<PAGE> 1
As Filed Pursuant to Rule 424(b)(3)
Registration No. 333-01807
INFORMATION CONTAINED IN THIS PRELIMINARY PROSPECTUS SUPPLEMENT 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 DELIVERY OF A FINAL
PROSPECTUS SUPPLEMENT AND PROSPECTUS. THIS PRELIMINARY PROSPECTUS SUPPLEMENT AND
ACCOMPANYING 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 FEBRUARY 3, 1998
P R O S P E C T U S S U P P L E M E N T
(TO PROSPECTUS DATED DECEMBER 1, 1997)
$
SALOMON SMITH BARNEY HOLDINGS INC.
EQUITY LINKED NOTES
BASED UPON THE
DOW JONES INDUSTRIAL AVERAGE(SM)
DUE , 2005
($15 PRINCIPAL AMOUNT PER NOTE)
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<TABLE>
<S> <C>
GENERAL: PAYMENT AT MATURITY:
- - Senior unsecured debt securities. - Principal Amount ($15 per Note) +
- - Issuable and transferable only in minimum Supplemental Redemption Amount.
denominations of $15 or integral multiples - The Supplemental Redemption Amount will be
thereof. based on the percentage increase, if any, in
the Dow Jones Industrial Average(SM)
- - No payments prior to maturity. (calculated based on an average value of the
index during the eighteen months prior to
- - Not redeemable prior to maturity. maturity) multiplied by a Participation Rate
of at least 100%. The Supplemental
- - Application will be made to list the Notes Redemption Amount may be ZERO, but will not
on the Chicago Board Options Exchange under be less than zero.
the symbol "DSB".
</TABLE>
For information as to the Supplemental Redemption Amount and certain United
States federal income tax consequences to holders of the Notes see "Description
of Notes -- Determination of the Supplemental Redemption Amount" and "Certain
United States Federal Income Tax Considerations" in this Prospectus Supplement.
"Dow Jones(SM)" and "Dow Jones Industrial Average(SM)" are service marks of
Dow Jones & Company, Inc. ("Dow Jones") and have been licensed for use for
certain purposes by the Company. The Notes are not sponsored, endorsed, sold or
promoted by Dow Jones. Dow Jones makes no representation regarding the
advisability of investing in the Notes.
INVESTING IN THE NOTES INVOLVES CERTAIN RISKS.
SEE "RISK FACTORS RELATING TO THE NOTES" BEGINNING ON PAGE S-6.
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THESE NOTES HAVE NOT BEEN APPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION, NOR HAVE ANY OF THESE ORGANIZATIONS DETERMINED
THAT THIS PROSPECTUS SUPPLEMENT, OR ANY ACCOMPANYING PROSPECTUS, IS ACCURATE OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
====================================================================================================
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNTS THE COMPANY(2)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Note................................... $15 $ $
- ----------------------------------------------------------------------------------------------------
Total(3)................................... $ $ $
====================================================================================================
</TABLE>
(1) The price to public and underwriting discounts for investors purchasing
$ of Notes or more in any single transaction will be $ per
Note and $ per Note, respectively.
(2) Before deducting expenses payable by the Company estimated at $ .
(3) The Company has granted to the Underwriters an option, exercisable within
30 days of the date of this Prospectus Supplement, to purchase up to an
aggregate of $ principal amount of Notes at the price to public
less the underwriting discounts, for the purpose of covering
over-allotments, if any. If the Underwriters exercise such option in
full, the total price to public, underwriting discounts and proceeds to
the Company will be, subject to note 1 above, $ , $ and
$ , respectively. See "Underwriting" in this Prospectus
Supplement.
------------------
The Notes are 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 Notes will be made at the offices of Smith
Barney Inc., 388 Greenwich Street, New York, New York, or through the facilities
of The Depository Trust Company, on or about February , 1998.
------------------
SALOMON SMITH BARNEY CIBC OPPENHEIMER CORP.
FEBRUARY , 1998
<PAGE> 2
SUMMARY INFORMATION -- Q&A
This summary includes questions and answers that highlight selected
information from the Prospectus and Prospectus Supplement to help you understand
the Equity Linked Notes based upon the Dow Jones Industrial Average(SM) (the
"Notes"). You should carefully read the entire Prospectus and Prospectus
Supplement to fully understand the terms of the Notes, certain information
regarding how the Dow Jones Industrial Average(SM) (the "Dow Jones Index" or the
"Index") is calculated and maintained, as well as the principal tax and other
considerations that are important to you in making a decision about whether to
invest in the Notes. You should, in particular, carefully review the section
entitled "Risk Factors Relating To The Notes," which highlights certain risks,
to determine whether an investment in the Notes is appropriate for you. All of
the information set forth below is qualified in its entirety by the more
detailed explanation set forth elsewhere in this Prospectus Supplement and the
accompanying Prospectus.
