to enforce the Institutional Trustee's rights under the
Forward Contract and Treasury Securities or (ii) institute a proceeding directly
against Salomon Smith Barney for enforcement of payment to such holder of the
amounts owed on such holder's pro rata interest in the Forward Contract (a
"Direct Action") on or after the respective due date specified in the Forward
Contract. The holders of TARGETS will not be able to exercise directly any other
remedy available to the holders of the Forward Contract. See "Description of the
Guarantee" and "Description of Forward Contract". The Declaration provides that
each holder of TARGETS, by acceptance thereof, agrees to the provisions of the
Guarantee and the Indenture governing the terms of the Forward Contract.
IMPACT OF THE TARGETS ON THE MARKET FOR THE COMMON STOCK
It is not possible to predict accurately how or whether the TARGETS will
trade in the secondary market or whether such market will be liquid. Any market
that develops for the TARGETS may influence and is likely to be influenced by
the market for the Common Stock. For example, the price of the Common Stock
could be affected by (i) possible sales of the Common Stock by investors who
view the TARGETS as a more attractive means of equity participation in Cisco and
(ii) hedging or arbitrage trading activity that may develop involving the
TARGETS and the Common Stock.
USE OF PROCEEDS AND HEDGING ACTIVITIES
A portion of the net proceeds to be received by Salomon Smith Barney from
the sale of the Forward Contract will be used, in part, by Salomon Smith Barney
or one or more of its subsidiaries for hedging activities related to Salomon
Smith Barney's obligations under the Forward Contract. On or prior to the
Closing Date (as defined herein), Salomon Smith Barney, directly or through its
subsidiaries, will hedge its anticipated exposure under the Forward Contract by
the purchase or sale of Common Stock or options, futures contracts, forward
contracts or swaps or options on the foregoing, or other derivative or synthetic
instruments related to, the Common Stock. From time to time after the initial
sale of the TARGETS and prior to the Maturity Date or Accelerated Maturity Date,
depending on market conditions (including the price of the Common Stock),
Salomon Smith Barney expects that it or its subsidiaries will increase or
decrease their initial hedge positions through various transactions and may
purchase or sell Common Stock or options, swaps, futures contracts, forward
contracts or other derivative or synthetic instruments related to, the Common
Stock. In addition, Salomon Smith Barney and its subsidiaries may purchase or
sell TARGETS from time to time. Salomon Smith Barney or its subsidiaries may
also take positions in other types of appropriate financial instruments that may
become available in the future. To the extent that Salomon Smith Barney or its
subsidiaries have a long or short hedge position in the Common Stock or options,
swaps, futures contracts, forward contracts or other derivative or synthetic
instruments related to, the Common Stock, Salomon Smith Barney or one or more of
its subsidiaries may liquidate all or a portion of their holdings close to
maturity of the Forward Contract and the TARGETS. Depending on, among other
things, future market conditions, the
10
<PAGE> 11
aggregate amount and composition of such positions are likely to vary over time.
Profits or losses from any such position cannot be ascertained until such
position is closed out and any offsetting position or positions are taken into
account. Although Salomon Smith Barney has no reason to believe that such
hedging activity will have a material effect on the price of TARGETS, such
options, swaps, futures contracts, forward contracts or other derivative or
synthetic instruments or on the value of the Common Stock, there can be no
assurance that the hedging activities of Salomon Smith Barney and its
subsidiaries will not affect such prices or value.
Salomon Smith Barney or an affiliate may enter into a swap agreement with
one of Salomon Smith Barney's affiliates in connection with the sale of the
TARGETS and may earn additional income as a result of payments pursuant to such
swap or related hedge transactions.
DILUTION OF THE COMMON STOCK
Maturity Payments or Accelerated Maturity Payments, as the case may be, are
subject to adjustment for certain events arising from stock splits and
combinations, stock dividends, certain other actions of Cisco that modify its
capital structure and certain other transactions involving Cisco as well as for
a liquidation, dissolution or winding up of Cisco. See "Description of the
TARGETS -- Dilution Adjustments". Payments upon maturity will not be adjusted
for other events, such as offerings of the Common Stock for cash or in
connection with acquisitions, that may adversely affect the price of the Common
Stock and, because of the relationship of each such Maturity Payment or
Accelerated Maturity Payment to the price of the Common Stock, such other events
may adversely affect the trading price of the TARGETS. There can be no assurance
that Cisco will not take any of the foregoing actions, or that it will not make
offerings of, or that major shareholders will not sell any, Common Stock in the
future or as to the amount of such offerings or sales, if any.
In addition, holders of the TARGETS will not be entitled to any rights with
respect to the Common Stock, including, without limitation, voting rights and
the rights to receive any dividends or other distributions in respect thereof.
NO OBLIGATION ON THE PART OF CISCO WITH RESPECT TO THE TARGETS
Cisco is not in any way involved with the offering contemplated hereby and
has no obligations with respect to the TARGETS, including any obligation to take
the needs of Salomon Smith Barney, the Trust or holders of the TARGETS into
consideration for any reason. Cisco will not receive any of the proceeds of the
offering of the TARGETS made hereby and is not responsible for, and has not
participated in, the determination of the time of, prices for or quantities of
TARGETS to be issued. Cisco is not involved with the administration of the Trust
or the TARGETS.
There can be no assurance that Cisco will continue to be subject to the
reporting requirements of the Exchange Act, and distribute reports, proxy
statements and other information required thereby to its stockholders. In the
event that Cisco ceases to be subject to such reporting requirements and the
TARGETS continue to be outstanding, pricing information for the TARGETS may be
more difficult to obtain and the value and liquidity of the TARGETS may be
adversely affected.
LIMITED VOTING RIGHTS; NO STOCKHOLDERS RIGHTS
Holders of the TARGETS will have limited voting rights with respect to the
Trust and will not be entitled to vote to appoint, remove or replace, or
increase or decrease the number of, the Trustees, which voting rights are vested
exclusively in the holders of the Common Securities. See "Description of the
TARGETS -- Voting Rights". In addition, holders of TARGETS will not be entitled
to any rights with respect to the Common Stock (including, without limitation,
voting rights and the rights to receive any dividends or other distributions in
respect thereto.)
UNCERTAINTY OF FEDERAL INCOME TAX CONSEQUENCES
No statutory, judicial or administrative authority directly addresses the
characterization of the TARGETS or instruments similar to the TARGETS for U.S.
federal income tax purposes. As a result, significant aspects of the U.S.
federal income tax consequences of an investment in the TARGETS are not certain.
No ruling is being requested from the Internal Revenue Service with respect to
the TARGETS and no
11
<PAGE> 12
assurance can be given that the Internal Revenue Service will agree with the
conclusions expressed under "Certain Federal Income Tax Considerations".
SECONDARY TRADING VALUE; LISTING ON CBOE
The Trust is a newly created business trust with no previous operating
history and the TARGETS are innovative securities. It is not possible to predict
how the TARGETS will trade in the secondary market. The trading price of the
TARGETS may vary considerably prior to maturity due to, among other things,
fluctuations in the price of the Common Stock (which may occur due to changes in
Cisco's financial condition, results of operations or prospects, or because of
complex and interrelated political, economic, financial and other factors that
can affect the capital markets generally, the stock exchanges or quotation
systems on which the Common Stock is traded and the market segment of which
Cisco is a part) and fluctuations in interest rates, the volatility of the
Common Stock, the length of time to maturity and other factors that are
difficult to predict and beyond the Trust's control.
The Underwriter has advised the Trust that it currently intends to make a
market in the TARGETS; however, it is not obligated to do so. There can be no
assurance that a secondary market will develop or, if a secondary market does
develop, that it will provide the holders with liquidity of investment or that
it will continue for the life of the TARGETS. The Underwriter may cease to make
a market in the TARGETS at any time without notice. The TARGETS have been
approved for listing on the CBOE, subject to official notice of issuance, but
there can be no assurance that the TARGETS will not later be delisted or that
trading in the TARGETS on the CBOE will not be suspended. In the event of a
delisting or suspension of trading on such exchange, the Trust intends to apply
for listing of the TARGETS on another national securities exchange or for
quotation on another trading market. If the TARGETS are not listed or traded on
any securities exchange or trading market, or if trading of the TARGETS is
suspended, pricing information for the TARGETS may be more difficult to obtain,
and the price and liquidity of the TARGETS may be adversely affected.
RISK RELATING TO BANKRUPTCY OF SALOMON SMITH BARNEY
Although the TARGETS are to be issued by the Trust, the ability of the
Trust to meet its obligations under the TARGETS is primarily contingent upon
receipt by the Trust from Salomon Smith Barney of the aggregate Maturity
Payments or the aggregate Accelerated Maturity Payments, as the case may be. The
ability of Salomon Smith Barney to meet its obligations thereunder and, in turn,
the ability of the Trust to meet its obligations under the TARGETS, is therefore
dependent on the solvency and creditworthiness of Salomon Smith Barney.
The TARGETS are a new form of security, and as such, there is no direct
precedent regarding the effect on the TARGETS of a bankruptcy of Salomon Smith
Barney. Accordingly, there can be no assurance of how the TARGETS, the Forward
Contract or the Trust would be treated in such a bankruptcy and whether or to
what extent the holders of TARGETS would be able to recover all or any portion
of their investment in the TARGETS.
In the event of a bankruptcy of Salomon Smith Barney filed before final
payment of the aggregate Maturity Payments or aggregate Accelerated Maturity
Payments in respect of the Forward Contract, the Trust believes the Forward
Contract will be treated as a general unsecured claim against Salomon Smith
Barney in the amount of the aggregate Maturity Payments or the aggregate
Accelerated Maturity Payments, as the case may be, calculated as of either the
date of bankruptcy or the date of any earlier Acceleration Event, but there is a
risk that the claim could be allowed in a lesser amount. In either event, final
payment of amounts owed under the Forward Contract may be delayed beyond the
Maturity Date. Moreover, if a bankruptcy of Salomon Smith Barney were to be
filed within 90 days after the payment of the aggregate Maturity Payments or the
aggregate Accelerated Maturity Payments, the payment might be deemed to be a
preference and thus recoverable from the holders of TARGETS. Thus, in the event
of a bankruptcy of Salomon Smith Barney, any recovery to the holders of TARGETS
will likely be substantially delayed and recovery according to the terms of the
Forward Contract and the TARGETS would be uncertain.
12
<PAGE> 13
SALOMON SMITH BARNEY
Salomon Smith Barney (formerly Salomon Inc) provides investment banking,
securities and commodities trading, brokerage, asset management and other
financial services through its subsidiaries. As used in this section, unless the
context otherwise requires, "Salomon Smith Barney" refers to Salomon Smith
Barney Holdings Inc. and its subsidiaries.
Salomon Smith Barney is a global investment bank and broker-dealer that
operates through over 450 offices throughout the United States and 45 offices in
26 foreign countries. Salomon Smith Barney's global investment banking services
encompass a full range of capital market activities, including the underwriting
and distribution of debt and equity securities for United States and foreign
corporations and for state, local and other governmental and government
sponsored authorities. It also provides financial advice to investment banking
clients on a wide variety of transactions including mergers and acquisitions,
divestitures, leveraged buyouts, financial restructurings and a variety of
cross-border transactions.
Salomon Smith Barney executes securities and commodity futures brokerage
transactions on all major United States and international securities and futures
exchanges on behalf of customers and for its own account. Salomon Smith Barney
also trades for its own account in various markets throughout the world, and
uses many different strategies involving a broad spectrum of financial
instruments and derivative products.
Salomon Smith Barney's retail brokerage services include providing
investment advice and financial planning and brokerage services. Salomon Smith
Barney's financial consultants also sell proprietary and non-proprietary mutual
funds, and many offer individual insurance products, primarily variable
annuities. With approximately 10,300 financial consultants and approximately 875
institutional brokers, Salomon Smith Barney believes that it is currently the
second largest brokerage firm in the United States.
Salomon Smith Barney's asset management services include providing
discretionary and non-discretionary asset management services to a wide array of
mutual funds and institutional and individual investors, sponsoring and acting
as advisor to mutual funds and sponsoring and overseeing the portfolios of unit
investment trusts. Client relationships may be introduced either through Salomon
Smith Barney's network of financial consultants or independently of that
network.
On November 28, 1997, a newly formed wholly owned subsidiary of Travelers
Group Inc. ("Travelers Group") was merged into Salomon Inc ("Salomon"). Pursuant
to the merger agreement, stockholders of Salomon received shares of stock of
Travelers Group and Salomon became a wholly owned subsidiary of Travelers Group.
Also on November 28, Salomon and Smith Barney Holdings Inc. ("Smith Barney
Holdings") were merged (the "Merger"), with Salomon Smith Barney continuing as
the surviving corporation. The consolidated financial statements of Salomon
Smith Barney incorporated by reference herein give retroactive effect to the
Merger as a combination of entities under common control in a transaction
accounted for in a manner similar to a pooling of interests. The pooling of
interests method of accounting requires the restatement of all periods presented
as if Salomon and Smith Barney Holdings had always been combined.
On April 6, 1998, Travelers Group and Citicorp announced that they entered
into a definitive agreement to combine in a merger of equals. The transaction,
which is expected to be completed during the third quarter of 1998, is subject
to various regulatory approvals, including approval by the Federal Reserve
Board. The transaction is also subject to approval by the stockholders of each
of Travelers Group and Citicorp.
The principal offices of Salomon Smith Barney are located at 388 Greenwich
Street, New York, New York 10013 (telephone number: (212) 816-6000). Salomon
Smith Barney was incorporated in Delaware in 1960.
