<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 8, 1998
REGISTRATION NO. 333-45529
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
<TABLE>
<S> <C>
SALOMON SMITH BARNEY HOLDINGS INC. TARGETS TRUST I
(EXACT NAME OF REGISTRANT AS (EXACT NAME OF REGISTRANT AS
SPECIFIED IN CHARTER) SPECIFIED IN CERTIFICATE OF TRUST)
DELAWARE DELAWARE
(STATE OR OTHER JURISDICTION OF (STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION) INCORPORATION OR ORGANIZATION)
22-1660266 13-4000891
(I.R.S. EMPLOYER IDENTIFICATION NUMBER) (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
</TABLE>
388 GREENWICH STREET
NEW YORK, NEW YORK 10013
(212) 816-6000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANTS' PRINCIPAL EXECUTIVE OFFICES)
ROBERT H. MUNDHEIM, ESQ.
GENERAL COUNSEL
SALOMON SMITH BARNEY HOLDINGS INC.
388 GREENWICH STREET
NEW YORK, NEW YORK 10013
(212) 816-6000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
WITH COPIES TO:
<TABLE>
<S> <C> <C>
STEPHANIE B. MUDICK, ESQ. ALAN L. BELLER, ESQ. GREGORY A. FERNICOLA, ESQ.
TRAVELERS GROUP INC. CLEARY, GOTTLIEB, STEEN & SKADDEN, ARPS, SLATE,
388 GREENWICH STREET HAMILTON MEAGHER & FLOM LLP
NEW YORK, NEW YORK 10013 ONE LIBERTY PLAZA 919 THIRD AVENUE
NEW YORK, NEW YORK 10006 NEW YORK, NEW YORK 10022
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after the effective date of this registration statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c)under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering: [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
------------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION DATED MAY 8, 1998
PROSPECTUS
TARGETS TRUST I
TARGETED GROWTH ENHANCED TERMS SECURITIES ("TARGETS(SM)")
WITH RESPECT TO THE COMMON STOCK OF CISCO SYSTEMS, INC.
DUE ON
FULLY AND UNCONDITIONALLY GUARANTEED TO THE EXTENT SET FORTH HEREIN BY
SALOMON SMITH BARNEY HOLDINGS INC.
------------------------
The 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 85% to 90% 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% to 15% 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 (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 sum of (A) 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 and (B) any accrued and unpaid Yield Enhancement
Payments (as defined herein) with respect to such TARGETS. 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 May 6, 1998 was $76 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.
Application will be made to list the TARGETS on the Chicago Board Options
Exchange (the "CBOE") under the symbol "TCX".
------------------------
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..................... $ $ $
- ------------------------------------------------------------------------------------------------------------------------------
Total(4)........................ $ $ $
==============================================================================================================================
</TABLE>
(1) Plus accrued distributions, if any, from , 1998.
(2) The Trust and Salomon Smith Barney have agreed to indemnify the several
Underwriters 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
Underwriters as compensation (the "Underwriters Compensation") $
per TARGETS (or $ in the aggregate). See "Underwriting". Expenses
of the offering which are payable by Salomon Smith Barney are estimated
to be $ .
(4) The Trust and Salomon Smith Barney have granted to the several
Underwriters the option to purchase up to an additional TARGETS,
exercisable within 30 days of the date hereof, solely to cover
overallotments, if any. If such option is exercised in full, the total
Price to Public, Underwriting Commissions and Proceeds to the Trust will
be $ , $ and $ , respectively. See "Underwriting".
------------------------
The TARGETS offered hereby are being offered by the several Underwriters
named herein, subject to prior sale, when, as and if accepted by them 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 , 1998.
SALOMON SMITH BARNEY
, 1998
"TARGETS(SM)" is a service mark of Salomon Smith Barney Holdings Inc.
<PAGE> 3
(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 % of the Current Market Price on the
date of the issuance of the TARGETS (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 sum of (A) 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
and (B) any accrued and unpaid Yield Enhancement Payments with respect to such
TARGETS. 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 $ per TARGETS per quarter from the date of
original issuance and payable quarterly in arrears on each ,
, and , commencing , 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 (a) payments to be received by the Trust
with respect to the Treasury Securities held by the Trust and (b) certain yield
enhancement payments (the "Yield Enhancement Payments") payable to the Trust by
Salomon Smith Barney pursuant to the Forward Contract. Depending on market
conditions at the time of pricing of the TARGETS for initial sale to the public,
the amount of the Yield Enhancement Payments may be zero or a nominal amount. Of
each quarterly Periodic Distribution payable per TARGETS to holders of the
TARGETS, $ will be paid out of payments received by the Trust with
respect to the Treasury Securities and $ will be paid out of Yield
Enhancement Payments. 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
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<PAGE> 4
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 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".
This Prospectus may be used by Smith Barney Inc. ("Smith Barney") and/or
Salomon Brothers Inc or any of their respective successors (collectively, the
"SSBH Subsidiaries") in connection with offers and sales related to
market-making transactions in the TARGETS. The SSBH Subsidiaries may act as
principal or agent in such transactions. Such sales will be made at prices
related to prevailing market prices at the time of sale. Application will be
made to list the TARGETS on the CBOE, subject to official notice of issuance.
Trading of the TARGETS on the CBOE is expected to commence within a 30-day
period after the date of this Prospectus.
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,
PURCHASES OF SUCH TARGETS TO COVER ALL OR SOME OF A SHORT POSITION IN THE
TARGETS MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF PENALTY BIDS. 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
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<PAGE> 5
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 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 and (ii) the Current Reports on Form 8-K filed on January 9, 1998, January
26, 1998, February 2, 1998, March 3, 1998, April 17, 1998 and April 20, 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> 6
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 85% to 90% will be
invested by the Trust in the Forward Contract with
respect to the Common Stock and approximately 10%
to 15% 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 $ 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 $ , 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 % 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
$ each, which equals the closing price of
the Common Stock on , 1998 of $ per
share times 0.5.
Maturity................... The TARGETS will mature on , 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 sum of (A) the product of
(i) the Current Market Price of the Common Stock
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<PAGE> 7
as of the Maturity Date multiplied by (ii) the
Exchange Rate and (B) any accrued and unpaid Yield
Enhancement Payments with respect to such TARGETS.
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 sum of (A)
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 and (B) any accrued and
unpaid Yield Enhancement Payments with respect to
each TARGETS. 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
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<PAGE> 8
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".
Periodic Distributions..... Holders of TARGETS will be entitled to receive
Periodic Distributions at the rate per TARGETS of
$ per quarter, payable on each ,
, and , commencing .
The Periodic Distributions will be paid by the
Trust out of (i) payments to be received by the
Trust in respect of the Treasury Securities held by
the Trust and (ii) the Yield Enhancement Payments
to be received by the Trust from Salomon Smith
Barney under the Forward Contract. Depending on
market conditions at the time of pricing of the
TARGETS for initial sale to the public, the amount
of the Yield Enhancement Payments may be zero or a
nominal amount. Of each Periodic Distribution
payable to holders of the TARGETS, $ will
be paid out of payments received by the Trust with
respect to the Treasury Securities and $
will be paid out of Yield Enhancement Payments
received by the Trust.
Pursuant to the terms of the Forward Contract,
Salomon Smith Barney will pay quarterly Yield
Enhancement Payments to the Trust in the amount of
approximately $ , accruing from the date
of issuance of the TARGETS, computed on the basis
of a 360-day year of twelve 30-day months and, for
any period less than a full calendar month, the
number of days elapsed in such month. See
"Description of TARGETS -- Periodic Distributions"
and "Description of the Forward Contract."
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 both payments with respect to the
Treasury Securities held by the Trust and the Yield
Enhancement Payments payable by Salomon Smith
Barney under the Forward Contract. 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
7
<PAGE> 9
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
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.................... Application will be made to list the TARGETS on the
CBOE under the symbol "TCX".
Use of Proceeds............ Of the total proceeds from the sale of the Trust
Securities, the Trust will use $ to
purchase the Forward Contract from Salomon Smith
Barney and $ 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, and the Yield Enhancement Payments.
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> 10
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 $ 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 a maximum of
% of any appreciation of the value of the Common Stock. 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> 11
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, any Accelerated Maturity Payment and any
portion of a Periodic Distribution that would be paid from Yield Enhancement
Payments received by the Trust 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
10
<PAGE> 12
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.