WHAT ARE THE NOTES?
The Notes are a series of senior debt securities issued by Salomon Smith
Barney Holdings Inc. (the "Company"). The Notes are not secured by collateral.
The Notes will rank equally with all other unsecured and unsubordinated debt of
the Company. The Notes mature on , 2005 and do not provide for
earlier redemption. The Company will make no periodic payments of interest on
the Notes. The Company will make no other payments on the Notes until maturity.
Each Note represents a principal amount of $15. You may transfer the Notes
only in denominations of $15 and integral multiples thereof. You will not have
the right to receive physical certificates evidencing your ownership except
under limited circumstances. Instead, the Company will issue the Notes in the
form of a global certificate, which will be held by The Depository Trust Company
(the "Depositary") or its nominee. Direct and indirect participants in The
Depositary will record beneficial ownership of the Notes by individual
investors. You should refer to the section "Description of the
Notes -- Book-Entry System" in this Prospectus Supplement.
WHAT WILL I RECEIVE AT MATURITY OF THE NOTES?
We have designed the Notes for investors who want to protect their
investment by receiving at least the principal amount of their investment at
maturity and who also want to participate in a possible increase in the Dow
Jones Index. At maturity, you will receive a payment on each Note equal to the
sum of two amounts: the principal amount ($15 per Note) and the "Supplemental
Redemption Amount," which is based on the percentage increase, if any, in the
Dow Jones Index. You will not receive less than the principal amount.
PRINCIPAL AMOUNT
The principal amount per Note is $15.
SUPPLEMENTAL REDEMPTION AMOUNT
The Supplemental Redemption Amount per Note will equal:
EIV - SIV
$15 X ------------- X PR
SIV
but will not be less than zero.
EIV = Ending Index Value
SIV = Starting Index Value
PR = Participation Rate
"Ending Index Value" means the average of the values of the Dow Jones
Index at the close of the market on the of each month during the
eighteen-month period prior to maturity of the Notes, commencing on .
If the of any such month is not a Business Day, the Index value for
that
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<PAGE> 3
month will equal the closing value of the Index on the next Business Day. If
there is a disruption in the trading of the securities comprising the Dow Jones
Index or certain instruments linked to the Dow Jones Index during a scheduled
calculation date in any such month, the Index value for that month for purposes
of calculating the Ending Index Value will equal the closing value of the Index
on the next Business Day on which there is not a market disruption. You should
refer to the section "Description of the Notes -- Market Disruption Events" in
this Prospectus Supplement.
"Starting Index Value" equals , which was the value of the Index
at the market close on the date the Notes were priced for initial sale to the
public.
"Participation Rate" will be definitively set prior to the issuance of the
Notes and is currently expected to be at least 100%.
For more specific information about the Supplemental Redemption Amount,
please see "Description of the Notes -- Determination of the Supplemental
Redemption Amount" in this Prospectus Supplement.
The Company will pay you a Supplemental Redemption Amount only if the
Ending Index Value is greater than the Starting Index Value. IF THE ENDING INDEX
VALUE IS LESS THAN, OR EQUAL TO, THE STARTING INDEX VALUE, THE SUPPLEMENTAL
REDEMPTION AMOUNT WILL BE ZERO. The Company will pay you the principal amount of
the Notes regardless of whether any Supplemental Redemption Amount is payable.
WHAT IS THE EFFECT OF CALCULATING THE ENDING INDEX VALUE ON THE BASIS OF AN
AVERAGE?
The use of an eighteen-month average, rather than one closing Index value
or the value of the Index at maturity, to calculate the Ending Index Value will
reduce the impact of variations in the Index during the eighteen months
preceding maturity of the Notes. As a result, the market value of the Notes and
the Supplemental Redemption Amount will be less sensitive to fluctuations in the
value of the Index shortly prior to maturity.