13
<PAGE> 14
USE OF PROCEEDS AND HEDGING ACTIVITIES
Of the total proceeds to be received by the Trust from the sale of the
Trust Securities, approximately $52,090,657 will be used by the Trust to
purchase the Forward Contract from Salomon Smith Barney and approximately
$5,909,345 will be used by the Trust to purchase the Treasury Securities. The
Trust will purchase the Treasury Securities from Salomon Brothers Inc, a
subsidiary of Salomon Smith Barney, at market prices. A portion of the net
proceeds to be received by Salomon Smith Barney from the sale of the Forward
Contract will be used for general corporate purposes, which may include capital
contributions to subsidiaries of Salomon Smith Barney and/or the reduction or
refinancing of borrowings of Salomon Smith Barney or its subsidiaries. In order
to fund its investment brokerage business, Salomon Smith Barney expects to incur
additional indebtedness in the future. To the extent that TARGETS being
purchased for resale by the Underwriter are not sold, the aggregate proceeds to
Salomon Smith Barney and its subsidiaries would be reduced. Salomon Smith Barney
or an affiliate may enter into a swap agreement with one of Salomon Smith
Barney's affiliates in connection with the sale of the TARGETS and may earn
additional income as a result of payments pursuant to such swap or related hedge
transactions.
The remainder of the net proceeds to be received by Salomon Smith Barney
from the sale of the Forward Contract will be used, in part, by Salomon Smith
Barney or one or more of its subsidiaries for hedging activities related to
Salomon Smith Barney's obligations under the Forward Contract. On or prior to
the Closing Date (as defined herein), Salomon Smith Barney, directly or through
its subsidiaries, will hedge its anticipated exposure under the Forward Contract
by the purchase or sale of Common Stock or options, futures contracts, forward
contracts or swaps or options on the foregoing, or other derivative or synthetic
instruments related to, the Common Stock. From time to time after the initial
sale of the TARGETS and prior to the Maturity Date or Accelerated Maturity Date,
depending on market conditions (including the price of the Common Stock),
Salomon Smith Barney expects that it or its subsidiaries will increase or
decrease their initial hedge positions through various transactions and may
purchase or sell Common Stock or options, swaps, futures contracts, forward
contracts or other derivative or synthetic instruments related to, the Common
Stock. In addition, Salomon Smith Barney and its subsidiaries may purchase or
sell TARGETS from time to time. Salomon Smith Barney or its subsidiaries may
also take positions in other types of appropriate financial instruments that may
become available in the future. To the extent that Salomon Smith Barney or its
subsidiaries have a long or short hedge position in the Common Stock or options,
swaps, futures contracts, forward contracts or other derivative or synthetic
instruments related to, the Common Stock, Salomon Smith Barney or one or more of
its subsidiaries may liquidate all or a portion of their holdings close to
maturity of the Forward Contract and the TARGETS. Depending on, among other
things, future market conditions, the aggregate amount and composition of such
positions are likely to vary over time. Profits or losses from any such position
cannot be ascertained until such position is closed out and any offsetting
position or positions are taken into account. Although Salomon Smith Barney has
no reason to believe that such hedging activity will have a material effect on
the price of TARGETS, such options, swaps, futures contracts, forward contracts
or other derivative or synthetic instruments or on the value of the Common
Stock, there can be no assurance that the hedging activities of Salomon Smith
Barney and its subsidiaries will not affect such prices or value.
14
<PAGE> 15
CAPITALIZATION
The following table sets forth the consolidated capitalization of Salomon
Smith Barney at March 31, 1998, as adjusted to give effect to the issuance of
the TARGETS, the issuance of $400,000,000 of preferred securities, the issuance
and sale of additional long-term debt of Salomon Smith Barney after March 31,
1998 through the date hereof, and the application of the proceeds from each of
these transactions to the repayment of short-term borrowings, as if such
transactions had occurred on March 31, 1998.
<TABLE>
<CAPTION>
AT MARCH 31, 1998
--------------------------
OUTSTANDING AS ADJUSTED
----------- -----------
(DOLLARS IN MILLIONS)
(UNAUDITED)
<S> <C> <C>
Short-term borrowings....................................... $18,195 $16,971
Notes payable............................................... 10 10
Long-term debt.............................................. 19,373 20,541
------- -------
Total debt........................................ $37,578 $37,522
======= =======
Salomon Smith Barney -- Obligated Mandatorily Redeemable
Preferred Securities of Subsidiary Trust holding solely
Subordinated Debt Securities of Salomon Smith Barney(1)... 345 345
Salomon Smith Barney -- Obligated Mandatorily Redeemable
Preferred Securities of Subsidiary Trust holding solely
junior subordinated deferrable interest debt securities of
Salomon Smith Barney(2)................................... 400 400
Salomon Smith Barney -- Obligated Mandatorily Redeemable
Preferred Securities of Subsidiary Trust holding solely a
Forward Contract of Salomon Smith Barney and treasury
securities(3)............................................. -- 56
Stockholder's equity:
Common Stock(4) and additional paid-in capital......... 1,576 1,576
Retained earnings...................................... 7,294 7,294
Cumulative translation adjustment...................... 4 4
------- -------
Total stockholder's equity........................ 8,874 8,874
------- -------
Total capitalization........................................ $47,197 $47,197
======= =======
</TABLE>
- ---------------
(1) The sole asset of SI Financing Trust I is $355,700,000 aggregate principal
amount of 9.25% Subordinated Debt Securities issued by Salomon Smith Barney
due June 30, 2026.
(2) The sole asset of SSBH Capital I is $412,372,000 aggregate principal amount
of 7.200% junior subordinated deferrable interest debt securities issued by
Salomon Smith Barney due January 28, 2038.
(3) The sole assets of TARGETS Trust I are the Forward Contract and the Treasury
Securities.
(4) Par value $.01 per share; 1,000 shares authorized; 1,000 shares issued and
outstanding.
15
<PAGE> 16
RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------ ------------------------------------------------
1998 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges......... 1.27 1.17 1.37 1.20 0.98* 1.32
</TABLE>
- ---------------
* For the year ended December 31, 1994, earnings as defined were inadequate to
cover fixed charges. The amount by which fixed charges exceeded earnings as
defined for the year was $173 million.
The ratio of earnings to combined fixed charges and preferred stock
dividends has been computed by dividing earnings from continuing operations
before income taxes and fixed charges by the combined fixed charges and
preferred stock dividends. For purposes of these ratios, fixed charges consist
of interest expense and that portion of rentals deemed representative of the
appropriate interest factor. The ratio of earnings to combined fixed charges and
preferred stock dividends has been computed excluding dividends relating to
Salomon Smith Barney's Series A Cumulative Convertible Preferred Stock, 8.08%
Cumulative Preferred Stock, Series D and 8.40% Cumulative Preferred Stock,
Series E, each of which was exchanged on November 28, 1997 into shares of
preferred stock of Travelers Group in connection with the merger of the Company
with a wholly owned subsidiary of Travelers Group.
CISCO SYSTEMS, INC.
According to publicly available documents, Cisco and its subsidiaries
operate in one industry segment, providing networking solutions that connect
computing devices and computer networks. These solutions allow people to access
or transfer information without regard to differences in time, place or type of
computer system. Cisco is currently subject to the informational requirements of
the Exchange Act. Accordingly, Cisco files reports (including its Annual Report
on Form 10-K for the fiscal year ended July 26, 1997 and its Quarterly Reports
on Form 10-Q for the fiscal quarters ended October 25, 1997, January 24, 1998
and April 25, 1998), proxy statements and other information with the Commission.
Copies of Cisco's registration statements, reports, proxy statements and other
information may be inspected and copied at offices of the Commission at the
addresses listed under "Available Information".
Cisco is not affiliated with the Trust, will not receive any of the
proceeds from the sale of the TARGETS and will have no obligations with respect
to the TARGETS, the Treasury Securities or the Forward Contract. This Prospectus
relates only to the TARGETS offered hereby and does not relate to Cisco or the
Common Stock.
16
<PAGE> 17
PRICE RANGE OF THE COMMON STOCK AND DIVIDENDS
The Common Stock is traded on the NNM under the symbol "CSCO". The
following table sets forth, for each of the quarterly periods indicated, the
high and low sales price for the Common Stock, as reported on the NNM and the
cash dividends per share of Common Stock.
<TABLE>
<CAPTION>
DIVIDEND
DECLARED
HIGH LOW PER SHARE
---- --- ---------
<S> <C> <C> <C>
1995
Quarter
First.................................................... $39 7/8 $32 3/8 $ 0
Second................................................... 52 5/8 36 7/8 0
Third.................................................... 73 7/8 47 3/4 0
Fourth................................................... 89 3/8 61 0
1996
Quarter
First(1)................................................. 51 31 7/8 0
Second................................................... 57 7/8 43 3/4 0
Third.................................................... 65 44 3/4 0
Fourth................................................... 69 1/8 57 3/8 0
1997
Quarter
First.................................................... 75 3/4 45 15/16 0
Second................................................... 71 3/4 45 1/4 0
Third.................................................... 83 1/4 67 1/2 0
Fourth(2)................................................ 60 1/2 45 3/8 0
1998
Quarter
First.................................................... 70 51 1/2 0
Second (through June 8, 1998)............................ 81 1/2 66 1/16 0
</TABLE>
- ---------------
(1) Gives effect to a two-for-one stock split which took place during this
quarter.
(2) Gives effect to a three-for-two stock split which took place during this
quarter.
According to the Cisco's Quarterly Report on Form 10-Q for the fiscal
quarter ended April 25, 1998, as of June 1, 1998, there were 1,036,548,848
shares of the Common Stock outstanding.
Holders of TARGETS will not be entitled to any rights with respect to the
Common Stock (including, without limitation, voting rights or rights to receive
dividends or other distributions in respect thereof).
TARGETS TRUST I
TARGETS Trust I is a statutory business trust formed under Delaware law
pursuant to (i) a declaration of trust executed by Salomon Smith Barney, as
sponsor (in such capacity, the "Sponsor"), and the trustees of TARGETS Trust I
(as described below) and (ii) the filing of a certificate of trust with the
Secretary of State of the State of Delaware. Such declaration will be amended
and restated in its entirety (as so amended and restated, the "Declaration")
substantially in the form filed as an exhibit to the Registration Statement of
which this Prospectus forms a part. The Declaration will be qualified as an
indenture under the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act"). Upon issuance of the TARGETS, the purchasers thereof will own
all the TARGETS. See "Description of the TARGETS -- Book-Entry Only Issuance".
Salomon Smith Barney will directly or indirectly acquire all of the Common
Securities in an aggregate amount equal to 3% or more of the total capital of
TARGETS Trust I. The Trust will use all the proceeds derived from the issuance
of the TARGETS and the Common Securities to purchase the Forward Contract and
Treasury Securities and, accordingly, the assets of the Trust will consist
solely of the Forward
17
<PAGE> 18
Contract and Treasury Securities. Of the total proceeds from the sale of the
Trust Securities, $52,090,657 will be invested by the Trust in the Forward
Contract and $5,909,345 will be invested by the Trust in the Treasury
Securities. The Trust exists for the exclusive purposes of (i) issuing the Trust
Securities representing undivided beneficial interests in the assets of the
Trust, (ii) investing the gross proceeds of the Trust Securities in the Forward
Contract and the Treasury Securities, and (iii) engaging in only those other
activities necessary or incidental thereto.
TARGETS Trust I's business and affairs are conducted by its Trustees, each
appointed by Salomon Smith Barney as holder of the Common Securities. Pursuant
to the Declaration, the number of trustees of TARGETS Trust I will be four: The
Chase Manhattan Bank, a New York banking corporation that is unaffiliated with
Salomon Smith Barney, as the Institutional Trustee (the "Institutional
Trustee"), Chase Manhattan Bank Delaware, a Delaware state banking corporation
with its principal place of business in the State of Delaware, as the Delaware
trustee (the "Delaware Trustee"), and two individual trustees (the "Regular
Trustees" and, together with the Institutional Trustee and the Delaware Trustee,
the "Trustees") who will be persons who are employees or officers of, or who are
affiliated with Salomon Smith Barney. Initially the Regular Trustees will be
Michael J. Day and Charles W. Scharf, each of whom is an officer of Salomon
Smith Barney. The Institutional Trustee will act as the sole indenture trustee
under the Declaration for purposes of compliance with the Trust Indenture Act
until removed or replaced by the holder of the Common Securities. The Chase
Manhattan Bank will also act as indenture trustee (the "Guarantee Trustee")
under the Guarantee. See "Description of the Guarantee" and "Description of the
Forward Contract".
The Institutional Trustee will hold title to the Forward Contract for the
benefit of the holders of the Trust Securities and, in its capacity as the
holder, the Institutional Trustee will have the power to exercise all rights,
powers and privileges under the Indenture pursuant to which the Forward Contract
are issued. In addition, the Institutional Trustee will maintain exclusive
control of a segregated non-interest bearing bank account (the "Property
Account") to hold all payments made in respect of the Forward Contract for the
benefit of the holders of the Trust Securities. The Institutional Trustee will
make payments of distributions and payments on liquidation and otherwise to the
holders of the Trust Securities out of funds from the Property Account. The
Guarantee Trustee will hold the Guarantee for the benefit of the holders of the
TARGETS. Salomon Smith Barney, as direct or indirect holder of all the Common
Securities, will have the right, subject to certain restrictions contained in
the Declaration, to appoint, remove or replace any Trustees and to increase or
decrease the number of Trustees. Salomon Smith Barney will pay all fees and
expenses related to TARGETS Trust I and the offering of the Trust Securities.
See "Description of the TARGETS -- Miscellaneous".
The rights of the holders of the TARGETS, including economic rights, rights
to information and voting rights, are set forth in the Declaration, the Delaware
Business Trust Act, (the "Trust Act") and the Trust Indenture Act. See
"Description of the TARGETS".