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,
11
<PAGE> 13
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 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 Underwriters have advised the Trust that they currently intend to make
a market in the TARGETS; however, they are 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 Underwriters may cease to make
a market in the TARGETS at any time without notice. Application will be made to
list the TARGETS on the CBOE, 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 (i) the aggregate Maturity
Payments or the aggregate Accelerated Maturity Payments, as the case may be, and
(ii) the Yield Enhancement Payments under the Forward Contract. 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> 14
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> 15
USE OF PROCEEDS AND HEDGING ACTIVITIES
Of the total proceeds to be received by the Trust from the sale of the
Trust Securities, approximately $ will be used by the Trust to purchase
the Forward Contract from Salomon Smith Barney and approximately $ will
be used by the Trust to purchase the Treasury Securities. 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 Underwriters 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> 16
CAPITALIZATION
The following table sets forth the consolidated capitalization of Salomon
Smith Barney at December 31, 1997, 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 December 31,
1997 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 December 31, 1997.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1997
--------------------------
OUTSTANDING AS ADJUSTED
----------- -----------
(DOLLARS IN MILLIONS)
(UNAUDITED)
<S> <C> <C>
Short-term borrowings....................................... $11,464 $
Notes payable............................................... 10 10
Long-term debt.............................................. 19,064
------- -------
Total debt........................................ $30,538 $
======= =======
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
Salomon Smith Barney -- Obligated Mandatorily Redeemable
Preferred Securities of Subsidiary Trust holding solely a
Forward Contract of Salomon Smith Barney and treasury
securities................................................
Stockholder's equity:
Common Stock(3) and additional paid-in capital......... 1,574 1,574
Retained earnings...................................... 6,943 6,943
Cumulative translation adjustment...................... 1 1
------- -------
Total stockholder's equity........................ 8,518 8,518
------- -------
Total capitalization........................................ $39,401 $
======= =======
</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) Par value $.01 per share; 1,000 shares authorized; 1,000 shares issued and
outstanding.
15
<PAGE> 17
RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges.......................... 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 April 26, 1997, October 25, 1997 and
January 24, 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> 18
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 May 6, 1998)............................. 76 1/4 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 January 24, 1998, as of March 2, 1998, there were 1,022,987,214
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> 19
Contract and Treasury Securities. Of the total proceeds from the sale of the
Trust Securities, $ will be invested by the Trust in the Forward
Contract and $ 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> 20
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 plus such
additional number of TARGETS that may be issued pursuant to the over-allotment
option granted by the Trust to the Underwriters (see "Underwriting"). The
TARGETS will be issued in fully registered form. TARGETS will not be issued in
bearer form. See "-- Book-Entry Only Issuance".
MATURITY PAYMENT
The TARGETS will mature on 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 sum of (A) 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 and (B) any accrued and unpaid Yield Enhancement Payments with
respect to such TARGETS.
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".
19
<PAGE> 21
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 "--Dilution Adjustments", (ii) there would be no
acceleration of the maturity of the Forward Contract to an Accelerated Maturity
Date upon an Acceleration Event and (iii) there would be no accrued and unpaid
Yield Enhancement Payments at maturity. There can be no assurance that the
hypothetical market price of the Common Stock upon issuance of the TARGETS, the
hypothetical Appreciation Threshold Price or the Current Market Price at
maturity will be within the range set forth below. Assuming a hypothetical issue
price of $37.50 per TARGETS (one-half of the hypothetical market price of the
Common Stock upon issuance of the TARGETS) and a hypothetical Appreciation
Threshold Price of $97.50, 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>
Hypothetical market price of Common Stock upon issuance of
TARGETS:.................................................. $ 75.00
Hypothetical Appreciation Threshold Price:.................. $ 97.50
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>
Hypothetical market price of Common Stock upon issuance of
TARGETS:.................................................. $ 75.00
Hypothetical Appreciation Threshold Price:.................. $ 97.50
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>
Hypothetical market price of Common Stock upon issuance of
TARGETS:.................................................. $ 75.00
Hypothetical Appreciation Threshold Price:.................. $ 97.50
Hypothetical Current Market Price:.......................... $ 110.00
</TABLE>
Since the Current Market Price is greater than the Appreciation Threshold
Price, the Exchange Rate would be 0.4432 ($97.50 times 0.5 divided by $110.00).
The Maturity Payment would be $48.75 (0.4432 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.
20
<PAGE> 22
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 (A) 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 and (B)
any accrued and unpaid Yield Enhancement Payments with respect to such TARGETS.
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. 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
21
<PAGE> 23
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, 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
22
<PAGE> 24
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 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 at
the rate per TARGETS of $ per quarter, payable on each ,
, and , commencing .
The Periodic Distributions will be paid by the Trust out of payments to be
received by the Trust with respect to (i) the Treasury Securities held by the
Trust and (ii) the Yield Enhancement Payments payable to the Trust by Salomon
Smith Barney under the Forward Contract. Depending on market conditions at the
time of pricing of the TARGETS for initial sale to the public, the amount of the
Yield Enhancement Payments may be zero or a nominal amount. Of each Periodic
Distribution payable to holders of the TARGETS, $ will be paid out of
payments received by the Trust with respect to the Treasury Securities and
$ will be paid from the Yield Enhancement Payments received by the
Trust.
23
<PAGE> 25
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% to 15% of the proceeds of the
offering in the Treasury Securities. The annual cash flow may require a larger
cash flow than will be provided by the Treasury Securities, in which case Yield
Enhancement Payments ("YEP") would be paid by the obligor of the Forward
Contract pursuant to the following schedule and based on the following
assumptions:
<TABLE>
<S> <C>
Offering Size:.......................................... $100,000,000
Annual Cash Flow:....................................... 5.00%
Payment Frequency....................................... Quarterly
Settlement Date:........................................ May 15, 1998
Maturity Date:.......................................... August 15, 2000
</TABLE>
<TABLE>
<CAPTION>
STRIP
MATURITY UNIT PURCHASE PURCHASE STRIP YEP TOTAL EQUIVALENT
DATE COST AMOUNT COST CASH FLOW CASH FLOW CASH FLOW COUPON
- -------- ---- -------- -------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
08/15/98 98.37% 1,247.5 $1,227,166 $1,247,500 $2,500 $1,250,000 5.00%
11/15/98 96.93% 1,247.5 1,209,202 1,247,500 2,500 1,250,000 5.00%
02/15/99 95.41% 1,247.5 1,190,240 1,247,500 2,500 1,250,000 5.00%
05/15/99 93.94% 1,247.5 1,171,902 1,247,500 2,500 1,250,000 5.00%
08/15/99 92.49% 1,247.5 1,153,813 1,247,500 2,500 1,250,000 5.00%
11/15/99 91.02% 1,247.5 1,135,475 1,247,500 2,500 1,250,000 5.00%
02/15/00 89.56% 1,247.5 1,117,261 1,247,500 2,500 1,250,000 5.00%
05/15/00 88.19% 1,247.5 1,100,170 1,247,500 2,500 1,250,000 5.00%
---------- ---------- ------- -----------
$9,305,227 $9,980,000 $20,000 $10,000,000
========== ========== ======= ===========
</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 (assuming no exercise of the Underwriters' over-allotment option),
the portion of each year's distributions that should constitute a return of
capital for U.S. federal income tax purposes and the amount of original issue
discount that should accrue on such Treasury Securities with respect to a holder
who acquires its Trust Securities at the issue price from the Underwriters
pursuant to the original offering. 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>
1997.................
1998.................
1999.................
2000.................
</TABLE>
24
<PAGE> 26
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.
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
25
<PAGE> 27
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.
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
26
<PAGE> 28
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 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
27
<PAGE> 29
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 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,
28
<PAGE> 30
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 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
29
<PAGE> 31
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.
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.
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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,
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
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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.
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.
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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.
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 shares of the 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".
Pursuant to the terms of the Forward Contract, Salomon Smith Barney will
pay quarterly Yield Enhancement Payments to the Trust in the amount of
approximately $ , accruing from the date of issuance of the TARGETS,
computed on the basis of a 360-day year of twelve 30-day months and, for any
period less than a full calendar month, the number of days elapsed in such
month. The Yield Enhancement Payments, together with distributions received by
the Trust with respect to the Treasury Securities, will be used by the Trust to
pay the Periodic Distributions to the holders of the TARGETS. See "Description
of TARGETS -- Periodic Distributions".
The Forward Contract is a contract in the form of an Indenture between the
Company and a trustee for the benefit of the holder of the interests in the
Forward Contract. The Forward Contract is a prepaid "cash-settled" forward
contract, whereby the obligor settles its obligation in cash rather than in
securities. The Indenture will provide that Salomon Smith Barney 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
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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 Treasury Proceeds that are required to be
distributed in respect of the TARGETS, to the extent that the Trust has funds
available therefor, (iv) any Periodic Distributions that are required to be made
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 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 either 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 or
Salomon Smith Barney does not pay the Yield Enhancement Payments to the Trust
with respect to the Forward Contract then, in either event, 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.