SUPPLEMENTAL REDEMPTION AMOUNT -- EXAMPLES
Here are two examples of Supplemental Redemption Amount calculations:
Example 1: Dow Jones Index decreases below the Starting Index Value
Hypothetical Starting Index Value: 7,500
Hypothetical Ending Index Value: 7,000
Hypothetical Participation Rate: 100%
Supplemental Redemption Amount 7,000 - 7,500
(per Note) = $15 X ------------- X 100% = $0
7,500
(cannot be less than zero)
Total payment at maturity (per Note) = $15 + $0 = $15
Example 2: Dow Jones Index increases above the Starting Index Value
Hypothetical Starting Index Value: 7,500
Hypothetical Ending Index Value: 8,500
Hypothetical Participation Rate: 100%
Supplemental Redemption Amount 8,500 - 7,500
(per Note) = $15 X ------------- X 100% = $2
7,500
Total payment at maturity (per Note) = $15 + $2 = $17
WHO PUBLISHES THE INDEX AND WHAT DOES IT MEASURE?
The Dow Jones Industrial Average(SM) is published by Dow Jones & Company,
Inc. ("Dow Jones"). The Dow Jones Index is a price-weighted index, which means a
component stock's weight in the Index is based on its price per share rather
than the total market capitalization of the issuer. The Index is designed to
provide an
S-3
<PAGE> 4
indication of the composite price performance of 30 common stocks of
corporations representing a broad cross-section of U.S. industry. The component
stocks of the Index are selected by the editors of The Wall Street Journal (the
"WSJ"). The corporations represented in the Index tend to be market leaders in
their respective industries and their stocks are typically widely held by
individuals and institutional investors. Changes in the composition of the Index
are made entirely by the editors of the WSJ without consultation with the
corporations represented in the Index, any stock exchange, any official agency
or the Company. Although changes to the common stocks included in the Index tend
to be made infrequently, the component stocks of the Index may be changed at any
time for any reason. The corporations currently represented in the Index are
incorporated in the U.S. and its territories and their stocks are traded on the
New York Stock Exchange, Inc. (the "NYSE"). As of January 29, 1998, the market
capitalization of the stocks in the Index ranged from approximately $6.0 billion
to $250.0 billion, with the average market capitalization being $64,479,248,000.
The value of the Dow Jones Index is the sum of the primary exchange prices
of each of the 30 common stocks included in the Index, divided by a divisor that
is designed to provide a meaningful continuity in the value of the Index.
Because the Index is price-weighted, stock splits or changes in the component
stocks could result in distortions in the Index value. In order to prevent such
distortions related to extrinsic factors, the divisor may be changed in
accordance with a mathematical formula that reflects adjusted proportions within
the Index. The current divisor of the Index is published daily in the WSJ and
other publications. In addition, other statistics based on the Index may be
found in a variety of publicly available sources.
HOW HAS THE DOW JONES INDEX PERFORMED HISTORICALLY?
We have provided a table showing the closing value of the Dow Jones Index
on the last business day of each year from 1945 to 1997 and the closing values
of the Index on the last Business Day of each month from January 1992 to
December 1997, as published by Dow Jones in the WSJ. You can find these tables
in the section "The Dow Jones Index -- Historical Data on the Dow Jones Index"
in this Prospectus Supplement. We have provided this historical information to
help you evaluate the behavior of the Dow Jones Index in various economic
environments; however, past performance is not necessarily indicative of how the
Index will perform in the future. You should refer to the section "Risk
Factors -- Relationship of the Notes and the Dow Jones Index."
WHAT ABOUT TAXES?
If you are a U.S. individual or taxable entity, you generally will be
required to pay taxes on ordinary income from the Notes over their term based
upon an estimated yield for the Notes, even though you will not receive any
payments from us until maturity. We have determined this estimated yield, in
accordance with regulations issued by the Treasury Department, solely in order
for you to figure out the amount of taxes that you will owe each year as a
result of owning a Note. This estimate is neither a prediction nor a guarantee
of what the actual Supplemental Redemption Amount will be, or that the actual
Supplemental Redemption Amount will even exceed zero. We have determined that
this estimated yield will equal % per annum (compounded semiannually).
Based upon this estimated yield, if you pay your taxes on a calendar year
basis and if you buy a Note at original issue for $15 and hold the Note until
maturity, you will be required to pay taxes on the following amounts of ordinary
income from the Note each year: $ in 1998, $ in 1999,
$ in 2000, $ in 2001, $ in 2002, $ in 2003,
$ in 2004, and $ in 2005. However, in 2005, the amount of
ordinary income that you will be required to pay taxes on from owning a Note may
be greater or less than $ , depending upon the amount you receive at
maturity. Also, if the sum of the principal amount and the Supplemental
Redemption Amount is less than $ , you may have an ordinary (rather
than capital) loss which you could deduct against other income you may have in
2005. For further information, see "Certain United States Federal Income Tax
Considerations" in this Prospectus Supplement.