The location of the principal executive office of the Trust is c/o Salomon
Smith Barney Holdings Inc., 388 Greenwich Street, New York, New York 10013 and
its telephone number is (212) 816-6000.
DESCRIPTION OF THE TARGETS
The TARGETS will be issued pursuant to the terms of the Declaration. The
Declaration will be qualified as an indenture under the Trust Indenture Act. The
Institutional Trustee, The Chase Manhattan Bank, will act as the institutional
trustee for the TARGETS under the Declaration for purposes of compliance with
the provisions of the Trust Indenture Act. The terms of the TARGETS will include
those stated in the Declaration and those made part of the Declaration by the
Trust Indenture Act. Pursuant to the Declaration, every holder of TARGETS will
be deemed to have expressly assented and agreed to the terms of, and shall be
bound by, the Declaration. The following summary of the material terms and
provisions of the TARGETS does not purport to be complete and is subject to, and
qualified in its entirety by reference to, the Declaration (a copy of which is
filed as an exhibit to the Registration Statement of which this Prospectus is a
part), the Trust Act and the Trust Indenture Act.
GENERAL
The Declaration authorizes the Regular Trustees to issue on behalf of
TARGETS Trust I the Trust Securities, which represent undivided beneficial
interests in the assets of TARGETS Trust I. All of the
18
<PAGE> 19
Common Securities will be owned, directly or indirectly, by Salomon Smith
Barney. The Common Securities rank pari passu with, and payments will be made
thereon on a pro rata basis with, the TARGETS, except that upon the occurrence
of an Acceleration Event, the rights of the holders of the Common Securities to
receive payments will be subordinated to the rights of the holders of the
TARGETS. The Declaration does not permit the issuance by TARGETS Trust I of any
securities other than the Trust Securities or the incurrence of any indebtedness
by TARGETS Trust I. Pursuant to the Declaration, the Institutional Trustee will
hold title to the Forward Contract and the Treasury Securities for the benefit
of the holders of the Trust Securities. The payment of distributions out of
money held by the Trust and payments upon maturity of the TARGETS out of money
held by the Trust are guaranteed by Salomon Smith Barney to the extent described
under "Description of the Guarantee". The Guarantee will be held by The Chase
Manhattan Bank, the Guarantee Trustee, for the benefit of the holders of the
TARGETS. The Guarantee does not cover payment of distributions when the Trust
does not have sufficient available funds to pay such distributions. In such
event, the remedy of a holder of the TARGETS is to (i) vote to direct the
Institutional Trustee to enforce the Institutional Trustee's rights under the
Forward Contract and Treasury Securities or (ii) if the failure by TARGETS Trust
I to pay distributions is attributable to the failure of Salomon Smith Barney to
pay amounts in respect of the Forward Contract, institute a proceeding directly
against Salomon Smith Barney for enforcement of payment to such holder of the
amounts owed on such holder's pro rata interest in the Forward Contract. See
"-- Acceleration of Maturity Date; Enforcement of Rights" and "-- Voting
Rights".
The aggregate number of TARGETS to be issued will be 1,451,871. The TARGETS
will be issued in fully registered form. TARGETS will not be issued in bearer
form. See "-- Book-Entry Only Issuance".
MATURITY PAYMENT
The TARGETS will mature on the Maturity Date, subject to acceleration to
the Accelerated Maturity Date upon an Acceleration Event. See "-- Acceleration
of Maturity Date; Enforcement of Rights". On the Maturity Date, holders of the
TARGETS will be entitled to receive, to the extent the Trust has assets
available therefor, the Maturity Payment with respect to each TARGETS. On the
Maturity Date, holders of TARGETS will also receive a final quarterly Periodic
Distribution with respect to each TARGETS.
The Maturity Payment with respect to each TARGETS will be an amount equal
to the product of (i) the Current Market Price of the Common Stock as of the
Maturity Date multiplied by (ii) the Exchange Rate as of the Maturity Date.
The "Current Market Price" shall be the average daily closing sale price
(or, if no closing sale price is reported, the last reported sale price) of the
Common Stock as reported on the NNM for the 10 Trading Days (as defined herein)
immediately prior to but not including any Date of Determination (as defined
herein) or, if the Common Stock is not traded on the NNM on any such date, as
reported in the composite transactions for the principal United States
securities exchange on which the Common Stock is so listed, or if the Common
Stock is not so listed on a United States national or regional securities
exchange, the last quoted bid price for the Common Stock in the over-the-counter
market as reported by the National Quotation Bureau or similar organization.
"Date of Determination" shall be the date that is one Business Day prior to the
Maturity Date or Accelerated Maturity Date.
If the Current Market Price of the Common Stock as of the Maturity Date is
less than or equal to the Appreciation Threshold Price, then the Exchange Rate
shall be one-half (0.5), and if the Current Market Price of the Common Stock as
of the Maturity Date is greater than the Appreciation Threshold Price, then the
Exchange Rate shall be a fraction (rounded upward or downward to the nearest
1/10,000th or, if there is not a nearest 1/10,000th, to the next lower
1/10,000th), the numerator of which is the Appreciation Threshold Price times
0.5 and the denominator of which is the Current Market Price of the Common Stock
as of the Maturity Date. The Exchange Rate and the Appreciation Threshold Price
are subject to certain dilution adjustments as described below. See "-- Dilution
Adjustments".
For illustrative purposes only, the following examples show the Maturity
Payment that a holder would receive for each TARGETS at various hypothetical
Current Market Prices. The chart assumes that (i) there would be no adjustments
to the aggregate Maturity Payments deliverable by Salomon Smith Barney to the
Trust under the Forward Contract by reason of the occurrence of any of the
events described under
19
<PAGE> 20
"-- Dilution Adjustments" and (ii) there would be no acceleration of the
maturity of the Forward Contract to an Accelerated Maturity Date upon an
Acceleration Event. There can be no assurance that the Current Market Price at
maturity will be within the range set forth below. Based on the issue price of
$38.75 per TARGETS (one-half of the market price of the Common Stock upon
issuance of the TARGETS) and the Appreciation Threshold Price of $100.75, the
Maturity Payment with respect to each TARGETS at maturity would be calculated as
set forth below:
EXAMPLE #1
Based on the following assumptions, the Maturity Payment would be
calculated as follows:
<TABLE>
<S> <C>
Market price of Common Stock upon issuance of TARGETS:...... $ 77.50
Appreciation Threshold Price:............................... $ 100.75
Hypothetical Current Market Price:.......................... $ 50.00
</TABLE>
Since the Current Market Price is less than the Appreciation Threshold
Price, the Exchange Rate would be 0.5. The Maturity Payment would be $25.00 (0.5
times $50.00).
EXAMPLE #2
Based on the following assumptions, the Maturity Payment would be
calculated as follows:
<TABLE>
<S> <C>
Market price of Common Stock upon issuance of TARGETS:...... $ 77.50
Appreciation Threshold Price:............................... $ 100.75
Hypothetical Current Market Price:.......................... $ 80.00
</TABLE>
Since the Current Market Price is less than the Appreciation Threshold
Price, the Exchange Rate would be 0.5. The Maturity Payment would be $40.00 (0.5
times $80.00).
EXAMPLE #3
Based on the following assumptions, the Maturity Payment would be
calculated as follows:
<TABLE>
<S> <C>
Market price of Common Stock upon issuance of TARGETS:...... $ 77.50
Appreciation Threshold Price:............................... $ 100.75
Hypothetical Current Market Price:.......................... $ 110.00
</TABLE>
Since the Current Market Price is greater than the Appreciation Threshold
Price, the Exchange Rate would be 0.4580 ($100.75 times 0.5 divided by $110.00).
The Maturity Payment would be $50.38 (0.4580 times $110.00).
ACCELERATION OF MATURITY DATE; ENFORCEMENT OF RIGHTS
If at any time an Acceleration Event shall occur and be continuing, the
Institutional Trustee shall sell the Treasury Securities, dissolve the Trust
and, after satisfaction of creditors of the Trust, cause to be distributed, as
soon as is practicable following the occurrence of such Acceleration Event, to
the holders of the TARGETS in liquidation of such holders' interests in the
Trust, the Accelerated Maturity Payment with respect to each TARGETS and a pro
rata portion of the Treasury Proceeds.
The Accelerated Maturity Payment with respect to each TARGETS will be paid
out of amounts received by the Trust from Salomon Smith Barney in respect of the
Forward Contract and will be equal to the sum of the product of (i) the Current
Market Price of the Common Stock as of the Accelerated Maturity Date multiplied
by (ii) the Exchange Rate as of the Accelerated Maturity Date. The Accelerated
Maturity Date will be the date of the occurrence of the event or events
constituting such Acceleration Event.
The Treasury Proceeds shall be the amount received by the Trust as proceeds
from the sale of the Treasury Securities upon the occurrence of an Acceleration
Event. Salomon Smith Barney shall send the Trustee written notice and
instructions to liquidate the Treasury Securities on an Accelerated Maturity
Date.
20
<PAGE> 21
Upon receiving such notice, the Trustee shall solicit at least three bids and
sell and transfer the Treasury Securities to the highest of the three bidders.
There can be no assurance as to the amount of either any Accelerated
Maturity Payment or the Treasury Proceeds which, in either case, may be
distributed to holders of the TARGETS upon a dissolution and liquidation of the
Trust. Accordingly, there can be no assurance as to the amount that a holder of
TARGETS may receive on the Accelerated Maturity Date.
"Acceleration Event" means any one of the following events (whatever the
reason for such Acceleration Event and whether it shall be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body): (i) a Tax Event, (ii) an Investment
Company Event or (iii) a Bankruptcy Event.
"Tax Event" means that Salomon Smith Barney shall have requested and
received and shall have delivered to the Regular Trustees an opinion of
nationally recognized independent tax counsel experienced in such matters (a
"Trust Dissolution Tax Opinion") to the effect that there has been (a) an
amendment to, change in or announced proposed change in the laws (or any
regulations thereunder) of the United States or any political subdivision or
taxing authority thereof or therein, (b) a judicial decision interpreting,
applying, or clarifying such laws or regulations, (c) an administrative
pronouncement or action that represents an official position (including a
clarification of an official position) of the governmental authority or
regulatory body making such administrative pronouncement or taking such action,
or (d) a threatened challenge asserted in connection with an audit of Salomon
Smith Barney or any of its subsidiaries or the Trust, or a threatened challenge
asserted in writing against any other taxpayer that has raised capital through
the issuance of securities that are substantially similar to the Forward
Contract or the TARGETS, which amendment or change is adopted or which proposed
change, decision or pronouncement is announced or which action, clarification or
challenge occurs on or after the date of this Prospectus (collectively a "Tax
Action"), which Tax Action relates to any of the items described in (i) and (ii)
below, and that there is more than an insubstantial risk that (i) the Trust is,
or will be subject to, United States federal income tax with respect to income
accrued or received on the Forward Contract and the Treasury Securities, or (ii)
the Trust is, or will be, subject to more than a de minimis amount of other
taxes, duties or other governmental charges.
"Investment Company Event" means that Salomon Smith Barney shall have
requested and received and shall have delivered to the Regular Trustees an
opinion of nationally recognized independent legal counsel experienced in such
matters to the effect that as a result of the occurrence on or after the date
hereof of a change in law or regulation or a change in interpretation or
application of law or regulation by any legislative body, court, governmental
agency or regulatory authority (a "Change in 1940 Act Law"), the Trust is or
will be considered an "investment company" which is required to be registered
under the 1940 Act.
"Bankruptcy Event" means either of the following shall have occurred: (i)
the entry of a decree or order (a) for relief in respect of Salomon Smith Barney
by a court having jurisdiction in the premises in an involuntary case under the
federal bankruptcy laws, as now or hereafter constituted, or any other
applicable federal or state bankruptcy, insolvency or other similar law, or (b)
appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator
(or other similar official) of Salomon Smith Barney or of any substantial part
of its property, or (c) ordering the winding up or liquidation of its affairs,
and, in each case, the continuance of any such decree or order unstayed and in
effect for a period of 90 consecutive days; or (ii) the commencement by Salomon
Smith Barney of a voluntary case under the federal bankruptcy laws, as now or
hereafter constituted, or any other applicable federal or State bankruptcy,
insolvency or other similar law, or the consent by it to the entry of an order
for relief in an involuntary case under any such law or to the appointment of a
receiver, liquidator, assignee, custodian, trustee, sequestrator (or other
similar official) of Salomon Smith Barney or of any substantial part of its
property, or the making by it of an assignment for the benefit of its creditors,
or the admission by it in writing of its inability to pay its debts generally as
they become due, or the taking of corporate action by Salomon Smith Barney in
furtherance of any action.
"Pro rata" means, with respect to any payment, distribution, interest in
any assets of the Trust or treatment, and a holder of Trust Securities,
proportionately according to the aggregate beneficial interests in the assets of
the Trust represented by the Trust Securities held by the relevant holder in
relation to the aggregate beneficial interests in the assets of the Trust
represented by all Trust Securities outstanding unless,
21
<PAGE> 22
in relation to a payment, an Acceleration Event has occurred and is continuing,
in which case any funds available to make such payment will be paid first to
each holder of the TARGETS proportionately according to the aggregate beneficial
interests in the assets of the Trust represented by the TARGETS held by the
relevant holder relative to the aggregate beneficial interests in the assets of
the Trust represented by all TARGETS outstanding, and only after satisfaction of
all amounts owed to the holders of the TARGETS, to each holder of Common
Securities proportionately according to the aggregate beneficial interests in
the assets of the Trust represented by the Common Securities held by the
relevant holder relative to the aggregate beneficial interests in the assets of
the Trust represented by all Common Securities outstanding.