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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 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
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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) and the Yield Enhancement Payments to the
Trust. The Trust intends to report holders' income to the Internal Revenue
Service in accordance with this treatment. Under this 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. It is
currently anticipated that approximately 10% to 15% and 85% to 90% of the net
proceeds of the offering 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
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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.
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.
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 (except with respect to the Yield Enhancement Payments, as
described below).
TREATMENT OF THE YIELD ENHANCEMENT PAYMENTS
There is no authority for the treatment of the Yield Enhancement Payments
under current law, but Salomon Smith Barney intends to file information returns
on the basis that the Yield Enhancement Payments are ordinary income to holders
when received or accrued in accordance with their respective methods of tax
accounting. The treatment of amounts received in respect of accrued but unpaid
Yield Enhancement Payments upon a sale or other disposition of some or all of a
holder's TARGETS is also unclear under current law. Holders should consult their
tax advisors concerning the treatment of the Yield Enhancement Payments.
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 (i) accrued interest with respect to the
holder's pro rata portion of the Treasury Securities includible in gross income
as ordinary income and (ii) possibly any accrued but unpaid Yield Enhancement
Payments, as described above). Any
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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 (except to the
extent such cash is attributable the Yield Enhancement Payments, as described
above). 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".
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 (other than Yield Enhancement Payments) 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); (b)
Yield
38
<PAGE> 40
Enhancement Payments should be subject to U.S. withholding tax at a rate of 30
percent (or a lower rate under an applicable income tax treaty); and (c) 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.
39
<PAGE> 41
UNDERWRITING
Under the terms and subject to the conditions of the Underwriting Agreement
dated , 1998 (the "Underwriting Agreement"), each Underwriter
named below (the "Underwriters") has severally agreed to purchase from TARGETS
Trust I, and TARGETS Trust I has agreed to sell to such Underwriters, the number
of TARGETS set forth opposite the name of such Underwriters below.
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF TARGETS
------------ -----------------
<S> <C>
Smith Barney Inc. ................................. $
------------
Total.................................... $
============
</TABLE>
The Underwriters are obligated to take and pay for the total number of
TARGETS offered hereby if any such TARGETS are purchased. In the event of
default by any Underwriter, the Underwriting Agreement provides that, in certain
circumstances, purchase commitments of the non-defaulting Underwriters may be
increased or the Underwriting Agreement may be terminated.
TARGETS Trust I has granted to the Underwriters an option, exercisable for
30 days from the date of this Prospectus, to purchase up to an aggregate of
additional TARGETS at the initial public offering price set
forth on the cover page of this Prospectus. Salomon Smith Barney will pay
Underwriters' Compensation in the amounts per TARGETS set forth on the cover
page hereof with respect to such additional TARGETS. The Underwriters may
exercise such option to purchase additional TARGETS solely for the purpose of
covering over-allotments, if any, incurred in connection with the sale of the
TARGETS offered hereby. To the extent such option is exercised, each Underwriter
will become obligated, subject to certain conditions, to purchase approximately
the same percentage of such additional TARGETS as the number of TARGETS set
forth opposite such Underwriter's name in the preceding table bears to the total
number of TARGETS in such table.
The Underwriting Agreement provides that TARGETS Trust I and Salomon Smith
Barney will indemnify the several Underwriters 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 such Underwriters may be required to make in respect thereof and will
reimburse each of the Underwriters 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 Underwriters $ per TARGETS for the accounts of the
several Underwriters.
The Underwriters propose to offer the TARGETS, in part, directly to the
public at the price to public set forth on the cover page of this Prospectus,
and to certain dealers at a price that represents a concession not in excess of
$ per TARGETS. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $ per TARGETS to certain brokers
and dealers. After the TARGETS are released for sale to the public, the offering
price and other selling terms may from time to time be varied by the
Underwriters.
In connection with the offering of TARGETS, certain Underwriters 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
40
<PAGE> 42
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 Underwriters also may create a short position for their respective
accounts 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. The Underwriters may also cover all or a
portion of such short position, up to a specified aggregate principal amount or
number of TARGETS, by exercising the Underwriters' over-allotment option. In
addition, the managing Underwriter, on behalf of the Underwriters, may impose
"penalty bids" under contractual arrangements between the Underwriters whereby
it may reclaim from an Underwriter (or dealer participating in this offering)
for the account of the Underwriters, the selling concession with respect to
TARGETS that are distributed in the offering but subsequently purchased for the
account of the Underwriters in the open market. 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.
Application will be made to list the TARGETS on the CBOE, subject to
official notice of issuance. Trading of the TARGETS on the CBOE is expected to
commence within a 30-day period after the date of this Prospectus.
The participation of any affiliate of Salomon Smith Barney in the offer and
sale of TARGETS will comply with the requirements of Rule 2720 of the Conduct
Rules of the National Association of Securities Dealers, Inc. regarding the
underwriting by an affiliate of securities of its parent. 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 or any Underwriter that
is an affiliate or other affiliates of Salomon Smith Barney, including the SSBH
Subsidiaries, 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 Underwriters 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, 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, included therein 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.
41
<PAGE> 43
======================================================
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 ANY
OF THE UNDERWRITERS. 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........................... 40
Legal Matters.......................... 41
Experts................................ 41
</TABLE>
======================================================
======================================================
TARGETS TRUST I
TARGETED GROWTH
ENHANCED
TERMS SECURITIES
("TARGETS(SM)")
WITH RESPECT TO THE COMMON STOCK
OF CISCO SYSTEMS, INC.
DUE ON
FULLY AND UNCONDITIONALLY
GUARANTEED TO THE
EXTENT SET
FORTH HEREIN BY
SALOMON SMITH BARNEY
HOLDINGS INC.
------------
PROSPECTUS
, 1998
------------
SALOMON SMITH BARNEY
======================================================
<PAGE> 44
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
Commission Registration Fee................................. $ 36,875
Accounting Fees............................................. 30,000
Trustees' Fees and Expenses................................. 35,000
Blue Sky Fees and Expenses.................................. 5,000
Printing and Engraving Fees................................. 100,000
NASD Fee.................................................... 30,500
Legal Fees and Expenses..................................... 300,000
Miscellaneous............................................... 2,625
--------
Total............................................. $540,000
========
</TABLE>
- ---------------
* To be completed by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Subsection (a) of Section 145 of the General Corporation Law of the State
of Delaware (the "DGCL") empowers a corporation to indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.
Subsection (b) of Section 145 of the DGCL empowers a corporation to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in right of the
corporation to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth above, against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation, except that no indemnification may be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that the
Court of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
Section 145 of the DGCL further provides that to the extent a director or
officer of a corporation has been successful on the merits or otherwise in the
defense of any action, suit or proceeding referred to in subsections (a) and (b)
of Section 145, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith; that indemnification provided for by
Section 145 shall not be deemed exclusive of any other rights to which the
indemnified party may be entitled; that indemnification provided for by Section
145 shall, unless otherwise provided when authorized and ratified, continue as
to such person who has ceased to be a director, officer, employee or agent and
shall inure to the benefit of such person's heirs, executors and administrators;
and empowers the corporation to purchase and maintain insurance on behalf of a
director or officer of the corporation against any liability asserted against
him and incurred by him in any such capacity, or arising out
II-1
<PAGE> 45
of his status as such, whether or not the corporation would have the power to
indemnify him against such liabilities under Section 145.
Section 102(b)(7) of the DGCL provides that a certificate of incorporation
may contain a provision eliminating or limiting the personal liability of a
director to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director provided that such provision shall not eliminate
or limit the liability of a director (i) for any breach of the director's duty
of loyalty to the corporation or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) under Section 174 of the DGCL, or (iv) for any transaction from
which the director derived an improper personal benefit. Article Eight of
Salomon Smith Barney's By-Laws provides for indemnification of directors and
officers of Salomon Smith Barney against certain liabilities incurred as a
result of their duties as such and Article Fifth of Salomon Smith Barney's
Amended and Restated Certificate of Incorporation provides that no directors of
Salomon Smith Barney shall be liable for monetary damages for breach of
fiduciary duty as a director.