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<PAGE> 5
WILL THE NOTES BE LISTED ON A STOCK EXCHANGE?
Application will be made to list the Notes on the Chicago Board Options
Exchange (the "CBOE") under the symbol "DSB." You should be aware that the
listing of the Notes on the CBOE will not necessarily ensure that a liquid
trading market will be available for the Notes. You should review the section
"Risk Factors -- Possible Illiquidity of the Secondary Market" in this
Prospectus Supplement.
WHAT IS THE ROLE OF OUR SUBSIDIARY, SMITH BARNEY INC.?
Our subsidiary, Smith Barney Inc. ("Smith Barney"), is one of the
underwriters for the offering and sale of the Notes. After the initial offering,
Smith Barney and/or other subsidiaries of the Company intend to buy and sell
Notes to create a secondary market for holders of the Notes, and to stabilize or
maintain the market price of the Notes. However, neither Smith Barney nor any of
such affiliates will be obligated to engage in any of these market activities,
or continue them once it has started.
Smith Barney will also be our agent (the "Calculation Agent") for purposes
of calculating the Starting Index Value, the Ending Index Value and the
Supplemental Redemption Amount and in determining whether a Market Disruption
Event has occurred. Potential conflicts of interest may exist between Smith
Barney and the holders of the Notes.
CAN YOU TELL ME MORE ABOUT THE COMPANY?
Salomon Smith Barney Holdings Inc. is a holding company with various
subsidiaries that conduct global investment banking and global securities and
commodities trading. The Company is a subsidiary of Travelers Group Inc.
("Travelers Group"), a diversified financial services holding company. For
information about the Company, see the section "The Company" in the Prospectus.
You should also read the other documents the Company has filed with the SEC,
which you can find by referring to the section "Where You Can Find More
Information" in the Prospectus.
The Common Stock of Travelers Group, the Company's parent, is one of the
components of the Dow Jones Index.
ARE THERE ANY RISKS ASSOCIATED WITH MY INVESTMENT?
Yes, the Notes are subject to a number of risks. Please refer to the
section "Risk Factors Relating to the Notes" in this Prospectus Supplement.
------------------------
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, filed by the Company with the Securities and
Exchange Commission (the "Commission") pursuant to Section 13 of the Securities
Exchange Act of 1934, as amended (File No. 1-4346), are incorporated herein by
reference: (i) the Annual Report on Form 10-K for the year ended December 31,
1996, (ii) the Quarterly Reports on Form 10-Q for the quarters ended March 31,
1997, June 30, 1997 and September 30, 1997 and (iii) the Current Reports on Form
8-K filed on January 21, 1997, March 17, 1997, April 15, 1997, July 17, 1997,
September 24, 1997, September 29, 1997 (as amended by the Current Report on Form
8-K/A filed on October 28, 1997 and the Current Report on Form 8-K/A2 filed on
December 1, 1997), October 21, 1997, October 28, 1997 (as amended by the Current
Report on Form 8-K/A filed on December 1, 1997), November 21, 1997 (as amended
by the Current Report on Form 8-K/A filed on December 1, 1997), November 28,
1997, December 4, 1997, December 9, 1997, January 7, 1998, January 26, 1998,
January 27, 1998 and February 2, 1998. See "Incorporation of Certain Documents
by Reference" in the Prospectus. Such documents may also be accessed
electronically by means of the Commission's home page on the world wide web on
the internet at "http://www.sec.gov."
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<PAGE> 6
RISK FACTORS RELATING TO THE NOTES
An investment in the Notes entails significant risks not associated with
similar investments in a conventional debt security, including the following.
COMPARISON TO OTHER SECURITIES
The Supplemental Redemption Amount May Be Zero. Unless the Ending Index
Value exceeds the closing value of the Dow Jones Index on the date of this
Prospectus Supplement (i.e., the Starting Index Value), the Supplemental
Redemption Amount will be ZERO. This may be true even if the value of the Dow
Jones Index exceeds the Starting Index Value at some time during the life of the
Notes but later falls below that threshold. If the Supplemental Redemption
Amount is zero, we will pay you only the principal amount of your Notes at
maturity.