On the date fixed for any payment of the Accelerated Maturity Payment or
the Treasury Proceeds, (i) the TARGETS and the Common Securities will no longer
be deemed to be outstanding and (ii) each TARGETS and Common Security will be
deemed to represent the right to receive an Accelerated Maturity Payment and a
pro rata portion of the Treasury Proceeds. If the Accelerated Maturity Payments
can be paid only in part because the Trust has insufficient assets available to
pay in full the aggregate Accelerated Maturity Payments, then the amounts
payable directly by the Trust in respect of the TARGETS will be paid on a pro
rata basis. The holders of the Common Securities will be entitled to receive
distributions upon any such liquidation pro rata with the holders of the
TARGETS, except that in the case of a default by Salomon Smith Barney on its
obligations under the Guarantee, the holders of the TARGETS will have a
preference over the holders of the Common Securities with respect to amounts
owed on the Trust Securities.
Subject to the requirements of the Institutional Trustee obtaining a tax
opinion in certain circumstances set forth in the last sentence of this
paragraph, the holders of a majority of the TARGETS have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Institutional Trustee, or direct the exercise of any trust or power
conferred upon the Institutional Trustee under the Declaration, including the
right to direct the Institutional Trustee, as holder of the Forward Contract and
the Treasury Securities, to (i) direct the time, method and place of conducting
any proceeding for any remedy available to the Indenture Trustee, or exercising
any trust or power conferred on the Indenture Trustee with respect to the
Forward Contract, (ii) direct the time, method and place of conducting any
proceeding for any remedy available to the Institutional Trustee or exercise any
trust or power conferred on the Institutional Trustee with respect to the
Treasury Securities, (iii) waive the consequences of any Acceleration Event
under the Indenture that is waivable under Section 514 of the Indenture, (iv)
exercise any right to rescind or annul a declaration that any Accelerated
Maturity Payment shall be due and payable or (v) consent to any amendment,
modification or termination of the Indenture or the Forward Contract where such
consent shall be required, provided, however, that, where a consent or action
under the Indenture would require the consent or act of holders of more than a
majority of the beneficial interests in the Forward Contract (a "Super
Majority") affected thereby, only the holders of at least a Super Majority of
the TARGETS may direct the Institutional Trustee to give such consent or take
such action. If the Institutional Trustee fails to enforce its rights under the
Forward Contract, any record holder of TARGETS may directly institute a legal
proceeding against Salomon Smith Barney to enforce the Institutional Trustee's
rights under the TARGETS without first instituting any legal proceeding against
the Institutional Trustee or any other person or entity. The Institutional
Trustee shall notify all holders of TARGETS of any notice of default received
from the Indenture Trustee with respect to the Forward Contract. Except with
respect to directing the time, method and place of conducting a proceeding for a
remedy available to the Institutional Trustee, the Institutional Trustee, as
holder of the Forward Contract and the Treasury Securities, shall not take any
of the actions described in clauses (i), (ii), (iii), (iv) or (v) above unless
the Institutional Trustee has obtained an opinion of a nationally recognized
independent tax counsel experienced in such matters to the effect that as a
result of such action, TARGETS Trust I will not fail to be classified as a
grantor trust for United States federal income tax purposes.
If the Institutional Trustee fails to enforce its rights under the Forward
Contract, any holder of TARGETS may directly institute a legal proceeding
against Salomon Smith Barney to enforce the Institutional Trustee's rights under
the Forward Contract, without first instituting a legal proceeding against the
Institutional Trustee or any other person or entity. If Salomon Smith Barney
fails to pay amounts owed on the Forward Contract on the date such amounts are
otherwise payable, then a holder of TARGETS may also directly institute a Direct
Action, in respect of the amounts owed on such holder's pro rata interest in the
Forward Contract, on or after the due date specified in the Forward Contract,
without first (i) directing the
22
<PAGE> 23
Institutional Trustee to enforce the terms of the Forward Contract or (ii)
instituting a legal proceeding directly against Salomon Smith Barney to enforce
the Institutional Trustee's rights under the Forward Contract. Except as
provided in the preceding sentence, the holders of TARGETS will not be able to
exercise directly any other remedy available to the holder of the Forward
Contract. In connection with such Direct Action, Salomon Smith Barney will be
subrogated to the rights of such holder of TARGETS under the Declaration to the
extent of any payment made by Salomon Smith Barney to such holder of TARGETS in
such Direct Action.
A waiver of an Acceleration Event under the Indenture by the Institutional
Trustee at the direction of the holders of the TARGETS will constitute a waiver
of the corresponding Acceleration Event under the Declaration.
Any required approval or direction of holders of TARGETS may be given at a
separate meeting of holders of TARGETS convened for such purpose, at a meeting
of holders of Trust Securities or pursuant to written consent. The Regular
Trustees will cause a notice of any meeting at which holders of TARGETS are
entitled to vote, or of any matter upon which action by written consent of such
holders is to be taken, to be mailed to each holder of record of TARGETS. Each
such notice will include a statement setting forth (i) the date of such meeting
or the date by which such action is to be taken, (ii) a description of any
resolution proposed for adoption at such meeting on which such holders are
entitled to vote or of such matter upon which written consent is sought and
(iii) instructions for the delivery of proxies or consents. No vote or consent
of the holders of TARGETS will be required for TARGETS Trust I to cancel TARGETS
in accordance with the Declaration. It is anticipated that the only holder of
TARGETS issued in book-entry form will be Cede & Co., as nominee of DTC, and
each Beneficial Owner (as defined herein) of TARGETS will be permitted to
exercise the rights of holders of TARGETS only indirectly through DTC and its
Participants (as defined herein).
Notwithstanding that holders of TARGETS are entitled to vote or consent
under any of the circumstances described above, any of the TARGETS that are
owned at such time by Salomon Smith Barney or any entity directly or indirectly
controlling or controlled by, or under direct or indirect common control with,
Salomon Smith Barney, shall not be entitled to vote or consent and shall, for
purposes of such vote or consent, be treated as if they were not outstanding.
PERIODIC DISTRIBUTIONS
Holders of TARGETS will be entitled to receive Periodic Distributions of
$.3390 per TARGETS on August 15, 1998 and $.4844 per TARGETS payable quarterly
in arrears thereafter on each November 15, February 15, May 15 and August 15,
commencing November 15, 1998.
The Periodic Distributions will be paid by the Trust out of payments to be
received by the Trust with respect to the Treasury Securities held by the Trust.
23
<PAGE> 24
Assuming an equivalent cash flow on the TARGETS of 5.00% per annum, set
forth below is an example of how the cash flows on the TARGETS would be
comprised. The Trust will invest approximately 10.2% of the proceeds of the
offering in the Treasury Securities. The annual cash flows provided by the
Treasury Securities are set forth below.
<TABLE>
<S> <C>
Offering Size:.......................................... $56,260,001.25
Annual Cash Flow:....................................... 5.00%
Payment Frequency....................................... Quarterly
Settlement Date:........................................ June 12, 1998
Maturity Date:.......................................... August 15, 2000
</TABLE>
<TABLE>
<CAPTION>
STRIP
MATURITY UNIT PURCHASE PURCHASE STRIP EQUIVALENT
DATE COST AMOUNT COST CASH FLOW COUPON
- -------- ---- -------- -------- --------- ----------
<S> <C> <C> <C> <C> <C>
08/15/98 99.06% 492.275 $ 487,648 $ 492,275 5.00%
11/15/98 97.78% 703.250 687,638 703,250 5.00%
02/15/99 96.38% 703.250 677,792 703,250 5.00%
05/15/99 95.08% 703.250 668,650 703,250 5.00%
08/15/99 93.78% 703.250 659,508 703,250 5.00%
11/15/99 92.54% 703.250 650,788 703,250 5.00%
02/15/00 91.28% 703.250 641,927 703,250 5.00%
05/15/00 90.10% 703.250 633,628 703,250 5.00%
08/15/00 88.80% 703.250 624,486 703,250 5.00%
---------- ----------
$5,732,064 $6,118,275
========== ==========
</TABLE>
The Treasury Securities and the Forward Contract will be the sole assets of
the Trust. The ability of the Trust to make Periodic Distributions on the
TARGETS is therefore entirely dependent on receipt by the Trust of payments with
respect to both the Treasury Securities held by the Trust and the Forward
Contract. The Treasury Securities and the Forward Contract are held by the
Institutional Trustee on behalf of the Trust. A portion of each Periodic
Distribution should represent a return to the holder of a TARGETS of that
holder's initial investment in the TARGETS for tax purposes. See "Certain
Federal Income Tax Considerations".
The following table sets forth information regarding the distributions to
be received on the Treasury Securities to be acquired by the Trust with a
portion of the proceeds received by the Trust from the sale of the Trust
Securities, the portion of each year's distributions that should constitute a
return of capital for U.S. federal income tax purposes and the amount of
original issue discount that should accrue on such Treasury Securities with
respect to a holder who acquires its Trust Securities at the issue price from
the Underwriter pursuant to the original offering. See "Certain Federal Income
Tax Considerations".
<TABLE>
<CAPTION>
ANNUAL GROSS ANNUAL INCLUSION OF
ANNUAL GROSS DISTRIBUTIONS FROM ANNUAL RETURN OF ORIGINAL ISSUE
DISTRIBUTIONS FROM TREASURY SECURITIES CAPITAL PER DISCOUNT IN INCOME
YEAR TREASURY SECURITIES PER TARGETS TARGETS PER TARGETS
- ---- ------------------- ------------------- ---------------- -------------------
<S> <C> <C> <C> <C>
1998..................... $1,317,210.59 $0.9073 $0.8095 $0.0978
1999..................... $2,848,603.03 $1.9620 $1.8299 $0.1322
2000..................... $1,952,461.47 $1.3448 $1.3087 $0.0361
</TABLE>
DILUTION ADJUSTMENTS
The Exchange Rate and the Appreciation Threshold Price will be subject to
adjustment from time to time in certain situations. Any such adjustments could
have an impact on the aggregate Maturity Payments or Accelerated Maturity
Payments to be paid by Salomon Smith Barney to the Trust upon maturity of the
Forward Contract and, therefore, on the Maturity Payment or Accelerated Maturity
Payment to be paid by the Trust with respect to each TARGETS to the holders of
TARGETS.
24
<PAGE> 25
If Cisco shall, after the date of the closing of the offering contemplated
hereby (the "Closing Date"), (i) pay a stock dividend or make a distribution
with respect to the Common Stock in shares of such stock; (ii) subdivide or
split the outstanding shares of the Common Stock into a greater number of shares
of the Common Stock; (iii) combine the outstanding shares of the Common Stock
into a smaller number of shares; or (iv) issue by reclassification of shares of
the Common Stock any shares of other common stock of Cisco; then, in each such
case, the Exchange Rate shall be multiplied by a dilution adjustment equal to
the number of shares of the Common Stock (or in the case of a reclassification
referred to in clause (iv) above, the number of shares of other common stock of
Cisco issued pursuant thereto), or the fraction thereof, that a holder who held
one share of the Common Stock immediately prior to such event would be entitled
solely by reason of such event to hold immediately after such event. The
Appreciation Threshold Price shall also be adjusted in such case in the manner
described below.
If Cisco shall, after the Closing Date, issue, or declare a record date in
respect of an issuance of, rights or warrants to all holders of the Common Stock
entitling them to subscribe for or purchase shares of the Common Stock at a
price per share less than the Then-Current Market Price of the Common Stock
(other than rights to purchase the Common Stock pursuant to a plan for the
reinvestment of dividends or interest), then, in each such case, the Exchange
Rate shall be multiplied by a dilution adjustment equal to a fraction, the
numerator of which shall be the number of shares of the Common Stock outstanding
immediately prior to the time the adjustment is effected by reason of the
issuance of such rights or warrants, plus the number of additional shares of the
Common Stock offered for subscription or purchase pursuant to such rights or
warrants, and the denominator of which shall be the number of shares of the
Common Stock outstanding immediately prior to the time the adjustment is
effected, plus the number of additional shares of the Common Stock which the
aggregate offering price of the total number of shares of the Common Stock so
offered for subscription or purchase pursuant to such rights or warrants would
purchase at the Then-Current Market Price of the Common Stock, which shall be
determined by multiplying the total number of shares so offered for subscription
or purchase by the exercise price of such rights or warrants and dividing the
product so obtained by such Then-Current Market Price. To the extent that, after
the expiration of such rights or warrants, the shares of the Common Stock
offered thereby shall not have been delivered, the Exchange Rate shall be
further adjusted to equal the Exchange Rate which would have been in effect had
such adjustment for the issuance of such rights or warrants been made upon the
basis of delivery of only the number of shares of the Common Stock actually
delivered. The Appreciation Threshold Price shall also be adjusted in the manner
described below.
If Cisco shall, after the Closing Date, declare or pay a dividend or make a
distribution to all holders of the Common Stock, in either case, of evidences of
its indebtedness or other non-cash assets (excluding any dividends or
distributions referred to above) or shall issue to all holders of the Common
Stock rights or warrants to subscribe for or purchase any of its securities
(other than rights or warrants referred to above), then, in each such case, the
Exchange Rate shall be multiplied by a dilution adjustment equal to a fraction,
the numerator of which shall be the Then-Current Market Price per share of the
Common Stock, and the denominator of which shall be such Then-Current Market
Price per share less the fair market value (as determined by a nationally
recognized independent investment banking firm retained for this purpose by
Salomon Smith Barney) as of the time the adjustment is effected of the portion
of the assets or evidences of indebtedness so distributed or of such
subscription rights or warrants applicable to one share of the Common Stock. The
Appreciation Threshold Price shall also be adjusted in the manner described
below. Notwithstanding the foregoing, in the event that, with respect to any
dividend or distribution to which this paragraph would otherwise apply, the
denominator in the fraction referred to in the above formula is less than $1.00
(or is a negative number), then Salomon Smith Barney may, at its option, elect
to have the adjustment provided by this paragraph not be made and in lieu of
such adjustment, on the Maturity Date, the holders of the TARGETS shall be
entitled to receive an additional amount of cash equal to the product of the
number of TARGETS held by such holder multiplied by the fair market value of
such indebtedness, assets, rights or warrants (determined, as of the date such
dividend or distribution is made, by a nationally recognized independent
investment banking firm retained for this purpose by Salomon Smith Barney) so
distributed or issued applicable to one share of the Common Stock.