The Declaration of the Trust provides that no Institutional Trustee or any
of its affiliates, Delaware Trustee or any of its affiliates, or officer,
director, shareholder, member, partner, employee, representative custodian,
nominee or agent of the Institutional Trustee or the Delaware Trustee (each a
"Fiduciary Indemnified Person"), and no Regular Trustee, affiliate of any
Regular Trustee, or any officer, director, shareholder, member, partner,
employee, representative or agent of any Regular Trustee, or any employee or
agent of the Trust or its affiliates (each a "Company Indemnified Person") shall
be liable, responsible or accountable in damages or otherwise to the Trust, any
Affiliate of the Trust or any holder of securities issued by the Trust, or to
any officer, director, shareholder, partner, member, representative, employee or
agent of the Trust or its Affiliates for any loss, damage or claim incurred by
reason of any act or omission performed or omitted by such Fiduciary Indemnified
Person or Company Indemnified Person in good faith on behalf of the Trust and,
in a manner such Fiduciary Indemnified Person or Company Indemnified Person
reasonably believed to be within the scope of the authority conferred on such
Fiduciary Indemnified Person or Company Indemnified Person by such Declaration
or by law, except that a Fiduciary Indemnified Person or Company Indemnified
Person shall be liable for any loss, damage, or claim incurred by reason of such
Fiduciary Indemnified Person's or Company Indemnified Person's gross negligence
(or in the case of a Fiduciary Indemnified Person, negligence) or willful
misconduct with respect to such acts or omissions. The Declaration of the Trust
also provides that, to the full extent permitted by law, Salomon Smith Barney
shall indemnify any Company Indemnified Person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in right of the Trust) by reason of the fact that he
is or was a Company Indemnified Person against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Trust, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
Declaration of the Trust also provides that to the full extent permitted by law,
Salomon Smith Barney shall indemnify any Company Indemnified Person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in right of the Trust to procure a judgment in
its favor by reason of the fact that he is or was a Company Indemnified Person
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection with the defense or settlement of such action or suit if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Trust and except that no indemnification
shall be made in respect of any claim, issue or matter as to which such Company
Indemnified Person shall have been adjudged to be liable to the Trust unless and
only to the extent that the Court of Chancery of Delaware or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which such Court of Chancery or such other court shall deem proper. The
Declaration of the Trust further provides that expenses (including attorneys'
fees) incurred by a Company Indemnified Person in defending a civil, criminal,
administrative or investigative action, suit or proceeding referred to in the
immediately preceding two sentences shall be paid by Salomon Smith Barney in
advance of the final disposition of such action, suit or
II-2
<PAGE> 46
proceeding upon receipt of an undertaking by or on behalf of such Company
Indemnified Person to repay such amount if it shall ultimately be determined
that he is not entitled to be indemnified by Salomon Smith Barney as authorized
in the Declaration. The directors and officers of Salomon Smith Barney and the
Regular Trustee are covered by insurance policies indemnifying them against
certain liabilities, including certain liabilities arising under the Securities
Act, which might be incurred by them in such capacities and against which they
cannot be indemnified by Salomon Smith Barney or the Trust. Any agents, dealers
or underwriters who execute any of the agreements filed as Exhibit 1(a) to this
Registration Statement will agree to indemnify Salomon Smith Barney's directors
and their officers and the Trustees who signed the Registration Statement
against certain liabilities that may arise under the Securities Act with respect
to information furnished to Salomon Smith Barney or the Trust by or on behalf of
such indemnifying party.
For the undertaking with respect to indemnification, see Item 17 herein.
See the Form of proposed Underwriting Agreement, filed or to be filed as
Exhibit 1, for certain indemnification provisions.
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NO.
-----------
<S> <C>
**1 -- Form of Underwriting Agreement for the offering of the
TARGETS being registered under this Registration Statement.
*4(a) -- Certificate of Trust of TARGETS Trust I.
*4(b) -- Form of Amended and Restated Declaration of Trust of TARGETS
Trust I.
*4(c) -- Form of TARGETS Guarantee Agreement between Salomon Smith
Barney and The Chase Manhattan Bank, as Guarantee Trustee.
*4(d) -- Indenture between Salomon Smith Barney and The Chase
Manhattan Bank, as Trustee.
*4(e) -- Form of TARGETS (included in Exhibit 4(b)).
*4(f) -- Form of Common Securities (included in Exhibit 4(b)).
*4(g) -- Form of Forward Contract (included in Exhibit 4(d)).
*5 -- Opinion of counsel as to certain corporate law matters.
*8 -- Opinion of counsel as to certain federal income tax matters.
12 -- Computation of Ratio of Earnings to Combined Fixed Charges
and Preferred Stock Dividends of Salomon Smith Barney
(incorporated by reference to Exhibit 12.01 to Salomon Smith
Barney's Annual Report on Form 10-K for the year ended
December 31, 1997).
**23(a) -- Consent of Coopers and Lybrand L.L.P., independent certified
public accountants.
**23(b) -- Consent of Arthur Andersen LLP, independent public
accountants.
*23(c) -- Consent of counsel (to be contained in Exhibits No. 5 and
8).
*24 -- Powers of Attorney.
*25(a) -- Form T-1, Statement of Eligibility Under the Trust Indenture
Act of 1939, as amended, of The Chase Manhattan Bank, under
the Declaration of Trust.
*25(b) -- Form T-1, Statement of Eligibility Under the Trust Indenture
Act of 1939, as amended, of The Chase Manhattan Bank, under
the TARGETS Guarantee Agreement.
*25(c) -- Form T-1, Statement of Eligibility Under the Trust Indenture
Act of 1939, as amended, of The Chase Manhattan Bank, under
the Indenture (contained in Exhibit 4(d)).
</TABLE>
- ---------------
* Filed previously.
** Filed herewith.
II-3
<PAGE> 47
ITEM 17. UNDERTAKINGS.
Each of Salomon Smith Barney and TARGETS Trust I hereby undertakes:
(1) For purposes of determining any liability under the Securities Act
of 1933, as amended, the information omitted from the form of prospectus
filed as part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrants pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this Registration Statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, as amended, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at
the time shall be deemed to be the initial bona fide offering thereof.
(3) For purposes of determining any liability under the Securities Act
of 1933, each filing of Salomon Smith Barney's annual report pursuant to
Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as
amended, that is incorporated by reference in this registration statement
shall be deemed to be a new registration statement relating to the
securities offered herein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(4) Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended may be permitted to directors, officers
and controlling persons of a registrant pursuant to the foregoing
provisions or otherwise, the registrants have been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by a registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted against a
registrant by such director, officer or controlling person in connection
with the securities being registered, the registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such issue.
II-4
<PAGE> 48
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, TARGETS Trust I
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement or Amendment thereto to be signed on its behalf by the undersigned,
thereunto duly authorized, on the 7th day of May, 1998.
TARGETS TRUST I
By: /s/ MICHAEL J. DAY
------------------------------------
Name: Michael J. Day
Title: Regular Trustee
By: /s/ CHARLES W. SCHARF
------------------------------------
Name: Charles W. Scharf
Title: Regular Trustee
II-5
<PAGE> 49
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, SALOMON SMITH
BARNEY HOLDINGS INC. CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT
MEETS ALL OF THE REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS
REGISTRATION STATEMENT OR AMENDMENT THERETO TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, ON THE 7TH DAY OF MAY, 1998.
SALOMON SMITH BARNEY HOLDINGS INC.
By: /s/ CHARLES W. SCHARF
------------------------------------
Name: Charles W. Scharf
Title: Chief Financial Officer,
and Principal Financial
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT OR AMENDMENT THERETO HAS BEEN SIGNED BELOW BY THE
FOLLOWING PERSONS IN THE CAPACITIES WITH SALOMON SMITH BARNEY HOLDINGS INC. ON
THE 7TH DAY OF MAY, 1998.
<TABLE>
<CAPTION>
SIGNATURES TITLE
---------- -----
<C> <S>
* Co-Chairman, Co-Chief Executive Officer,
- --------------------------------------------------- Director and Principal Executive Officer
(JAMES DIMON)
* Co-Chairman, Co-Chief Executive Officer,
- --------------------------------------------------- Director and Principal Executive Officer
(DERYCK C. MAUGHAN)
/s/ CHARLES W. SCHARF Chief Financial Officer and Principal Financial
- --------------------------------------------------- Officer
(CHARLES W. SCHARF)
/s/ MICHAEL J. DAY Controller and Principal Accounting Officer
- ---------------------------------------------------
(MICHAEL J. DAY)
* Director
- ---------------------------------------------------
(STEVEN D. BLACK)
* Director
- ---------------------------------------------------
(JAMES BOSHART III)
* Director
- ---------------------------------------------------
(THOMAS G. MAHERAS)
* Director
- ---------------------------------------------------
(JAY MANDELBAUM)
* Director
- ---------------------------------------------------
(EDUARDO G. MESTRE)
* Director
- ---------------------------------------------------
(SHIGERU MYOJIN)
</TABLE>
- ---------------
* The undersigned, by signing his name hereto, does hereby sign this
registration statement or amendment thereto on behalf of each of the above
indicated directors and officers of Salomon Smith Barney Holdings Inc.
pursuant to powers of attorney executed on behalf of each such director and
officer.
By: /s/ CHARLES W. SCHARF
----------------------------------
Attorney-in-Fact
II-6
<PAGE> 50
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
----------- ----------- ----
<S> <C> <C>
**1 -- Form of Underwriting Agreement for the offering of the
TARGETS being registered under this Registration
Statement...................................................