The Ending Index Value Will Be Determined during the Eighteen Months prior
to Maturity. Because the Ending Index Value will be based upon the closing
value of the Dow Jones Index on the of each month during the
eighteen-month period prior to maturity, a significant increase in the Index
subsequent to issuance may be substantially or entirely offset by subsequent
decreases in the value of the Index during or prior to the Calculation Period.
Because the Ending Index Value will equal the average of the closing values
of the Dow Jones Index on the of each month during the
eighteen-month Calculation Period, a high Index value at the close of one or
more months during the Calculation Period may be substantially or entirely
offset by a low Index value at the close of one or more other months during such
Period. In addition, the full effect of increases in the value of the Index
during the Calculation Period will not be reflected in the Ending Index Value
because a portion of the Ending Index Value will be determined on the
of each month during such eighteen-month Period.
No Interest. No interest is payable on the Notes or the principal amount
thereof, other than in connection with a default on payment at maturity or to
the extent that the Supplemental Redemption Amount exceeds zero and is deemed to
be an interest payment.
Yield May Be Lower than the Yield on a Standard Debt Note of Comparable
Maturity. The amount we pay you at maturity may be less than the return you
could earn on other investments. Because the Ending Index Value of the Dow Jones
Index may be less than, equal to or only slightly greater than the Starting
Index Value, the effective yield to maturity on the Notes (which is linked to
the amount by which such Ending Index Value exceeds the Starting Index Value)
may be less than that which would be payable on a conventional fixed-rate debt
security of the Company. In addition, any such return may not fully compensate
the holder for any opportunity cost implied by inflation and other factors
relating to the time value of money.
Return Does Not Reflect Dividends. Dow Jones calculates the Index by
reference to the prices of the common stocks comprising the Index without taking
into consideration the value of dividends paid on those stocks. Therefore, the
return you earn on the Notes, if any, will not be the same as the return that
you would have earned if you actually owned each of the stocks underlying the
Index and received the dividends paid on those stocks.
POSSIBLE ILLIQUIDITY OF THE SECONDARY MARKET
We will apply to list the Notes on the Chicago Board Options Exchange.
However, there can be no assurance as to whether there will be a secondary
market in the Notes or if there were to be such a secondary market, whether such
market would be liquid or illiquid. If the secondary market for the Notes is
limited, there may be a limited number of buyers when you decide to sell your
Notes if you do not wish to hold your investment until maturity. This may affect
the price you receive. There is currently no secondary market for the Notes. It
is expected that any secondary market for the Notes will be affected by the
creditworthiness of the Company and by a number of factors, including, but not
limited to, the volatility of the Dow Jones Index, dividend rates on the stocks
underlying the Index, the time remaining to the maturity of the Notes and market
interest rates. In addition, the Ending Index Value depends on a number of
interrelated factors, including
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<PAGE> 7
economic, financial and political events on or around the Calculation Dates,
over which the Company has no control. The value of the Notes prior to maturity
is expected to depend primarily on the extent of the appreciation or
depreciation of the Index and market interest rates. The price at which a holder
will be able to sell the Notes prior to maturity may be at a discount, which
could be substantial, from the par amount thereof, if, at such time, the Index
is less than, equal to, or not sufficiently above the Starting Index Value.
RELATIONSHIP OF THE NOTES AND THE DOW JONES INDEX
The historical Dow Jones Index values should not be taken as an indication
of the future performance of the Index during the term of the Notes. While the
trading prices of the stocks underlying the Index will determine the value of
the Dow Jones Index, it is impossible to predict whether the value of the Index
will fall or rise. Trading prices of the stocks underlying the Dow Jones Index
will be influenced by both the complex and interrelated political, economic,
financial and other factors that can affect the capital markets generally and
the equity trading markets on which the underlying stocks are traded, and by
various circumstances that can influence the values of the underlying stocks in
a specific market segment or a particular underlying stock.
The policies of Dow Jones concerning additions, deletions and substitutions
of the stocks underlying the Dow Jones Index and the manner in which Dow Jones
takes account of certain changes affecting such underlying stock may affect the
value of the Index. The policies of Dow Jones with respect to the calculation of
the Index could also affect the value of the Index. Dow Jones may discontinue or
suspend calculation or dissemination of the Dow Jones Index or materially alter
the methodology by which it calculates the Index. Any such actions could affect
the value of the Notes. See "The Dow Jones Index" below.