25
<PAGE> 26
If, after the Closing Date, Cisco declares a record date in respect of a
distribution of cash (other than any Permitted Dividends (as defined herein),
any cash distributed in consideration of fractional shares of the Common Stock
and any cash distributed in a Reorganization Event (as defined herein)), by
dividend or otherwise, to all holders of the Common Stock, or makes an Excess
Purchase Payment (as defined herein), then the Exchange Rate will be multiplied
by a dilution adjustment equal to a fraction, the numerator of which shall be
the Then-Current Market Price of the Common Stock on such record date, and the
denominator of which shall be such Then-Current Market Price less the amount of
such distribution applicable to one share of the Common Stock which would not be
a Permitted Dividend (or in the case of an Excess Purchase Payment, less the
aggregate amount of such Excess Purchase Payment for which adjustment is being
made at such time divided by the number of shares of the Common Stock
outstanding on such record date).
For purposes of these adjustments, (A) "Permitted Dividend" means any
quarterly cash dividend in respect of the Common Stock, other than a quarterly
cash dividend that exceeds the immediately preceding quarterly cash dividend,
and then only to the extent that the per share amount of such dividend results
in an annualized dividend yield on the Common Stock in excess of 10.0% and (B)
"Excess Purchase Payment" means the excess, if any, of (x) the cash and the
value (as determined by a nationally recognized independent investment banking
firm retained for this purpose by Salomon Smith Barney, whose determination
shall be final) of all other consideration paid by Cisco with respect to one
share of the Common Stock acquired in a tender offer or exchange offer by Cisco,
over (y) the Then-Current Market Price of the Common Stock. The Appreciation
Threshold Price shall also be adjusted in the manner described in the following
paragraph. Notwithstanding the foregoing, in the event that, with respect to any
dividend or distribution or Excess Purchase Payment to which this paragraph
would otherwise apply, the denominator in the fraction referred to in the above
formula is less than $1.00 (or is a negative number), then Salomon Smith Barney
may, at its option, elect to have the adjustment provided by this paragraph not
be made and in lieu of such adjustment, on the Maturity Date, the holders of the
TARGETS shall be entitled to receive an additional amount of cash equal to the
product of the number of TARGETS held by such holder multiplied by the sum of
the amount of cash plus the fair market value of such other consideration
(determined, as of the date such dividend or distribution is made, by a
nationally recognized independent investment banking firm retained for this
purpose by Salomon Smith Barney) so distributed (or applied to the acquisition
of the Common Stock in such a tender offer or exchange offer) applicable to one
share of the Common Stock.
If any adjustment is made to the Exchange Rate pursuant to the preceding
four paragraphs, an adjustment shall also be made to the Appreciation Threshold
Price. The required adjustment shall be made by dividing the Appreciation
Threshold Price by the relevant dilution adjustment. If, during any Calculation
Period used in calculating the Current Market Price, the Then-Current Market
Price or the Transaction Value (as defined herein), there shall occur any event
requiring an adjustment to be effected as described herein, then the Closing
Price for each trading day in the calculation period occurring prior to the day
on which such adjustment is effected shall be adjusted by being divided by the
relevant dilution adjustment.
Each dilution adjustment shall be effected as follows: (i) in the case of
any dividend, distribution or issuance, at the opening of business on the
Business Day next following the record date for determination of holders of the
Common Stock entitled to receive such dividend, distribution or issuance or, if
the announcement of any such dividend, distribution, or issuance is after such
record date, at the time such dividend, distribution or issuance shall be
announced by Cisco; (ii) in the case of any subdivision, split, combination or
reclassification, on the effective date of such transaction; (iii) in the case
of any Excess Purchase Payment for which Cisco shall announce, at or prior to
the time it commences the relevant share repurchase, the repurchase price per
share for shares proposed to be repurchased, on the date of such announcement;
and (iv) in the case of any other Excess Purchase Payment on the date that the
holders of the repurchased shares become entitled to payment in respect thereof.
All dilution adjustments shall be rounded upward or downward to the nearest
1/10,000th (or, if there is not a nearest 1/10,000th, to the next lower
1/10,000th). No adjustment in the Exchange Rate shall be required unless such
adjustment would require an increase or decrease of at least one percent
therein; provided, however, that any adjustments which by reason of this
sentence are not required to be made shall be
26
<PAGE> 27
carried forward and taken into account in any subsequent adjustment. If any
announcement or declaration of a record date in respect of a dividend,
distribution, issuance or repurchase requiring an adjustment as described herein
shall subsequently be cancelled by Cisco, or such dividend, distribution,
issuance or repurchase shall fail to receive requisite approvals or shall fail
to occur for any other reason, then, upon such cancellation, failure of approval
or failure to occur, the Exchange Rate shall be further adjusted to the Exchange
Rate which would then have been in effect had adjustment for such event not been
made. If a Reorganization Event shall occur after the occurrence of one or more
events requiring an adjustment as described herein, the dilution adjustments
previously applied to the Exchange Rate in respect of such events shall not be
rescinded but shall be applied to the new Exchange Rate provided for below.
"Then-Current Market Price" of the Common Stock, for the purpose of
applying any dilution adjustment, means the average Closing Price per share of
the Common Stock for the Calculation Period of 10 Trading Days (as defined
below) immediately prior to the time such adjustment is effected (or, in the
case of an adjustment effected at the opening of business on the Business Day
next following a record date, immediately prior to the earlier of the time such
adjustment is effected and the related ex-date); provided that if no Closing
Price for the Common Stock is determined for one or more (but not all) of such
Trading Days, such Trading Day shall be disregarded in the calculation of the
Then-Current Market Price (but no additional trading days shall be added to the
Calculation Period). If no Closing Price for the Common Stock may be determined
for any of such Trading Days, the Then-Current Market Price shall be the Closing
Price for the Common Stock for the most recent Trading Day prior to such 10
Trading Days for which a Closing Price for the Common Stock may be determined
pursuant to the "Closing Price" definition. The "ex-date" with respect to any
dividend, distribution or issuance shall mean the first date on which the shares
of the Common Stock trade regular way on their principal market without the
right to receive such dividend, distribution or issuance.
"Trading Day" means a day on which the Common Stock (A) is not suspended
from trading on any national or regional securities exchange or association or
over-the-counter market at the close of business and (B) has traded at least
once on the national or regional securities exchange or association or
over-the-counter market that is the primary market for the trading of such
security. "Calculation Period" means any period of Trading Days for which an
average security price must be determined pursuant to the Indenture. "Closing
Price" of the Common Stock or any marketable security on any such day in the
Calculation Period means the daily closing sale price (or, if no closing sale
price is reported, the last reported sale price) of such security as reported on
the NNM on any such day in the Calculation Period or, if such security is not
traded on the NNM on any such date, as reported in the composite transactions
for the principal United States securities exchange on which if such security is
so listed, or if such security is not so listed on a United States national or
regional securities exchange, the last quoted bid price for the Common Stock in
the over-the-counter market as reported by the National Quotation Bureau or
similar organization.
In the event of (i) any consolidation or merger of Cisco, or any surviving
entity or subsequent surviving entity of Cisco (a "Cisco Successor"), with or
into another entity (other than a merger or consolidation in which the Cisco is
the continuing corporation and in which the Common Stock outstanding immediately
prior to the merger or consolidation is not exchanged for cash, securities or
other property of Cisco or another issuer), (ii) any sale, transfer, lease or
conveyance to another corporation of the property of Cisco or any Cisco
Successor as an entirety or substantially as an entirety, (iii) any statutory
exchange of securities of Cisco or any Cisco Successor with another issuer
(other than in connection with a merger or consolidation) or (iv) any
liquidation, dissolution or winding up of Cisco or any Cisco Successor (any such
event described in clause (i), (ii), (iii) or (iv), a "Reorganization Event"),
the Exchange Rate shall be adjusted so that, on the Maturity Date, the holders
of the TARGETS shall receive cash in an amount equal to the product of the
number of TARGETS held by such holder multiplied by (i) if the Transaction Value
(as defined herein) is less than or equal to the Appreciation Threshold Price,
one-half of the Transaction Value, and (ii) if the Transaction Value is greater
than the Appreciation Threshold Price, one-half of the Appreciation Threshold
Price.
"Transaction Value" means the sum of: (a) for any cash received in any such
Reorganization Event, the amount of cash received per share of the Common Stock;
(b) for any property other than cash or Marketable Securities (as defined
herein) received in any such Reorganization Event, an amount equal to the market
value on the date the Reorganization Event is consummated of such property
received per share of the
27
<PAGE> 28
Common Stock (as determined by a nationally recognized independent investment
banking firm retained for this purpose by Salomon Smith Barney) and (c) for any
Marketable Securities received in any such Reorganization Event, an amount equal
to the average Closing Price per share of such Marketable Securities for the
Calculation Period of 10 Trading Days immediately prior to the Maturity Date
multiplied by the number of such Marketable Securities received for each share
of the Common Stock; provided that if no Closing Price for such Marketable
Securities may be determined for one or more (but not all) of such Trading Days
such Trading Day shall be disregarded in the calculation of such average Closing
Price (but no additional Trading Days shall be added to the Calculation Period).
If no Closing Price for the Marketable Securities may be determined for all such
Trading Days, the calculation in the preceding clause (c) shall be based on the
most recently available Closing Price for the Marketable Securities prior to
such 10 Trading Days.
"Marketable Securities" means any perpetual equity securities or debt
securities with a stated maturity after the Maturity Date, in each case that are
listed on a U.S. national securities exchange or reported by the NNM. The number
of shares of any equity securities constituting Marketable Securities included
in the calculation of Transaction Value pursuant to the preceding paragraph
shall be subject to adjustment if any event that would, had it occurred with
respect to the Common Stock or Cisco, have required an adjustment as described
above shall occur with respect to such Marketable Securities or the issuer
thereof between the time of the Reorganization Event and the Maturity Date.
Adjustment for such subsequent events shall be as nearly equivalent as
practicable to the adjustments described above.
Salomon Smith Barney shall be responsible for the effectuation and
calculation of any adjustment described herein and shall furnish the Indenture
Trustee with notice of any such adjustment and shall provide the Indenture
Trustee with a reasonable opportunity to review the calculations pertaining to
any such adjustments.
PAYMENT PROCEDURES
Distributions on the TARGETS will be payable to the holders thereof as they
appear on the books and records of the Trust at the close of business on the
relevant record dates. While the TARGETS remain in book-entry form, the relevant
record dates for distributions of any Maturity Payment or Accelerated Maturity
Payment with respect to the TARGETS shall be one Business Day prior to the
relevant payment date, which payment date shall be the date the aggregate of
such Maturity Payments or Accelerated Maturity Payments, as the case may be, is
received by the Trust with respect to the Forward Contract. While the TARGETS
remain in book-entry form, the relevant record date for distribution of the
Treasury Proceeds to holders of TARGETS shall be one Business Day prior to the
relevant payment date, which payment date shall be the date such Treasury
Proceeds are received by the Trust upon liquidation of the Treasury Securities.
While the TARGETS remain in book-entry only form, the relevant record dates for
any Periodic Distributions shall be one Business Day prior to the relevant
payment dates, which payment dates shall correspond to the dates on which
payments are received by the Trust in respect of, and in accordance with the
terms of, the Treasury Securities and the Forward Contract. The relevant record
dates for the Common Securities shall be the same record dates as for the
TARGETS. If the TARGETS shall not continue to remain in book-entry only form,
the relevant record dates shall conform to the rules of any securities exchange
on which they are listed and, if none, shall be selected by the Regular
Trustees, which dates shall be at least 10 Business Days but no more than 15
days before the relevant payment dates, which payment dates shall correspond to
the dates on which payments are made in respect of, and in accordance with the
terms of, the Treasury Securities and the Forward Contract. Distributions
payable on any TARGETS that are not punctually paid on any payment date, as a
result of either Salomon Smith Barney having failed to make a payment under the
Forward Contract or the issuer of the Treasury Securities having failed to make
a payment in respect of the Treasury Securities, will cease to be payable to the
person in whose name such TARGETS are registered on the relevant record date,
and such defaulted distribution will instead be payable to the person in whose
name such TARGETS are registered on a special record date which shall be one
Business Day prior to the date on which the amount of the defaulted
distributions are actually received by the Trust. If any date on which
distributions are payable on the TARGETS is not a Business Day, then payment of
the distribution payable on such date will be made on the next succeeding day
that is a Business Day (and without any interest or other payment in respect of
any
28
<PAGE> 29
such delay) except that, if such Business Day is in the next succeeding calendar
year, such payment shall be made on the immediately preceding Business Day, in
each case with the same force and effect as if made on such date. A "Business
Day" shall mean any day other than a day on which banking institutions in The
City of New York are authorized or required by law to close.
Payments in respect of the TARGETS represented by the Global Certificates
(as defined below under "Book-Entry Only Issuance") shall be made to DTC, which
will credit the relevant accounts at DTC on the scheduled payment dates or, in
the case of TARGETS in the form of certificated securities, if any, such
payments shall be made by check mailed to the address of the holder entitled
thereto as such address shall appear on the register.