*4(a) -- Certificate of Trust of TARGETS Trust I.....................
*4(b) -- Form of Amended and Restated Declaration of Trust of TARGETS
Trust I.....................................................
*4(c) -- Form of TARGETS Guarantee Agreement between Salomon Smith
Barney and The Chase Manhattan Bank, as Guarantee Trustee...
*4(d) -- Indenture between Salomon Smith Barney and The Chase
Manhattan Bank, as Trustee..................................
*4(e) -- Form of TARGETS (included in Exhibit 4(b))..................
*4(f) -- Form of Common Securities (included in Exhibit 4(b))........
*4(g) -- Form of Forward Contract (included in Exhibit 4(d)).........
*5 -- Opinion of counsel as to certain corporate law matters......
*8 -- Opinion of counsel as to certain federal income tax
matters.....................................................
12 -- Computation of Ratio of Earnings to Combined Fixed Charges
and Preferred Stock Dividends of Salomon Smith Barney
(incorporated by reference to Exhibit 12.01 to Salomon Smith
Barney's Annual Report on Form 10-K for the year ended
December 31, 1997)..........................................
**23(a) -- Consent of Coopers and Lybrand L.L.P., independent certified
public accountants..........................................
**23(b) -- Consent of Arthur Andersen LLP, independent public
accountants.................................................
*23(c) -- Consent of counsel (to be contained in Exhibits No. 5 and
8)..........................................................
*24 -- Powers of Attorney..........................................
*25(a) -- Form T-1, Statement of Eligibility Under the Trust Indenture
Act of 1939, as amended, of The Chase Manhattan Bank, under
the Declaration of Trust....................................
*25(b) -- Form T-1, Statement of Eligibility Under the Trust Indenture
Act of 1939, as amended, of The Chase Manhattan Bank, under
the TARGETS Guarantee Agreement.............................
*25(c) -- Form T-1, Statement of Eligibility Under the Trust Indenture
Act of 1939, as amended, of The Chase Manhattan Bank, under
the Indenture (contained in Exhibit 4(d))...................
</TABLE>
- ---------------
* Filed previously.
** Filed herewith.
<PAGE> 1
DRAFT
Exhibit 1
[__________] TARGETS
TARGETS TRUST I
Targeted Growth Enhanced Terms Securities (TARGETS(SM))
With Respect to the Common Stock of
[__________] Corporation
Due on [__________ __, 200_]
fully and unconditionally guaranteed to the extent set forth
in the Prospectus dated [__________ __], 1998 by
SALOMON SMITH BARNEY HOLDINGS INC.
UNDERWRITING AGREEMENT
[__________ ____], 1998
SMITH BARNEY INC.
[INSERT NAMES OF CO-MANAGERS, IF ANY]
As Representatives of the Several Underwriters
c/o SMITH BARNEY INC.
388 Greenwich Street
New York, New York 10013
Ladies and Gentlemen:
TARGETS Trust I (the "Trust"), a statutory business trust organized under
the Business Trust Act (the "Delaware Act") of the State of Delaware (Chapter
38, Title 12, of the Delaware Business Code, 12 Del. C. Section 3801 et seq.),
proposes, upon the terms and conditions set forth herein, to issue and sell
__________ of its Targeted Growth Enhanced Terms Securities (TARGETS(SM)) (the
"Firm TARGETS") to the several Underwriters named in Schedule I hereto (the
"Underwriters") for whom you (the "Representatives") are acting as
representatives. The Trust also proposes, upon the terms and conditions set
forth herein and solely for the purpose of covering over-allotments, to issue
and sell to the Underwriters up to an additional __________ of its Targeted
Growth Enhanced Terms Securities (TARGETS(SM)) (the "Option TARGETS"). The Firm
TARGETS and the Option TARGETS are hereinafter collectively referred to as the
"TARGETS."
The TARGETS are to be issued pursuant to the terms of a declaration of
trust, dated as of January 30, 1998, as amended and restated as of [______ __,
1998] (the "Declaration"), among Salomon Smith Barney Holdings Inc., a Delaware
corporation (the "Company" and, together with the Trust, the "Offerors"), as
sponsor, the trustees named therein (the "TARGETS Trustees") and the holders
from time to time of undivided beneficial interests in the assets of the Trust.
The Declaration is qualified as an indenture under the Trust Indenture Act of
1939, as amended (the "Trust Indenture Act").
The TARGETS represent undivided beneficial ownership interests in the
assets of the Trust. The assets of the Trust will consist solely of (i) a
forward contract with
<PAGE> 2
respect to the Common Stock of [________________ Corporation] purchased by the
Trust from the Company (the "Forward Contract") and (ii) a portfolio of stripped
U.S. treasury securities (the "Treasury Securities"). The Company and The Chase
Manhattan Bank, a New York banking association, as Guarantee Trustee (the
"Guarantee Trustee"), are to enter into the TARGETS Guarantee Agreement dated as
of [________ __], 1998 (the "Guarantee Agreement") with respect to the TARGETS.
The Guarantee Agreement, when taken together with the Forward Contract and the
Company's obligation to pay all fees and expenses of the Trust, constitutes a
full and unconditional guarantee by the Company of all payments to be made to
the holders of the TARGETS. The TARGETS, the Guarantee and the Forward Contract
are hereinafter collectively referred to as the "Securities."
The Offerors wish to confirm as follows their agreement with you and the
other several Underwriters on whose behalf you are acting, in connection with
the several purchases of the TARGETS by the Underwriters.
1. Representations and Warranties. The Offerors represent and warrant to,
and agree with, each of you as set forth below in this Section 1.
(a) A registration statement on Form S-3 (File No. 333-45529), including a
prospectus, relating to the Securities has been prepared by the Company in
conformity in all material respects with the requirements of the Securities Act
of 1933, as amended (the "Act"), the Trust Indenture Act of 1939, as amended
(the "Trust Indenture Act"), and the rules and regulations (the "Rules and
Regulations") of the Securities and Exchange Commission (the "Commission")
thereunder, and has been filed with the Commission and has become effective.
Such registration statement and prospectus may have been amended or supplemented
from time to time prior to the date of this Agreement; any such amendment to the
Registration Statement was so prepared and filed and any such amendment has
become effective. Copies of such registration statement and prospectus, any such
amendment or supplement and all documents incorporated by reference therein
which were filed with the Commission on or prior to the date hereof have been
delivered to you. Such registration statement and prospectus, as amended or
supplemented to the date hereof, are hereinafter collectively referred to as the
"Registration Statement" and the "Prospectus," respectively. Any references
herein to the Registration Statement or the Prospectus shall be deemed to refer
to and include the documents incorporated by reference therein which were filed
with the Commission on or prior to the date hereof, and any reference to the
terms "amend," "amendment" or "supplement" with respect to the Registration
Statement or the Prospectus shall be deemed to refer to and include the filing
of any document with the Commission deemed to be incorporated by reference
therein after the date hereof.
(b) The Registration Statement, at the time it became effective, any
post-effective amendment thereto, at the time it became effective, the
Registration Statement and the Prospectus, as of the date hereof and at the
Closing Date (as hereinafter defined), and any amendment or supplement thereto,
conformed or will conform in all material respects to the requirements of the
Act, the Trust Indenture Act and the Rules and Regulations; and no such document
included or will include an untrue statement of a material fact or omitted or
will omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading; except that the foregoing
2
<PAGE> 3
shall not apply to (i) statements or omissions from any such document in
reliance upon, and in conformity with, written information furnished to the
Company by or on behalf of any Underwriter through you, specifically for use in
the preparation thereof or (ii) that part of the Registration Statement which
shall constitute Statements of Eligibility (Forms T-1) under the Trust Indenture
Act of each of the Institutional Trustee, the Guarantee Trustee and the Delaware
Trustee.
(c) The documents incorporated by reference in the Registration Statement
or Prospectus, when they became effective or were filed with the Commission, as
the case may be, under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), conformed and any documents so filed and incorporated by
reference after the date hereof will, when they are filed with the Commission,
conform, in all material respects to the requirements of the Act and the
Exchange Act, as applicable, and the rules and regulations of the Commission
thereunder.
2. Purchase and Sale. (a) Subject to the terms and conditions and in
reliance upon the representations and warranties herein set forth, the Trust
agrees to sell to each Underwriter, and each Underwriter agrees, severally and
not jointly, to purchase from the Trust, at a purchase price of $__ per Firm
TARGET, plus accrued distributions, if any, from [________ __], 1998, the number
of Firm TARGETS set forth opposite the name of such Underwriter in Schedule I
hereto (or such number of Firm TARGETS increased as set forth in Section 8
hereof).