FACTORS AFFECTING TRADING VALUE OF THE NOTES
The market value of the Notes will be affected by the value of the Index
and by a number of other factors. Some of these factors are interrelated in
complex ways; as a result, the effect of any one factor may be offset or
magnified by the effect of another factor. The following discussion describes
the expected impact on the market value of the Notes given a change in a
specific factor, assuming all other conditions remain constant.
Index Value. The market value of the Notes will likely depend
substantially on the amount, if any, by which the current Index value
exceeds the Starting Index Value. If you choose to sell your Notes when the
value of the Index exceeds the Starting Index Value (particularly if a
substantial period of time remains until maturity), you may receive
substantially less than the amount that would be payable at maturity based
on that Index value because of the expectation that the Index will continue
to fluctuate until the Ending Index Value is determined. If you choose to
sell your Notes when the value of the Index is below the Starting Index
Value, you can expect to receive less than the $15 principal amount per
Note (especially if a substantial period of time remains until maturity).
The effect of the current Index value on the market value of the Notes will
likely decrease significantly over time during the Calculation Period
because a portion of the Ending Index Value will be determined on each of
the eighteen Calculation Days during such Period.
Interest Rates. Because the Notes repay, at a minimum, the principal
amount at maturity, we expect that the trading value of the Notes will be
affected by changes in interest rates. In general, if U.S. interest rates
increase, the trading value of the Notes may be adversely affected. If U.S.
interest rates decrease, the trading value of the Notes may be favorably
affected.
Volatility of the Index. Volatility is the term used to describe the
size and frequency of market fluctuations. Because the Index is based on a
relatively small basket of common stocks, the value of the Index may be
subject to greater volatility. If the volatility of the Index increases,
the trading value of the Notes may be favorably affected. If the volatility
of the Index decreases, the trading value of the Notes may be adversely
affected. The effect of the volatility of the Index on the trading value of
the Notes is likely to decrease over time during the Calculation Period
because a portion of the Ending Index Value will be determined on the
of each month during such eighteen-month Period.
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<PAGE> 8
Time Remaining to Maturity. The Notes may trade at a value above that
which would be expected based on the level of interest rates and the Index
due to a "time premium" resulting from expectations concerning the value of
the Index during the eighteen-month Calculation Period prior to maturity of
the Notes. However, as the time remaining to maturity of the Notes
decreases, particularly during the eighteen-month Calculation Period, this
time premium may decrease, adversely affecting the trading value of the
Notes.
Dividend Yields. If dividend yields on the underlying stocks
comprising the Index increase, the value of the Notes may be adversely
affected since the Index does not incorporate the value of such payments.
Conversely, if dividend yields on the stocks comprising the Index decrease,
the value of the Notes may be favorably affected.
Company Credit Ratings, Financial Condition and Results. Real or
anticipated changes in the Company's credit ratings, financial condition or
results may affect the market value of the Notes.
Economic Conditions and Earnings Performance of Underlying
Companies. Real or anticipated changes in general economic conditions and
the earnings results of the companies whose common stocks comprise the
Index may affect the market value of the Notes.
We want you to understand that the impact of one of the factors specified
above, such as an increase in interest rates, may offset some or all of any
change in the trading value of the Notes attributable to another factor, such as
an increase in the Index value.
In general, assuming all relevant factors are held constant, we expect that
the effect on the trading value of the Notes of a given change in most of the
factors listed above will be less if it occurs later in the term of the Notes
than if it occurs earlier in the term of the Notes.
AFFILIATION OF THE COMPANY AND CALCULATION AGENT
Because the Calculation Agent is an affiliate of the Company, potential
conflicts of interest may exist between the Calculation Agent and the holders of
the Notes, including with respect to certain determinations and judgments that
the Calculation Agent must make in determining the Index Values or whether a
Market Disruption Event has occurred. See "Description of the Notes -- Market
Disruption Events," "-- Discontinuance of the Dow Jones Index" and
"-- Alteration of Method of Calculation" below. Smith Barney, as a registered
broker-dealer, is required to maintain policies and procedures regarding the
handling and use of confidential proprietary information, and such policies and
procedures will be in effect throughout the term of the Notes to restrict the
use of information relating to the calculation of the Index values that the
Calculation Agent may be required to make prior to their dissemination. Smith
Barney is obligated to carry out its duties and functions as Calculation Agent
in good faith and using its reasonable judgment. Smith Barney may also engage in
certain activities in connection with hedging the Company's obligation under the
Notes. See "Use of Proceeds and Hedging" in the accompanying Prospectus.