VOTING RIGHTS
Except as described in this Prospectus under "Description of the
TARGETS -- Acceleration of Maturity Date; Enforcement of Rights" and
"Description of the Guarantee -- Modification of the Guarantee; Assignment", and
except as provided under the Trust Act, the Trust Indenture Act and as otherwise
required by law and the Declaration, the holders of the TARGETS will have no
voting rights.
In the event the consent of the Institutional Trustee, as the holder of the
Forward Contract, is required under the Indenture with respect to any amendment,
modification or termination of the Indenture, the Institutional Trustee shall
request the written direction of the holders of the Trust Securities with
respect to such amendment, modification or termination and shall vote with
respect to such amendment, modification or termination as directed by a majority
of the Trust Securities voting together as a single class; provided, however,
that where any amendment, modification or termination under the Indenture would
require the consent of a Super Majority, the Institutional Trustee may only give
such consent at the direction of the holders of at least the proportion number
of the Trust Securities which the relevant Super Majority represents of the
aggregate beneficial interests in the Forward Contract. The Institutional
Trustee shall be under no obligation to take any such action in accordance with
the directions of the holders of the Trust Securities unless the Institutional
Trustee has obtained an opinion of a nationally recognized independent tax
counsel experienced in such matters to the effect that for United States federal
income tax purposes TARGETS Trust I will not be classified as other than a
grantor trust.
The procedures by which holders of TARGETS may exercise their voting rights
are described below. See "-- Book-Entry Only Issuance".
Holders of the TARGETS will have no rights to appoint or remove the
Trustees, who may be appointed, removed or replaced solely by Salomon Smith
Barney as the indirect or direct holder of all of the Common Securities.
MODIFICATION OF THE DECLARATION
The Declaration may be modified and amended if approved by the Regular
Trustees (and in certain circumstances the Institutional Trustee and the
Delaware Trustee), provided that, if any proposed amendment to the Declaration
provides for, or the Regular Trustees otherwise propose to effect, (i) any
action that would adversely affect the powers, preferences or special rights of
the Trust Securities, whether by way of amendment to the Declaration or
otherwise, or (ii) the dissolution, winding-up or termination of TARGETS Trust I
other than pursuant to the terms of the Declaration, then the holders of the
Trust Securities, voting together as a single class, will be entitled to vote on
such amendment or proposal and such amendment or proposal shall not be effective
except with the approval of the holders of at least a majority of the Trust
Securities affected thereby, provided that if any amendment or proposal referred
to in clause (i) above would adversely affect only the TARGETS or the Common
Securities, then only holders of the affected class will be entitled to vote on
such amendment or proposal and such amendment or proposal shall not be effective
except with the approval of a majority of such class of Trust Securities.
Notwithstanding the foregoing, no amendment or modification may be made to
the Declaration if such amendment or modification would (i) cause TARGETS Trust
I to fail to be classified as a grantor trust for United States federal income
tax purposes, (ii) reduce or otherwise adversely affect the powers of the
Institutional Trustee or (iii) cause TARGETS Trust I to be deemed an "investment
company" which is required to be registered under the 1940 Act.
29
<PAGE> 30
MERGER, CONSOLIDATION OR AMALGAMATION OF THE TRUST
TARGETS Trust I may not consolidate, amalgamate, merge with or into, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to, any corporation or other entity, except as
described below. TARGETS Trust I may, with the consent of the Regular Trustees
and without the consent of the holders of the Trust Securities, consolidate,
amalgamate, merge with or into, or be replaced by a trust organized as such
under the laws of any State provided, that (i) such successor entity either (x)
expressly assumes all of the obligations of TARGETS Trust I under the Trust
Securities or (y) substitutes for the TARGETS other securities having
substantially the same terms as the Trust Securities (the "Successor
Securities"), so long as the Successor Securities rank the same as the Trust
Securities with respect to distributions and payments upon liquidation, maturity
and otherwise, (ii) Salomon Smith Barney expressly acknowledges a trustee of
such successor entity possessing the same powers and duties as the Institutional
Trustee in its capacity as the holder of the Forward Contract and the Treasury
Securities, (iii) the TARGETS or any Successor Securities are listed, or any
Successor Securities will be listed upon notification of issuance, on any
national securities exchange or with another organization on which the TARGETS
are then listed or quoted, (iv) such merger, consolidation, amalgamation or
replacement does not cause the TARGETS (including any Successor Securities) to
be downgraded by any nationally recognized statistical rating organization, (v)
such merger, consolidation, amalgamation or replacement does not adversely
affect the rights, preferences and privileges of the holders of the Trust
Securities (including any Successor Securities) in any material respect (other
than with respect to any dilution of the holder's interest in the new entity),
(vi) such successor entity has a purpose identical to that of TARGETS Trust I,
(vii) prior to such merger, consolidation, amalgamation or replacement, TARGETS
Trust I has received an opinion of a nationally recognized independent counsel
to TARGETS Trust I experienced in such matters to the effect that: (A) such
merger, consolidation, amalgamation or replacement will not adversely affect the
rights, preferences and privileges of the holders of the Trust Securities
(including any Successor Securities) in any material respect (other than with
respect to any dilution of the holders' interest in the new entity), and (B)
following such merger, consolidation, amalgamation or replacement, neither
TARGETS Trust I nor such successor entity will be required to register as an
investment company under the 1940 Act and (viii) Salomon Smith Barney guarantees
the obligations of such successor entity under the Successor Securities at least
to the extent provided by the Guarantee. Notwithstanding the foregoing, TARGETS
Trust I shall not, except with the consent of holders of 100% of the Trust
Securities, consolidate, amalgamate, merge with or into, or be replaced by any
other entity or permit any other entity to consolidate, amalgamate, merge with
or into, or replace it, if in the opinion of a nationally recognized independent
tax counsel such consolidation, amalgamation, merger or replacement would cause
the Trust or the Successor Entity to be classified as other than a grantor trust
for United States federal income tax purposes. In addition, so long as any
TARGETS are outstanding and are not held entirely by Salomon Smith Barney,
TARGETS Trust I may not voluntarily liquidate, dissolve, wind-up or terminate
except as described above under " -- Acceleration of Maturity Date; Enforcement
of Rights".
BOOK-ENTRY ONLY ISSUANCE
DTC will act as securities depositary for the TARGETS. The TARGETS will be
issued only as fully-registered securities registered in the name of Cede & Co.
(DTC's nominee). One or more fully-registered global TARGETS certificates,
representing the total aggregate number of TARGETS, will be issued and will be
deposited with DTC.
The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of securities in definitive form. Such laws
may impair the ability to transfer beneficial interests in the global TARGETS as
represented by a global certificate.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities that its participants ("Participants") deposit with DTC, which
Participants include Cedel Bank, societe anonyme and The Euroclear System. DTC
also facilitates the settlement among Participants of securities transactions,
30
<PAGE> 31
such as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in Participants' accounts, thereby eliminating
the need for physical movement of securities certificates. Direct Participants
in DTC include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations ("Direct Participants"). DTC is
owned by a number of its Direct Participants and by the New York Stock Exchange,
the American Stock Exchange, Inc., and the National Association of Securities
Dealers, Inc. (the "NASD"). Access to the DTC system is also available to
others, such as securities brokers and dealers, banks and trust companies that
clear through or maintain a custodial relationship with a Direct Participant,
either directly or indirectly ("Indirect Participants"). The rules applicable to
DTC and its Participants are on file with the Commission.
Purchases of TARGETS within the DTC system must be made by or through
Direct Participants, which will receive a credit for the TARGETS on DTC's
records. The ownership interest of each actual purchaser of TARGETS ("Beneficial
Owner") is in turn to be recorded on the Direct Participants' and Indirect
Participants' records. Beneficial Owners will not receive written confirmation
from DTC of their purchases, but Beneficial Owners are expected to receive
written confirmations providing details of the transactions, as well as periodic
statements of their holdings, from the Direct or Indirect Participants through
which the Beneficial Owners purchased TARGETS. Transfers of ownership interests
in the TARGETS are to be accomplished by entries made on the books of
Participants and Indirect Participants acting on behalf of Beneficial Owners.
Beneficial Owners will not receive certificates representing their ownership
interests in TARGETS, except in the event that use of the book-entry system for
the TARGETS is discontinued.
To facilitate subsequent transfers, all the TARGETS deposited by
Participants with DTC are registered in the name of DTC's nominee, Cede & Co.
The deposit of TARGETS with DTC and their registration in the name of Cede & Co.
effect no change in beneficial ownership, DTC has no knowledge of the actual
Beneficial Owners of the TARGETS. DTC's records reflect only the identity of the
Direct Participants to whose accounts such TARGETS are credited, which may or
may not be the Beneficial Owners. The Participants will remain responsible for
keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements
that may be in effect from time to time.
Although voting with respect to the TARGETS is limited, in those cases
where a vote is required, neither DTC nor Cede & Co. will itself consent or vote
with respect to TARGETS. Under its usual procedures, DTC would mail an Omnibus
Proxy to TARGETS Trust I as soon as possible after the record date. The Omnibus
Proxy assigns Cede & Co. consenting or voting rights to those Direct
Participants to whose accounts the TARGETS are credited on the record date
(identified in a listing attached to the Omnibus Proxy). Salomon Smith Barney
and TARGETS Trust I believe that the arrangements among DTC, Direct and Indirect
Participants, and Beneficial owners will enable the Beneficial Owners to
exercise rights equivalent in substance to the rights that can be directly
exercised by a holder of a beneficial interest in TARGETS Trust I.
Distribution payments on the TARGETS will be made to DTC. DTC's practice is
to credit Direct Participants' accounts on the relevant payment date in
accordance with their respective holdings shown on DTC's records unless DTC has
reason to believe that it will not receive payments on such payment date.
Payments by Participants to Beneficial Owners will be governed by standing
instructions and customary practices, as is the case with securities held for
the account of customers in bearer form or registered in "street name," and such
payments will be the responsibility of such Participant and not of DTC, TARGETS
Trust I or Salomon Smith Barney, subject to any statutory or regulatory
requirements to the contrary that may be in effect from time to time. Payment of
Distributions to DTC is the responsibility of TARGETS Trust I, disbursement of
such payments to Direct Participants is the responsibility of DTC, and
disbursement of such payments to the Beneficial Owners is the responsibility of
Direct and Indirect Participants.
Except as provided in the next paragraph, a Beneficial Owner in a global
TARGETS will not be entitled to receive physical delivery of TARGETS.
Accordingly, each Beneficial Owner must rely on the procedures of DTC to
exercise any rights under the TARGETS.
31
<PAGE> 32
DTC may discontinue providing its services as securities depositary with
respect to the TARGETS at any time by giving reasonable notice to TARGETS Trust
I. Under such circumstances, in the event that a successor securities depositary
is not obtained, TARGETS certificates are required to be printed and delivered.
Additionally, the Regular Trustees (with the consent of Salomon Smith Barney)
may decide to discontinue use of the system of book-entry transfers through DTC
(or any successor depositary) with respect to the TARGETS. In that event,
certificates for the TARGETS will be printed and delivered.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that Salomon Smith Barney and TARGETS Trust I
believe to be reliable, but neither Salomon Smith Barney nor TARGETS Trust I
takes responsibility for the accuracy thereof.
INFORMATION CONCERNING THE INSTITUTIONAL TRUSTEE
The Institutional Trustee, prior to the occurrence of a default with
respect to the Trust Securities, undertakes to perform only such duties as are
specifically set forth in the Declaration and, after such a default, shall
exercise the same degree of care as a prudent individual would exercise in the
conduct of his or her own affairs. Subject to such provisions, the Institutional
Trustee is under no obligation to exercise any of the powers vested in it by the
Declaration at the request of any holder of TARGETS, unless offered reasonable
indemnity by such holder against the costs, expenses and liabilities which might
be incurred thereby. Notwithstanding the foregoing, the holders of TARGETS will
not be required to offer such indemnity in the event such holders, by exercising
their voting rights, direct the Institutional Trustee to take any action
following an Acceleration Event.
PAYING AGENT
In the event that the TARGETS do not remain in book-entry only form, the
following provisions will apply:
The Institutional Trustee will act as paying agent for the TARGETS and
may designate an additional or substitute paying agent at any time.
Registration of transfers of TARGETS will be effected without charge
by or on behalf of the TARGETS Trust I, but upon payment (with the giving
of such indemnity as TARGETS Trust I or Salomon Smith Barney may require)
in respect of any tax or other government charges which may be imposed in
relation to it.
GOVERNING LAW
The Declaration and the TARGETS will be governed by, and construed in
accordance with, the internal laws of the State of Delaware.
MISCELLANEOUS
The Regular Trustees are authorized and directed to operate TARGETS Trust I
in such a way so that TARGETS Trust I will not be required to register as an
"investment company" under the 1940 Act or be characterized as other than a
grantor trust for United States federal income tax purposes. In this connection,
Salomon Smith Barney and the Regular Trustees are authorized to take any action,
not inconsistent with applicable law, the certificate of trust or the amended
and restated certificate of incorporation of Salomon Smith Barney, that each of
Salomon Smith Barney and the Regular Trustees determine in their discretion to
be necessary or desirable to achieve such end as long as such action does not
adversely affect the interests of the holders of the TARGETS or vary the terms
thereof.
Holders of the TARGETS have no preemptive rights.
The purchase of TARGETS by employee benefit plans that are subject to the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and
entities the assets of which are deemed to constitute assets of such plans, is
prohibited. The purchase of TARGETS by individual retirement accounts is
permitted.
32
<PAGE> 33
DESCRIPTION OF THE FORWARD CONTRACT
The terms of the Forward Contract will be set forth in an Indenture (the
"Indenture") between Salomon Smith Barney and The Chase Manhattan Bank (in such
capacity, the "Indenture Trustee"). The Indenture will be qualified under the
Trust Indenture Act. The Indenture Trustee, The Chase Manhattan Bank, will act
as trustee for the Forward Contract under the Indenture for purposes of
compliance with the provisions of the Trust Indenture Act. The terms of the
Forward Contract will include those stated in the Indenture and those made part
of the Indenture by the Trust Indenture Act.