The Company agrees that, in view of the fact that the proceeds of the sale
of the TARGETS will be invested in the Forward Contract, it shall pay to the
Underwriters as compensation ("Underwriters' Compensation") for their arranging
the investment of the proceeds therein, on the Closing Date (as hereinafter
defined), $.____ per Firm TARGET.
(b) Subject to the terms and conditions and in reliance upon the
representations and warranties herein set forth, the Company hereby grants an
option to the several Underwriters to purchase, severally and not jointly, up to
[ ] Option TARGETS at the same purchase price per Option TARGET as the
Underwriters shall pay for the Firm TARGETS. Said option may be exercised only
to cover over-allotments in the sale of the Firm TARGETS by the Underwriters.
Said option may be exercised in whole or in part at any time (but not more than
once) on or before the 30th day after the date of the Prospectus upon written or
telegraphic notice by the Representatives to the Company setting forth the
number of Option TARGETS as to which the several Underwriters are exercising the
option and the settlement date (the "Option Closing Date"). Delivery of the
Option TARGETS by the Company, and payment therefor to the Company, shall be
made as provided in Section 3 hereof. The number of the Option TARGETS to be
purchased by each Underwriter shall be the same percentage of the total number
of the Option TARGETS to be purchased by the several Underwriters as such
Underwriter is purchasing of the Firm TARGETS, subject to such adjustments as
you in your absolute discretion shall make to eliminate any fractional TARGETS.
The Company agrees that it will pay Underwriters' Compensation on the Option
Closing Date in the amounts per Firm TARGET set forth in the immediately
preceding paragraph with respect to any Option TARGET purchased by the
Underwriters.
3
<PAGE> 4
3. Delivery and Payment. Delivery of and payment for the Firm TARGETS and
the Option TARGETS (if the option provided for in Section 2(b) hereof shall have
been exercised on or before the Business Day prior to the Closing Date (as
hereinafter defined) shall be made at 10:00 AM, New York City time, on ________
__, 1998, or at such time on such later date not more than three Business Days
after the foregoing date as the Representatives shall designate, which date and
time may be postponed by agreement between the Representatives and the Company
or as provided in Section 9 hereof (such date and time of delivery and payment
for the Firm TARGETS being herein referred to as the "Closing Date"). Delivery
of the TARGETS shall be made to the Representatives for the respective accounts
of the several Underwriters against payment by the several Underwriters through
the Representatives of the purchase price thereof to or upon the order of the
Company by wire transfer payable in same-day funds to an account specified by
the Company. Delivery of the TARGETS shall be made through the facilities of The
Depository Trust Company unless the Representatives shall otherwise instruct.
If the option provided for in Section 2(b) hereof is exercised after the
Business Day prior to the Closing Date, the Company will deliver the Option
TARGETS (at the expense of the Company) to the Representatives on the date
specified by the Representatives (which shall be within three Business Days
after exercise of said option) for the respective accounts of the several
Underwriters, against payment by the several Underwriters through the
Representatives of the purchase price thereof to or upon the order of the
Company by wire transfer payable in same-day funds to an account specified by
the Company. If settlement for the Option TARGETS occurs after the Closing Date,
the Company will deliver to the Representatives on the settlement date for the
Option TARGETS, and the obligation of the Underwriters to purchase the Option
TARGETS shall be conditioned upon receipt of, supplemental opinions,
certificates and letters confirming as of such date the opinions, certificates
and letters delivered on the Closing Date pursuant to Section 5 hereof.
4. Agreements of the Offerors. The Offerors jointly and severally agree
with the several Underwriters as follows:
(a) The Offerors will cause the Prospectus to be filed pursuant to Rule
424 under the Act and will notify you promptly of such filing. During the period
in which a prospectus relating to the TARGETS is required to be delivered under
the Act, the Offerors will notify you promptly of the time when any amendment to
the Registration Statement has become effective or any subsequent supplement to
the Prospectus has been filed and of any request by the Commission for any
amendment of or supplement to the Registration Statement or the Prospectus or
for additional information; the Offerors will prepare and file with the
Commission, promptly upon your request, any amendments or supplements to the
Registration Statement or Prospectus, which, in your opinion, may be necessary
or advisable in connection with the distribution of the TARGETS by the
Underwriters; the Offerors will file no amendment or supplement to the
Registration Statement or the Prospectus (other than any document required to be
filed under the Exchange Act which upon filing is deemed to be incorporated by
reference therein) to which you shall reasonably object by notice to the Company
after having been furnished a copy a reasonable time prior to the filing; and
the Offerors will furnish to you at or prior to the filing thereof a copy of any
such prospectus supplement
4
<PAGE> 5
or any document which upon filing is deemed to be incorporated by reference in
the Registration Statement or Prospectus.
(b) The Offerors will advise you, promptly after either of them shall
receive notice or obtain knowledge thereof, of the issuance by the Commission of
any stop order suspending the effectiveness of the Registration Statement, of
the suspension of the qualification of the TARGETS for offering or sale in any
jurisdiction, or of the initiation or threatening of any proceeding for any such
purpose; and they will promptly use their respective best efforts to prevent the
issuance of any stop order or to obtain its withdrawal if such a stop order
should be issued.
(c) Within the time during which a prospectus relating to the TARGETS is
required to be delivered under the Act, the Offerors will comply with all
requirements imposed upon the Offerors by the Act, as now and hereafter amended,
and by the Rules and Regulations, as from time to time in force, so far as
necessary to permit the continuance of sales of or dealings in the TARGETS as
contemplated by the provisions hereof and the Prospectus. If during such period
any event occurs as a result of which the Prospectus as then amended or
supplemented would include an untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in the light of
the circumstances then existing, not misleading, or if during such period it is
necessary to amend or supplement the Registration Statement or the Prospectus to
comply with the Act, the Offerors will promptly notify you and you will amend or
supplement the Registration Statement or the Prospectus (at the expense of the
Offerors) so as to correct such statement or omission or effect such compliance.
(d) The Offerors will use their respective best efforts to qualify the
TARGETS for sale under the securities laws of such jurisdictions as you
reasonably designate, to maintain such qualifications in effect so long as
required for the distribution of the TARGETS and, if requested by the
Underwriters, to arrange for the determination of the legality of the TARGETS
for purchase by institutional investors, except that neither the Company nor the
Trust shall be required in connection therewith to qualify to do business in any
jurisdiction where it is not now so qualified or to take any action which would
subject it to general or unlimited service of process in any jurisdiction where
it is not now so subject.
(e) The Offerors will furnish to the Underwriters copies of the
Registration Statement and the Prospectus (including all documents incorporated
by reference therein), and all amendments and supplements to the Registration
Statement or the Prospectus which are filed with the Commission during the
period in which a prospectus relating to the TARGETS is required to be delivered
under the Act (including all documents filed with the Commission during such
period which are deemed to be incorporated by reference therein), in each case
in such quantities as you may from time to time reasonably request.
(f) The Company will make generally available to its security holders and
to you as soon as practicable, but in any event not later than 15 months after
the end of the Company's current fiscal quarter, an earnings statement (which
need not be audited) of the Company covering a 12-month period beginning after
the date upon which the
5
<PAGE> 6
Prospectus is filed pursuant to Rule 424 under the Act, which shall satisfy the
provisions of Section 11(a) of the Act.
(g) The Company, whether or not the transactions contemplated hereunder
are consummated or this Agreement is terminated, will pay all expenses incident
to the performance of the Offerors' obligations hereunder, including, without
limiting the generality of the foregoing, all costs, taxes and expenses incident
to the issue and delivery of the Securities, all fees and expenses of the
Offerors' counsel and accountants, and all costs and expenses incident to the
preparing, printing, filing and distributing of all documents relating to the
offering, and will reimburse the Underwriters for any expenses (including fees
and disbursements of counsel) incurred by them in connection with the matters
referred to in Section 4(d) hereof and the preparation of memoranda relating
thereto, for any filing fee of the National Association of Securities Dealers,
Inc. relating to the TARGETS, and for any fees charged by investment rating
agencies for rating the TARGETS. If the sale of TARGETS provided for in this
Agreement is not consummated by reason of any failure, refusal or inability on
the part of the Offerors to perform any agreement on its part to be performed,
or because any other condition of the Underwriters' obligations hereunder
required to be fulfilled by the Offerors is not fulfilled, the Company will
reimburse the Underwriters for all reasonable out-of-pocket disbursements
(including fees and disbursements of counsel) incurred by the Underwriters in
connection with the proposed purchase and sale of the TARGETS.
(h) Each of the Trust and the Company agree, during the period beginning
on the date of this Agreement and continuing to and including the Closing Date,
not to offer, sell, contract to offer, sell or otherwise dispose of any TARGETS
or any other securities (including any backup undertakings for such securities)
of the Company or of the Trust, 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 the Trust or the Company,
without the prior written consent of Smith Barney Inc.