PURCHASES AND SALES BY AFFILIATES OF THE COMPANY
The Company, Smith Barney and other affiliates of the Company may from time
to time buy or sell the stocks underlying the Index for their own accounts in
connection with their normal business practices or in connection with hedging
the Company's obligations under the Notes. These transactions could affect the
price of such stocks and the value of the Index.
POTENTIAL FEDERAL INCOME TAX CONSEQUENCES
Because the Notes will be treated as contingent payment debt obligations of
the Company, and because by accepting a Note holders thereof agree to this
treatment of the Notes, U.S. holders of a Note will be required to include
original issue discount for U.S. federal income tax purposes ("Tax OID") in
gross income on a constant yield basis over the term of such Note. Such Tax OID
will be includible in a U.S. holder's gross income for U.S. federal income tax
purposes (as ordinary income) over the life of the Note, even though no payments
are to be made on the Note except at maturity. The amount of Tax OID is
calculated based (in
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<PAGE> 9
part) on an assumed amount payable at maturity. This assumed amount is neither a
prediction nor guarantee of the actual amount payable at maturity. Furthermore,
if the amount actually paid at maturity is, in fact, less than the assumed
amount payable at maturity, a U.S. holder will have recognized taxable income in
periods prior to maturity that exceed such holder's economic income from the
holding of the Note during such periods (with an offsetting ordinary loss at the
maturity of the Note). A U.S. holder will also be required to treat any gain
recognized upon a sale of a Note as ordinary income (rather than capital gain).
See "Certain United States Federal Income Tax Considerations" in this Prospectus
Supplement.
OTHER CONSIDERATIONS
If a bankruptcy proceeding is commenced in respect of the Company, the
claim of a holder of Notes may, under Section 502(b)(2) of Title 11 of the
United States Code, be limited to the principal amount of such Notes plus an
additional amount of contingent interest calculated as though the date of the
commencement of the proceeding were the maturity date of the Notes.
------------------------
We suggest that prospective investors who consider purchasing the Notes
reach an investment decision only after carefully considering the suitability of
the Notes in light of their particular circumstances.
DESCRIPTION OF THE NOTES
The following description of the particular terms of the Notes offered
hereby (referred to in the Prospectus as the "Offered Securities") supplements
the description of the general terms and provisions of the Debt Securities set
forth in the Prospectus, to which description reference is hereby made. The
following summary of the Notes is qualified in its entirety by reference to the
Senior Debt Indenture referred to in the Prospectus.
GENERAL
The Equity Linked Notes based upon the Dow Jones Industrial Average(SM)
(the "Notes") are a series of Debt Securities issued under the Senior Debt
Indenture described in the accompanying Prospectus. The aggregate principal
amount of Notes issued will be limited to $ , subject to the
over-allotment option granted by the Company to the Underwriters (See
"Underwriting"). The Notes will mature on , 2005, will constitute part
of the senior debt of the Company and will rank pari passu with all other
unsecured and unsubordinated debt of the Company. The Notes will be issued only
in fully registered form and in denominations of $15 and integral multiples
thereof.
The "Trustee" under the Senior Debt Indenture will be The Bank of New York
under an indenture dated as of October 27, 1993, as amended from time to time. A
copy of the Senior Debt Indenture under which The Bank of New York serves as
Trustee has been filed with the Commission as an exhibit to the Registration
Statement of which the accompanying Prospectus forms a part and is hereby
incorporated by reference as part of the Registration Statement. Section numbers
in the Bank of New York Indenture take the form "1.01," "2.01" and so forth,
rather than "101," "201" and so forth. Section references in the accompanying
Prospectus should be read accordingly.
Reference is made to the accompanying Prospectus for a detailed summary of
additional provisions of the Notes and of the Senior Debt Indenture under which
the Notes will be issued.
INTEREST
No interest is payable on the Notes or the principal amount thereof, other
than in connection with a default on payment at maturity or to the extent that
the Supplemental Redemption Amount exceeds zero and is deemed to be an interest
payment.
S-9
<PAGE> 10
REDEMPTION; DEFEASANCE
The Notes are not subject to redemption by the Company or at the option of
any holder prior to maturity and are not subject to the defeasance provisions
described in the accompanying Prospectus under "Description of Debt
Securities -- Defeasance".
PAYMENT AT MATURITY
At maturity (including as a result of acceleration or otherwise), a holder
of a Note will be entitled to receive the principal amount thereof plus a
Supplemental Redemption Amount, if any, as provided below. If the Ending Index
Value does not exceed the Starting Index Value, the holder of a Note will be
entitled to receive only the principal amount thereof. The principal amount will
equal $15 per Note.