Subject to certain anti-dilution adjustments, the Forward Contract relates
to an aggregate of 748,387.1134 shares of Common Stock. Pursuant to the terms of
the Forward Contract, Salomon Smith Barney will pay an amount equal to the
aggregate Maturity Payments or the aggregate Accelerated Maturity Payments, as
the case may be, to the Trust at maturity of the Forward Contract as described
above. The Forward Contract provides, among other things, for a payment by the
Company to the Trust of an amount determined by reference to the Current Market
Price as of the Maturity Date or Accelerated Maturity Date, as the case may be.
See "Description of the TARGETS".
The Forward Contract is a contract in the form of an Indenture between the
Company and a trustee for the benefit of the holder of the interests in the
Forward Contract. The Forward Contract is a prepaid "cash-settled" forward
contract, whereby the obligor settles its obligation in cash rather than in
securities. The Indenture will provide that Salomon Smith Barney will pay all
fees and expenses related to (i) the offering of the Trust Securities and the
Forward Contract, (ii) the organization, maintenance and dissolution of TARGETS
Trust I, (iii) the retention of the Trustees and (iv) the enforcement by the
Institutional Trustee of the rights of the holders of the TARGETS.
DESCRIPTION OF THE GUARANTEE
Set forth below is a summary of information concerning the Guarantee that
will be executed and delivered by Salomon Smith Barney for the benefit of the
holders of TARGETS. The Guarantee will be qualified as an indenture under the
Trust Indenture Act. The Chase Manhattan Bank will act as indenture trustee
under the Guarantee (in such capacity, the "Guarantee Trustee"). The terms of
the Guarantee will be those set forth in the Guarantee and those made part of
the Guarantee by the Trust Indenture Act. The summary does not purport to be
complete and is subject in all respects to the provisions of, and is qualified
in its entirety by reference to, the form of Guarantee, which is filed as an
exhibit to the Registration Statement of which this Prospectus forms a part, and
the Trust Indenture Act. The Guarantee will be held by the Guarantee Trustee for
the benefit of the holders of the TARGETS.
GENERAL
Pursuant to and to the extent set forth in the Guarantee, Salomon Smith
Barney will irrevocably and unconditionally agree to pay in full to the holders
of the TARGETS (except to the extent paid by TARGETS Trust I), as and when due,
regardless of any defense, right of set off or counterclaim which TARGETS Trust
I may have or assert, the following payments (the "Guarantee Payments"), without
duplication: (i) any Maturity Payment that is required to be made in respect of
the TARGETS, to the extent the Trust has funds available therefor, (ii) any
Accelerated Maturity Payment that is required to be made in respect of the
TARGETS, to the extent the Trust has funds available therefor, (iii) any
Periodic Distributions that are required to be made in respect of the TARGETS,
to the extent the Trust has funds available therefor, (iv) the Treasury Proceeds
that are required to be distributed in respect of the TARGETS, to the extent the
Trust has funds available therefor, and (v) any other remaining assets of the
Trust upon liquidation of the Trust. Salomon Smith Barney's obligation to make a
Guarantee Payment may be satisfied by direct payment of the required amounts by
Salomon Smith Barney to the holders of TARGETS or by causing TARGETS Trust I to
pay such amounts to such holders.
The Guarantee will be a guarantee with respect to the TARGETS from the time
of issuance of the TARGETS but will not apply to any payment of Periodic
Distributions, Maturity Payments, Accelerated
33
<PAGE> 34
Maturity Payments, Treasury Proceeds or to payments upon the dissolution,
winding-up or termination of the Trust, except to the extent TARGETS Trust I
shall have funds available therefor. If Salomon Smith Barney does not pay the
aggregate Maturity Payments or the aggregate Accelerated Maturity Payments to
the Trust upon maturity of the Forward Contract, including maturity as a result
of acceleration or otherwise, the Trust will not pay any Maturity Payment or
Accelerated Maturity Payment to holders of the TARGETS and will not have funds
available therefor. If the U.S. federal government, as the issuer of the
Treasury Securities, does not make periodic payments to the Trust with respect
to the Treasury Securities, then the Trust will not pay the full amount of the
Periodic Distributions to holders of the TARGETS and will not have funds
available therefor. See "Description of the TARGETS" and "Description of the
Forward Contract". The Guarantee, when taken together with Salomon Smith
Barney's obligations under the Forward Contract, the Indenture and the
Declaration, including its obligations to pay costs, expenses, debts and
liabilities of TARGETS Trust I (other than with respect to Trust Securities),
will provide a full and unconditional guarantee by Salomon Smith Barney of
payments due by the Trust on the TARGETS.
MODIFICATIONS OF THE GUARANTEE; ASSIGNMENT
Except with respect to any changes that do not adversely affect the rights
of holders of TARGETS (in which case no vote will be required), the Guarantee
may be amended only with the prior approval of the holders of a majority of the
outstanding TARGETS. All guarantees and agreements contained in the Guarantee
shall bind the successors, assignees, receivers, trustees and representatives of
Salomon Smith Barney and shall inure to the benefit of the holders of the
TARGETS then outstanding.
GUARANTEE ENFORCEMENT EVENTS
An enforcement event under the Guarantee will occur upon the failure of
Salomon Smith Barney to perform any of its payment or other obligations
thereunder. The holders of a majority of the TARGETS have the right to direct
the time, method and place of conducting any proceeding for any remedy available
to the Guarantee Trustee in respect of the Guarantee or to direct the exercise
of any trust or power conferred upon the Guarantee Trustee under the Guarantee.
If the Guarantee Trustee fails to enforce the Guarantee Trustee's rights under
the Guarantee any holder of TARGETS may directly institute a legal proceeding
against Salomon Smith Barney to enforce the Guarantee Trustee's rights under the
Guarantee, without first instituting a legal proceeding against the Trust, the
Guarantee Trustee or any other person or entity. A holder of TARGETS may also
directly institute a legal proceeding against Salomon Smith Barney to enforce
such holder's right to receive payment under the Guarantee without first (i)
directing the Guarantee Trustee to enforce the terms of the Guarantee or (ii)
instituting a legal proceeding against TARGETS Trust I or any other person or
entity.
Salomon Smith Barney will be required to provide annually to the Guarantee
Trustee a statement as to the performance by Salomon Smith Barney of certain of
its obligations under the Guarantee and as to any default in such performance.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, prior to the occurrence of a default with respect to
the Guarantee, undertakes to perform only such duties as are specifically set
forth in the Guarantee and, after default with respect to the Guarantee, shall
exercise the same degree of care as a prudent individual would exercise in the
conduct of his or her own affairs. Subject to such provision, the Guarantee
Trustee is under no obligation to exercise any of the powers vested in it by the
Guarantee at the request of any holder of TARGETS unless it is offered
reasonable indemnity against the costs, expenses and liabilities that might be
incurred thereby.
TERMINATION OF THE GUARANTEE
The Guarantee will terminate as to the TARGETS upon full payment to the
holders of the TARGETS of (i) the Maturity Payments, (ii) the Accelerated
Maturity Payments and the Treasury Proceeds or (iii) the amounts payable in
accordance with the Declaration upon liquidation of TARGETS Trust I. The
Guarantee
34
<PAGE> 35
will continue to be effective or will be reinstated, as the case may be, if at
any time any holder of TARGETS must restore payment of any sum paid under such
TARGETS or such Guarantee.
STATUS OF THE GUARANTEE
The Guarantee will constitute a guarantee of payment and not of collection
(that is, the guaranteed party may directly institute a legal proceeding against
Salomon Smith Barney to enforce its rights under the Guarantee without
instituting a legal proceeding against any other person or entity).
GOVERNING LAW
The Guarantee will be governed by, and construed in accordance with, the
internal laws of the State of New York.
DESCRIPTION OF THE TREASURY SECURITIES
The Treasury Securities will consist of a portfolio of stripped
self-amortizing securities issued by the U.S. Treasury and maturing on a
quarterly basis through the Maturity Date. The Treasury Securities will bear
quarterly payments corresponding to the payment dates of the Periodic
Distributions payable on the TARGETS. Upon acceleration of maturity to an
Accelerated Maturity Date, any Treasury Securities then held by the
Institutional Trustee on behalf of the Trust will be sold and the Treasury
Proceeds will be distributed to holders of the Trust Securities. See
"Description of the TARGETS -- Acceleration of Maturity".
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain U.S. federal income tax consequences
of the purchase, ownership and disposition of TARGETS. Unless otherwise
specifically indicated herein, this summary only addresses a holder of TARGETS
that is 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, a trust if (i) a U.S. court is able to exercise primary
supervision over the trust's administration and (ii) one or more United States
persons have the authority to control all of the trust's substantial decisions,
or a holder that is otherwise subject to U.S. federal income taxation on net
income basis in respect of its TARGETS (a "U.S. Holder"). The discussion below
is based on the advice of Skadden, Arps, Slate, Meagher & Flom LLP.
The summary is based on U.S. federal income tax laws, regulations, rulings
and decisions now in effect, all of which are subject to change, possibly on a
retroactive basis. It deals only with holders that will hold TARGETS as capital
assets and does not address tax considerations that may be relevant to a
particular holder in light of such holder's individual circumstances or that are
applicable to certain types of holders subject to special tax rules, such as
banks, insurance companies, dealers in securities, persons that will hold the
TARGETS as a position in a "straddle" for tax purposes or as part of a
"synthetic security" or a "conversion transaction" or other integrated
investment comprised of a TARGETS and one or more other investments, or persons
that have a functional currency other than the U.S. dollar. It does not include
any description of the tax laws of any state, local or foreign government that
may be applicable to the TARGETS or to the holders thereof. Prospective
purchasers of TARGETS should consult their tax advisors in determining the tax
consequences to them of purchasing, owning or disposing TARGETS, including the
application to their particular situation of the U.S. federal income tax
considerations discussed below, as well as the application of state, local,
foreign income or other tax laws.
There are no regulations, published rulings or judicial decisions
addressing the characterization for U.S. federal income tax purposes of TARGETS
or instruments with terms substantially similar to TARGETS. The Trust intends to
treat a TARGETS for U.S. federal income tax purposes as a beneficial interest in
a trust that holds the Treasury Securities and the Forward Contract, under the
terms of which Salomon Smith Barney is obligated to pay the Maturity Payments
(or Accelerated Maturity Payments) to the Trust. The Trust intends to report
holders' income to the Internal Revenue Service in accordance with this
treatment. Under this
35
<PAGE> 36
approach, the tax consequences of holding a TARGETS should be as described
below. Prospective investors in the TARGETS should be aware, however, that no
ruling is being requested from the Internal Revenue Service with respect to the
TARGETS and the Internal Revenue Service might take a different view as to the
proper characterization of the TARGETS and of the U.S. federal income tax
consequences to a holder thereof.
A bill recently introduced in Congress by a member of the House of
Representatives (H.R. 3170) would treat some or all of the net long-term capital
gain arising from "constructive ownership" transactions involving certain
derivative financial instruments as short-term capital gain, and would impose an
interest charge on such short-term capital gain. The proposed legislation would
be effective with respect to gain recognized after the date the legislation is
enacted into law, without regard to when the constructive ownership transaction
was entered into. If enacted in its current form, the legislation would not
apply to the TARGETS transaction (and, even if the legislation in its current
form were extended to cover the TARGETS transaction, would have no material
effect on the TARGETS transaction). It is not possible to predict whether
legislation addressing constructive ownership transactions will be enacted, or
what form any such legislation might take (including with respect to effective
dates).
TAX STATUS OF THE TRUST
The Trust will be treated as a grantor trust owned solely by the present
and future holders of Trust Securities for U.S. federal income tax purposes, and
accordingly, income received by the Trust will be treated as income of the
holders of the TARGETS in the manner set forth below.
TAX BASIS IN THE TREASURY SECURITIES AND THE FORWARD CONTRACT
Each holder should be considered the owner of its pro rata portion of the
Treasury Securities and the Forward Contract in the Trust. The cost to the
holder of its TARGETS should be allocated between the holder's pro rata portion
of the Treasury Securities and the Forward Contract in the Trust (in proportion
to the fair market values thereof on the date on which the holder acquires its
TARGETS) in order to determine the holder's tax bases in such assets.
Approximately 10.2% and 89.8% of the net proceeds of the offering of the Trust
Securities will be used by the Trust to purchase the Treasury Securities and the
Forward Contract, respectively.
RECOGNITION OF ORIGINAL ISSUE DISCOUNT ON THE TREASURY SECURITIES
The Treasury Securities in the Trust will consist of stripped U.S. Treasury
securities. A holder should be required to treat its pro rata portion of each
Treasury Security in the Trust as a bond that was originally issued on the date
the holder purchased its TARGETS and at an original issue discount equal to the
excess of the holder's pro rata portion of the amounts payable on such Treasury
Security over the holder's tax basis therein, as discussed above. The amount of
such excess, however, should constitute only a portion of the total amounts
payable with respect to the Treasury Securities held by the Trust and,
accordingly, a substantial portion of the quarterly cash distributions from the
Trust to holders should be treated as a tax-free return of the holder's
investment in the Treasury Securities and should reduce the holder's tax basis
in its pro rata portion of the Treasury Securities. A holder (whether using the
cash or accrual method of tax accounting) should be required to include original
issue discount (other than original issue discount on short-term Treasury
Securities as described below) in gross income for U.S. federal income tax
purposes as it accrues, in accordance with a constant yield method, prior to the
receipt of cash attributable to such income. See "Description of the
TARGETS -- Periodic Distributions".