5. Conditions of Underwriters' Obligations. The obligations of the several
Underwriters to purchase and pay for the TARGETS as provided herein shall be
subject to the accuracy, as of the date of this Agreement and the Closing Date
(as if made at the Closing Date), of the representations and warranties of the
Offerors herein, to the performance by the Offerors of their obligations
hereunder, and to the following additional conditions:
(a) No stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceeding for that purpose shall have
been instituted or, to the knowledge of the Company, the Trust or any
Underwriter, threatened by the Commission, and any request of the Commission for
additional information (to be included in the Registration Statement or the
Prospectus or otherwise) shall have been complied with to your satisfaction.
(b) Subsequent to the effective date of this Agreement, there shall not
have occurred (i) any change, or any development involving a prospective change,
in or affecting particularly the business or properties of the Company or its
subsidiaries which, in the judgment of a majority in interest of the
Underwriters, including any
6
<PAGE> 7
Representatives, materially impairs the investment quality of the TARGETS; (ii)
any downgrading in the rating of the TARGETS or the Company's debt securities by
any "nationally recognized statistical rating organization" (as defined for
purposes of Rule 436(g) under the Act); (iii) any suspension or limitation of
trading in securities generally on the New York Stock Exchange, or any setting
of minimum prices for trading on such exchange, or any suspension of trading of
any securities of the Company on any exchange or in the over-the-counter market;
(iv) any banking moratorium declared by Federal or New York authorities; or (v)
any outbreak or escalation of major hostilities in which the United States is
involved, any declaration of war by Congress or any other substantial national
or international calamity or emergency if, in the judgment of a majority in
interest of the Underwriters, including any Representatives, the effect of any
such outbreak, escalation, declaration, calamity or emergency makes it
impractical or inadvisable to proceed with completion of the sale of and payment
for the TARGETS.
(c) You shall have received an opinion, dated the Closing Date, of
Skadden, Arps, Slate, Meagher & Flom LLP, special counsel to the Offerors,
substantially in the form attached hereto as Exhibit A.
(d) You shall have received an opinion, dated the Closing Date, of Robert
H. Mundheim, Secretary and General Counsel of the Company, substantially in the
form attached hereto as Exhibit B.
(e) You shall have received an opinion, dated the Closing Date, of
Skadden, Arps, Slate, Meagher & Flom LLP, special tax counsel to the Company and
the Trust, substantially in the form attached hereto as Exhibit C.
(f) You shall have received an opinion, dated the Closing Date, of Thacher
Profitt & Wood, counsel to Chase, substantially in the form attached hereto as
Exhibit D.
(g) You shall have received from Cleary, Gottlieb, Steen & Hamilton,
counsel for the Underwriters, such opinion or opinions, dated the Closing Date,
with respect to the issuance and sale of the Securities, the Registration
Statement, the Prospectus and other related matters as you may reasonably
require, and the Trust and the Company shall have furnished to such counsel such
documents as they reasonably request for the purpose of enabling them to pass
upon such matters.
(h) The Company and the Trust shall each have furnished to you a
certificate, dated the Closing Date, and, in the case of the Company, signed by
either Co-Chairman of the Board, any Vice Chairman, the Chief Financial Officer,
the Treasurer, the Deputy Treasurer or any Vice President and by the Controller
or principal financial or accounting officer of the Company, and, in the case of
the Trust, signed by one of the Regular Trustees, to the effect that each
signatory of such certificate has carefully examined the Registration Statement,
as amended as of the date of such certificate, the Prospectus, as amended and
supplemented as of the date of such certificate, and this Agreement and that:
(i) the representations and warranties of the Company or the Trust,
as the case may be, in this Agreement are true and correct on and as of
the Closing Date with the same effect as if made on the Closing Date, and
the Company and
7
<PAGE> 8
the Trust, as the case may be, has complied in all material respects with
all the agreements and satisfied all the conditions on its part to be
performed or satisfied hereunder at or prior to the Closing Date;
(ii) no stop order suspending the effectiveness of the Registration
Statement has been issued, and no proceedings for that purpose have been
instituted or, to their knowledge, threatened;
(iii) the Registration Statement, including any supplements or
amendments thereto, do not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading; the Prospectus,
including any supplements or amendments thereto, does not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not
misleading; and since the effective date of the Registration Statement
there has not occurred any event concerning which information is required
to be contained in an amended or supplemented Prospectus concerning which
such information is not contained therein; and
(iv) there have been no material adverse changes in the general
affairs of the Company and its subsidiaries taken as a whole or the Trust
or in their financial position as shown by information contained in the
Registration Statement and the Prospectus, other than changes disclosed in
or contemplated by the Registration Statement and the Prospectus.
(i) Coopers & Lybrand L.L.P. or another nationally recognized independent
accounting firm, shall have furnished to you a letter or letters, dated the
Closing Date, substantially in the form heretofore approved by you.
(j) The TARGETS shall have been registered under the Exchange Act and
shall have been listed or approved for listing, upon notice of issuance, on the
Chicago Board Options Exchange.
(k) Prior to the Closing Date, the Company shall have furnished to you
such further information, certificates and documents as you may reasonably
request.
The obligations of the Underwriters to purchase any Option TARGETS
hereunder are subject to the satisfaction on and as of any Option Closing Date
of the conditions set forth in this Section 5, except that, if any Option
Closing Date is other than the Closing Date, the certificates, opinions and
letters referred to in this Section 5 shall be dated the Option Closing Date and
shall be revised to reflect the sale of the Option TARGETS.
6. Indemnification and Contribution. (a) Each of the Trust and the Company
will jointly and severally indemnify and hold harmless each Underwriter against
any losses, claims, damages or liabilities, joint or several, to which such
Underwriter may become subject under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon an untrue
8
<PAGE> 9
statement or alleged untrue statement of a material fact contained in the
Registration Statement, the Prospectus, or any amendment or supplement thereto,
or any related preliminary prospectus, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading and
will reimburse each Underwriter for any legal or other expenses reasonably
incurred by it in connection with investigating or defending against such loss,
claim damage, liability or action; provided, however, that neither of the
Offerors shall be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made therein in
reliance upon and in conformity with written information furnished to the
Offerors by or on behalf of any Underwriter through you, specifically for use in
the preparation thereof.
(b) Each Underwriter will indemnify and hold harmless each of the Trust
and the Company against any losses, claims, damages or liabilities to which the
Trust or the Company may become subject, under the Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon an untrue statement or alleged untrue statement
of a material fact contained in the Registration Statement, the Prospectus or
any amendment or supplement thereto, or any related preliminary prospectus, or
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission was made therein in reliance upon and in conformity with
written information furnished to the Offerors by or on behalf of any
Underwriter, through you, specifically for use in the preparation thereof, and
will reimburse the Trust and the Company for any legal or other expenses
reasonably incurred by the Trust and the Company in connection with
investigating or defending against any such loss, claim, damage, liability or
action.
(c) Promptly after receipt by an indemnified party under subsection (a) or
(b) above of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party under such subsection, notify the indemnifying party in writing of the
commencement thereof; but the omission so to notify the indemnifying party shall
not relieve it from any liability which it may have to any indemnified party
otherwise than under such subsection. In case any such action shall be brought
against any indemnified party, and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate in
and, to the extent that it shall wish, jointly with any other indemnifying party
similarly notified, to assume the defense thereof, with counsel satisfactory to
such indemnified party (who shall not, except with the consent of the
indemnified party, be counsel to the indemnified party), and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party shall not be liable to such
indemnified party under such subsection for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation.
(d) If the indemnification provided for in this Section 6 is unavailable
or insufficient to hold harmless an indemnified party under subsection (a) or
(b) above, then each indemnifying party shall contribute to the amount paid or
payable by such
9
<PAGE> 10
indemnified party as a result of the losses, claims, damages or liabilities
referred to in subsection (a) or (b) above, (i) in such proportion as is
appropriate to reflect the relative benefits received by the Offerors on the one
hand and the Underwriters on the other from the offering of the TARGETS, or (ii)
if the allocation provided by clause (i) above is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) above but also the relative fault of the
Offerors on the one hand and the Underwriters on the other in connection with
the statements or omissions which resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations. The
relative benefits received by the Offerors on the one hand and the Underwriters
on the other shall be deemed to be in the same proportion as the total proceeds
from the offering of the TARGETS (before deducting expenses) received by the
Trust bear to the total amount of Underwriters' Compensation received by the
Underwriters, in each case as set forth in the Prospectus. The relative fault
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact or the omission or alleged omission to state a material
fact relates to information supplied by the Offerors or the Underwriters and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such untrue statement or omission. The Offerors and the
Underwriters agree that it would not be just and equitable if contributions
pursuant to this subsection (d) were to be determined by pro rata allocation
(even if the Underwriters were treated as one entity for such purpose) or by any
other method of allocation which does not take account of the equitable
considerations referred to in the first sentence of this subsection (d). The
amount paid by an indemnified party as a result of the losses, claims, damages
or liabilities referred to in the first sentence of this subsection (d) shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any action or
claim (which shall be limited as provided in subsection (c) above if the
indemnifying party has assumed the defense of any such action in accordance with
the provisions thereof) which is the subject of this subsection (d).
Notwithstanding the provisions of this subsection (d), no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the TARGETS underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages which such Underwriter
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this subsection (d) to
contribute shall be several in proportion to their respective underwriting
obligations and not joint. Promptly after receipt by an indemnified party under
this subsection (d) of the notice of the commencement of any action against such
party in respect of which a claim for contribution may be made against an
indemnifying party under this subsection (d), such indemnified party shall
notify the indemnifying party in writing of the commencement thereof if the
notice specified in subsection (c) above has not been given with respect to such
action; but the omission so to notify the indemnifying party shall not relieve
it from any liability which it may have to any indemnified party otherwise than
under this subsection (d).
(e) The obligations of the Offerors under this Section 6 shall be in
addition to any liability which the Offerors may otherwise have and shall
extend, upon the same
10
<PAGE> 11
terms and conditions, to each person, if any, who controls any Underwriter
within the meaning of the Act or the Exchange Act; and the obligations of the
Underwriters under this Section 6 shall be in addition to any liability which
the respective Underwriters may otherwise have and shall extend, upon the same
terms and conditions, to each director of the Company (including any person who,
with his consent, is named in the Registration Statement as about to become a
director of the Company), to each officer of the Company and TARGETS Trustee who
has signed the Registration Statement, and to each person, if any, who controls
the Company or the Trust within the meaning of the Act or the Exchange Act.
7. Representations and Agreements to Survive Delivery. All
representations, warranties and agreements of the Company or the Trust herein or
in certificates delivered pursuant hereto, and the agreements of the several
Underwriters contained in Section 6 hereof, shall remain operative and in full
force and effect regardless of any investigation made by or on behalf of any
Underwriter or any controlling persons, or the Company or any of its officers,
directors or any controlling persons, or the Trust or the TARGETS Trustees and
shall survive delivery of and payment for the TARGETS.
8. Substitution of Underwriters. (a) If any Underwriter or Underwriters
shall fail to take up and pay for the principal amount of TARGETS agreed by such
Underwriter or Underwriters to be purchased hereunder, upon tender of such
TARGETS in accordance with the terms hereof, and the principal amount of TARGETS
not purchased does not aggregate more than 10% of the total principal amount of
the TARGETS, the remaining Underwriters shall be obligated to take up and pay
for (in proportion to the respective underwriting obligations hereunder as set
forth herein except as may otherwise be determined by you) the TARGETS which the
withdrawing or defaulting Underwriters agreed but failed to purchase.
(b) If any Underwriter or Underwriters shall fail to take up and pay for
the number of TARGETS agreed by such Underwriter or Underwriters to be purchased
hereunder, upon tender of such TARGETS in accordance with the terms hereof, and
the number of TARGETS not purchased aggregates more than 10% of the total number
of TARGETS, and arrangements satisfactory to you and the Offerors for the
purchase of such TARGETS by other persons are not made within 36 hours
thereafter, this Agreement shall terminate. In the event of a default by any
Underwriter as set forth in this Section 8, the Closing Date shall be postponed
for such period, not to exceed seven full business days, as you shall determine
in order that the required changes in the Registration Statement and the
Prospectus or in any other documents or arrangements may be effected. In the
event of any such termination, the Offerors shall not be under any liability to
any Underwriter (except to the extent provided in Section 4(g) and Section 6
hereof) nor shall any Underwriter (other than an Underwriter who shall have
failed, otherwise than for some reason permitted under this Agreement, to
purchase the number of TARGETS agreed by such Underwriter to be purchased under
this Agreement) be under any liability to the Offerors (except to the extent
provided in Section 6 hereof). Nothing contained in this Agreement shall relieve
any defaulting Underwriter of its liability, if any, to the Offerors and any
non-defaulting Underwriter for damages occasioned by its default hereunder.
11
<PAGE> 12
9. Termination of Agreement. You shall have the right to terminate this
Agreement by giving notice as hereinafter specified at any time at or prior to
the Closing Date if (i) the Company or the Trust shall have failed, refused or
been unable, at or prior to the Closing Date, to perform, in any material
respect, any agreement on its part to be performed hereunder, or (ii) any other
condition of the Underwriters' obligations is not fulfilled in all material
respects. Any such termination shall be without liability of any party to any
other party except that the provisions of Section 4(g) and Section 6 shall at
all times be effective. If you elect to terminate this Agreement as provided in
this Section, the Company shall be notified promptly by you by telephone,
telecopy or telegram, confirmed by letter.
10. Notices. Except as otherwise provided herein, notice given pursuant to
any provision of this Agreement shall be in writing and shall be delivered (i)
if to the Offerors, to the Company, or to the Trust care of the Company, at the
office of the Company at 388 Greenwich Street, New York, New York 10013,
Attention: Treasurer; or (ii) if to you, as Representatives of the several
Underwriters, care of Smith Barney Inc., 388 Greenwich Street, New York, New
York 10013, Attention: Manager, Investment Banking Division.
11. Parties. This Agreement shall inure to the benefit of and be binding
upon the Company, the Trust and the Underwriters and their respective successors
and the controlling persons, officers and directors referred to in Section 6
hereof, and no other person shall have any right or obligation hereunder.
In all dealings with the Company and the Trust under this Agreement, you
shall act on behalf of each of the several Underwriters, and any action under
this Agreement taken by you will be binding upon all the Underwriters.
12. Applicable Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
13. Counterparts. This Agreement may be executed by one or more of you,
the Company and the Trust in one or more counterparts, each of which shall
constitute an original and all of which taken together shall constitute one and
the same Agreement.
12
<PAGE> 13
Please confirm that the foregoing correctly sets forth the agreement among
the Trust, the Company and the several Underwriters.
Very truly yours,
TARGETS TRUST I
By_________________________________
Michael J. Day
as Regular Trustee
By_________________________________
Charles W. Scharf
as Regular Trustee
SALOMON SMITH BARNEY HOLDINGS INC.
By_________________________________
Name:
Title:
Confirmed as of the date first
above mentioned on behalf of
themselves and the other several
Underwriters named in Schedule
I hereto.
SMITH BARNEY INC.
[INSERT NAMES OF CO-MANAGERS, IF ANY]
As Representatives of the Several Underwriters
By SMITH BARNEY INC.
By_________________________________
Name:
Title:
13
<PAGE> 14
SCHEDULE I
TARGETS TRUST I
_____% Target Growth Enhanced Terms Securities (TARGETS(SM))
<TABLE>
<CAPTION>
Number of
Underwriters Firm TARGETS
- ------------ ------------
<S> <C>
Smith Barney Inc............................................... ________
[INSERT NAMES & ALLOCATIONS OF
OTHER SYNDICATE MEMBERS]....................................... ________
========
TOTAL.......................................................... ________
</TABLE>
14
<PAGE> 1
Exhibit 23a
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Amendment No. 2 to the
Registration Statement on Form S-3 (No. 333-45529) of Salomon Smith Barney
Holdings Inc. and TARGETS Trust I, filed with the Securities and Exchange
Commission on or about May 7, 1998, of our report dated January 26, 1998 on
our audits of the consolidated financial statements and financial statement
schedule of Salomon Smith Barney Holdings Inc. and Subsidiaries as of December
31, 1997 and 1996 and for each of the three years in the period ended December
31, 1997, which report is included in the Form 10-K of Salomon Smith Barney
Holdings Inc. for the year ended December 31, 1997. We also consent to the
reference to our firm under the caption "Experts."
/s/ Coopers & Lybrand L.L.P.
New York, New York
May 7, 1998.
<PAGE> 1
EXHIBIT 23(B)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in the Amendment No. 2 to Form S-3 Registration Statement of Salomon
Smith Barney Holdings Inc. and TARGETS Trust I (the "Registration Statement"),
of our report dated March 13, 1997, relating to the consolidated statement of
financial condition of Salomon Inc and subsidiaries as of December 31, 1996
and 1995, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1996, which report is incorporated by reference or included
in the annual report on Form 10-K of Salomon Smith Barney Holdings Inc. for the
year ended December 31, 1997.
/s/ ARTHUR ANDERSEN LLP
New York, New York
May 7, 1998