With respect to any short-term Treasury Security (i.e., any Treasury
Security with a maturity of one year or less from the date it is purchased) held
by the Trust, holders using the cash method of tax accounting should (except as
provided below) generally be required to include interest payments on such
Treasury Securities in gross income as such payments are received. In addition,
such cash method holders may be denied a deduction for any related interest
expense until such payments are received.
36
<PAGE> 37
Notwithstanding the above general rule for cash method holders, if in any
taxable year 20 percent or more of the value of the TARGETS is held for 90 days
or more by persons using the accrual method of tax accounting (and generally
with respect to subsequent taxable years), holders using the cash method of tax
accounting should be required to include original issue discount on any
short-term Treasury Security held by the Trust in gross income as such original
issue discount accrues. In all events, holders using the accrual method of tax
accounting should be required to include original issue discount on any
short-term Treasury Security held by the Trust in gross income as such original
issue discount accrues. Unless a holder elects to accrue the original issue
discount on a short-term Treasury Security according to a constant yield method
based on daily compounding, such original issue discount should be accrued on a
straight-line basis. A holder's tax basis in a Treasury Security held by the
Trust should be increased by the amount of any original issue discount included
in gross income by the holder with respect to such Treasury Security.
TREATMENT OF THE FORWARD CONTRACT
Each holder should be treated as having entered into a pro rata portion of
the Forward Contract and, at the Maturity Date or Accelerated Maturity Date, as
having received a pro rata portion of the Maturity Payment or Accelerated
Maturity Payment, as the case may be, received by the Trust. A holder should not
recognize income, gain or loss upon entry into the Forward Contract and should
not be required to include in gross income additional amounts over the term of
the Forward Contract.
SALE OR OTHER DISPOSITION OF THE TARGETS
Upon a sale or other disposition of all or some of a holder's TARGETS, a
holder should be treated as having sold its pro rata portions of the Treasury
Securities and the Forward Contract underlying the TARGETS. The selling holder
should recognize capital gain or loss equal to the difference between the amount
realized from such sale or other disposition and the holder's aggregate tax
bases in its pro rata portions of the Treasury Securities and the Forward
Contract (except to the extent of any accrued interest with respect to the
holder's pro rata portion of the Treasury Securities includible in gross income
as ordinary income. Any such gain or loss will be long-term capital gain or loss
if the holder's holding period for the TARGETS was more than one year. The
distinction between capital gain or loss and ordinary income or loss is
important for purposes of the limitations on a holder's ability to offset
capital losses against ordinary income. In addition, certain individuals are
subject to taxation at a reduced rate on long-term capital gains. The Taxpayer
Relief Act of 1997 further provides that in the case of holders who are
individuals, any such capital gain will be subject to a maximum U.S. federal
income tax rate of (i) 20% if the holder's holding period in the TARGETS was
more than 18 months at the time of such sale or other disposition and (ii) 28%
if the holder's holding period in the TARGETS was more than 12 months but not
more than 18 months at such time. Holders should consult their tax advisers as
to the consequences of the Taxpayer Relief Act of 1997 in their particular
circumstances.
DISTRIBUTIONS OF CASH AT THE MATURITY DATE OR ACCELERATED MATURITY DATE
On the receipt of cash by the Trust with respect to the Forward Contract on
the Maturity Date or Accelerated Maturity Date, a holder should recognize
capital gain or loss equal to the difference between the holder's pro rata
portion of the amount of cash received by the Trust and the holder's tax basis
in its pro rata portion of the Forward Contract at that time. Under certain
circumstances, on or following the Accelerated Maturity Date, the Trust may sell
all or a portion of the Treasury Securities and distribute the Treasury Proceeds
to holders. Upon such a sale by the Trust, a holder should recognize capital
gain or loss equal to the difference between the amount of cash received by the
holder (except to the extent of any accrued interest with respect to the
holder's pro rata portion of the Treasury Securities includible in gross income
as ordinary income) and the holder's tax basis in its pro rata portion of the
Treasury Securities sold by the Trust. Any such capital gain or loss described
in this paragraph will be long-term capital gain or loss if the holder's holding
period for the TARGETS was more than one year and will be subject to the same
maximum U.S. federal income tax rates discussed above under "Sale or Other
Disposition of the TARGETS".
37
<PAGE> 38
ALTERNATIVE CHARACTERIZATIONS
The Internal Revenue Service may contend that TARGETS should be
characterized for U.S. federal income tax purposes in a manner different than
the approach described above. For example, the Internal Revenue Service might
assert that the Forward Contract should be treated as a contingent debt
obligation of Salomon Smith Barney that is subject to Treasury regulations
governing contingent payment debt instruments. If the Internal Revenue Service
were to prevail in making such an assertion, original issue discount would
accrue with respect to the Forward Contract at a "comparable yield" for Salomon
Smith Barney under the Forward Contract, determined at the time the Forward
Contract is entered into. A holder's pro rata portion of original issue discount
with respect to the Forward Contract and the Treasury Securities might exceed
the aggregate amount of the Periodic Distributions received by the holder. In
addition, under this treatment, a holder would be required to treat any gain
realized on the sale or other disposition of the TARGETS as ordinary income to
the extent that such gain is allocable to the holder's pro rata portion of the
Forward Contract. Any loss realized on such sale or other disposition that is
allocable to the holder's pro rata portion of the Forward Contract would be
treated as an ordinary loss to the extent of the holder's original issue
discount inclusions with respect to the Forward Contract and as capital loss to
the extent of loss in excess of such inclusions. It is also possible that the
Internal Revenue Service could take the view that a holder should include in
gross income the amount of cash actually received each year in respect of the
TARGETS or that the TARGETS as a whole constitute a contingent payment debt
instrument subject to the rules described above.
TAX CONSEQUENCES TO NON-U.S. HOLDERS
In the case of a holder of TARGETS that is not a U.S. Holder: (a) Periodic
Distributions made with respect to the TARGETS should not be subject to U.S.
withholding tax, provided that such holder complies with applicable
certification requirements (including in general the furnishing of an Internal
Revenue Service Form W-8 or a substitute form); and (b) any capital gain
realized upon the sale or other disposition of the TARGETS should 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.
Recently issued Treasury regulations may change the certification
procedures relating to withholding on certain amounts paid to Non-U.S. Holders
after December 31, 1999. Prospective investors should consult their tax advisors
regarding the effect, if any, of such new Treasury regulations on an investment
in the TARGETS.
BACKUP WITHHOLDING AND INFORMATION REPORTING
A holder of TARGETS (including a holder that is not a U.S. holder) 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 (a) is a
corporation or comes within certain other exempt categories and, when required,
provides proof of such exemption or (b) provides a correct taxpayer
identification number, certifies as to no loss of exemption from backup
withholding 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 credited against the holder's U.S. federal
income tax liability, provided that the required information is furnished to the
Internal Revenue Service.
38
<PAGE> 39
UNDERWRITING
Under the terms and subject to the conditions of the Underwriting Agreement
dated June 8, 1998 (the "Underwriting Agreement"), Smith Barney Inc., as
underwriter (the "Underwriter"), has agreed to purchase from TARGETS Trust I,
and TARGETS Trust I has agreed to sell to such Underwriter, 1,451,871 TARGETS.
The Underwriter is obligated to take and pay for the total number of
TARGETS offered hereby if any such TARGETS are purchased.
The Underwriting Agreement provides that TARGETS Trust I and Salomon Smith
Barney will indemnify the Underwriter against certain liabilities, including
liabilities under the Securities Act of 1933, as amended, and will make certain
contributions in respect thereof, or will contribute to payments that the
Underwriter may be required to make in respect thereof and will reimburse the
Underwriter for certain legal and other expenses.
TARGETS Trust I and Salomon Smith Barney have agreed, during the period
beginning on the date of the Underwriting Agreement and continuing to and
including the closing date for the purchase of the TARGETS, not to offer, sell,
contract to sell or otherwise dispose of any securities (including any backup
undertakings of such securities) of Salomon Smith Barney or of TARGETS Trust I,
in each case that are substantially similar to the TARGETS, or any securities
convertible into or exchangeable for the TARGETS or such substantially similar
securities of either TARGETS Trust I or Salomon Smith Barney.
In view of the fact that the proceeds of the sale of the TARGETS will
ultimately be used by the Trust to purchase the Forward Contract, the
Underwriting Agreement provides that Salomon Smith Barney will pay as
compensation to the Underwriter $.96875 per TARGETS for the account of the
Underwriter.
In connection with the offering of TARGETS, the Underwriter and selling
group members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the TARGETS. Such
transactions may include stabilization transactions effected in accordance with
Rule 104 of Regulation M under the Exchange Act, pursuant to which such persons
may bid for or purchase TARGETS for the purposes of stabilizing their market
price. The Underwriter also may create a short position for its account by
selling more TARGETS in connection with this offering than they are committed to
purchase from TARGETS Trust I, and in such case may purchase TARGETS in the open
market following completion of this offering to cover all or a portion of such
short position. Any of the transactions described in this paragraph may result
in the maintenance of the price of the TARGETS at a level above that which might
otherwise prevail in the open market. None of the transactions described in this
paragraph is required, and, if any are undertaken, they may be discontinued at
any time.
The TARGETS have been approved for listing on the CBOE, subject to official
notice of issuance.
The offer and sale of the TARGETS will comply with the requirements of Rule
2810 of the Conduct Rules of the National Association of Securities Dealers,
Inc. regarding direct participation programs.
This Prospectus may be used by Salomon Smith Barney, the Underwriter,
Salomon Brothers Inc or other affiliates of Salomon Smith Barney in connection
with offers and sales of the TARGETS (subject to obtaining any necessary
approval of the CBOE for any such offers and sales) in market-making
transactions at negotiated prices related to prevailing market prices at the
time of sale. Any such entity may act as principal or agent in such
transactions. No such entity is obligated to make a market in the TARGETS and
any such entity may discontinue any market-making at any time without notice, at
its sole discretion. There can be no assurance of the liquidity or existence of
a secondary market for any TARGETS.
LEGAL MATTERS
The validity of the TARGETS, the Forward Contract, the Guarantee and
certain matters relating thereto and certain United States federal income tax
matters will be passed upon for Salomon Smith Barney and TARGETS Trust I by
Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York. Certain legal
matters will be passed upon for the Underwriter by Cleary, Gottlieb, Steen and
Hamilton, New York, New York. As to matters governed by Delaware law (other than
the Delaware General Corporation Law), Cleary,
39
<PAGE> 40
Gottlieb, Steen and Hamilton will rely upon the opinion of Skadden, Arps, Slate,
Meagher & Flom LLP. Kenneth J. Bialkin, a partner of Skadden, Arps, Slate,
Meagher & Flom LLP, is a director of Travelers Group Inc., the parent of Salomon
Smith Barney, and he and other attorneys in such firm beneficially own an
aggregate of less than one percent of the common stock of the Travelers Group
Inc. Each of Cleary, Gottlieb, Steen and Hamilton and Skadden, Arps, Slate,
Meagher & Flom LLP has from time to time acted as counsel for Salomon Smith
Barney and certain of its affiliates and may do so in the future.
EXPERTS
The consolidated financial statements of Salomon Smith Barney and its
subsidiaries for the fiscal years ended December 31, 1997 and 1996 and for each
of the three years in the period ended December 31, 1997, have been audited by
Coopers & Lybrand L.L.P., independent certified public accountants, as set forth
in their report thereon and incorporated herein by reference, which report
states that Coopers & Lybrand L.L.P. did not audit the consolidated financial
statements of Salomon Inc as of December 31, 1996 and 1995, and for each of the
years in the three-year period ended December 31, 1996 (the "Salomon
Financials"), and that their opinion with respect to any amounts contained in
the Salomon Financials is based on the report of Arthur Andersen LLP. Such
financial statements are incorporated by reference herein in reliance upon such
report given upon the authority of said firm as experts in accounting and
auditing.
40
<PAGE> 41
======================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER
CONTAINED HEREIN, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY SALOMON SMITH BARNEY OR THE
UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES
OTHER THAN THOSE TO WHICH IT RELATES OR OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO BUY, THOSE TO WHICH IT RELATES IN ANY STATE OR TO ANY PERSON TO WHOM IT
IS NOT LAWFUL TO MAKE SUCH OFFER IN SUCH STATE. THE DELIVERY OF THIS PROSPECTUS
AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information.................. 3
Incorporation of Certain Documents by
Reference............................ 4
Summary................................ 5
Risk Factors........................... 9
Salomon Smith Barney................... 13
Use of Proceeds and Hedging
Activities........................... 14
Capitalization......................... 15
Ratio of Earnings to Fixed Charges and
Preferred Stock Dividends............ 16
Cisco Systems, Inc..................... 16
Price Range of the Common Stock and
Dividends............................ 17
TARGETS Trust I........................ 17
Description of the TARGETS............. 18
Description of the Forward Contract.... 33
Description of the Guarantee........... 33
Description of the Treasury
Securities........................... 35
Certain Federal Income Tax
Considerations....................... 35
Underwriting........................... 39
Legal Matters.......................... 39
Experts................................ 40
</TABLE>
======================================================
======================================================
TARGETS TRUST I
1,451,871
TARGETED GROWTH
ENHANCED
TERMS SECURITIES
("TARGETS(SM)")
WITH RESPECT TO THE COMMON STOCK
OF CISCO SYSTEMS, INC.
DUE ON AUGUST 15, 2000
FULLY AND UNCONDITIONALLY
GUARANTEED TO THE
EXTENT SET
FORTH HEREIN BY
SALOMON SMITH BARNEY
HOLDINGS INC.
------------
PROSPECTUS
JUNE 9, 1998
------------
SALOMON SMITH BARNEY
======================================================