DETERMINATION OF THE SUPPLEMENTAL REDEMPTION AMOUNT
The Supplemental Redemption Amount for each Note ($15 principal amount)
will be determined by the Calculation Agent and will equal:
$15 X Ending Index Value -- Starting Index Value X Participation Rate
------------------------------------------
Starting Index Value
provided that in no event will the Supplemental Redemption Amount be less than
zero. As indicated in the formula above, the Supplemental Redemption Amount for
the Notes will be calculated using the principal amount of the Notes.
The Participation Rate equals %. The Starting Index Value equals
, which was the closing value of the Dow Jones Index on February ,
1998. The Ending Index Value will be determined by the Calculation Agent and
will equal the average of the closing values of the Dow Jones Index on each of
the eighteen Calculation Days during the Calculation Period. If the of
any month during the Calculation Period is not a Calculation Day due to the
occurrence of one or more Market Disruption Events, then the Index value for
that month of the Calculation Period will equal the closing value of the Dow
Jones Index determined on the next Business Day on which no Market Disruption
Event exists. The "Calculation Period" means the period from and including the
date eighteen months prior to maturity to but excluding the maturity date.
"Calculation Day" means the of each month during the Calculation
Period, provided that no Market Disruption Event has occurred on such day. For
purposes of determining the Ending Index Value, a "Business Day" is a day on
which the NYSE and the American Stock Exchange are open for trading and the
Index or any Successor Index, as defined below, is calculated and published. All
determinations made by the Calculation Agent shall be at the sole discretion of
the Calculation Agent and shall be binding on the Company and beneficial owners
of the Notes, absent manifest error.
S-10
<PAGE> 11
HYPOTHETICAL RETURNS
The following table illustrates the Hypothetical returns for each $15
principal amount of Notes, using a Hypothetical Participation Rate of 100% and a
seven-year maturity, on a pretax basis, assuming various percentage changes in
the Index:
<TABLE>
<CAPTION>
TOTAL TOTAL AMOUNT PRETAX RATE
PERCENTAGE PAYABLE AT MATURITY TOTAL RATE OF PRETAX RATE OF RETURN ON
CHANGE OF HYPOTHETICAL ENDING PER $15 PRINCIPAL RETURN ON OF RETURN ON STOCKS UNDERLYING
INDEX VALUE INDEX VALUE(1) AMOUNT OF NOTES THE NOTES THE NOTES(2) THE INDEX(2)(3)
- ----------- ------------------- ------------------- ------------- ------------ -----------------
<S> <C> <C> <C> <C> <C>
-30.0% 5,774.57 15.00 0.00% 0.00% -3.28%
-20.0% 6,485.21 15.00 0.00% 0.00% -1.41%
-10.0% 7,195.86 15.00 0.00% 0.00% 0.25%
0.0% 7,906.50(4) 15.00 0.00% 0.00% 1.75%
10.0% 8,617.14 16.35 8.99% 1.22% 3.13%
20.0% 9,327.79 17.70 17.98% 2.35% 4.39%
30.0% 10,038.43 19.04 26.96% 3.40% 5.56%
40.0% 10,749.08 20.39 35.95% 4.38% 6.65%
50.0% 11,459.72 21.74 44.94% 5.30% 7.68%
60.0% 12,170.36 23.09 53.93% 6.18% 8.64%
70.0% 12,881.01 24.44 62.92% 7.00% 9.55%
80.0% 13,591.65 25.79 71.90% 7.79% 10.41%
90.0% 14,302.29 27.13 80.89% 8.54% 11.23%
100.0% 15,012.94 28.48 89.88% 9.25% 12.01%
110.0% 15,723.58 29.83 98.87% 9.93% 12.76%
120.0% 16,434.23 31.18 107.86% 10.59% 13.48%
130.0% 17,144.87 32.53 116.85% 11.22% 14.16%
140.0% 17,855.51 33.88 125.83% 11.83% 14.82%
</TABLE>
- ---------------
(1) The Ending Index Value, for purposes of calculating the Supplemental
Redemption Amount at maturity, will be equal to the average of the Index
values on each of the Calculation Days during the Calculation Period. The
Calculation Period, for purposes of this illustration, consists of the
eighteen monthly Calculation Days up to and including maturity.
(2) These rates of return are calculated on a semi-annual bond-equivalent basis.
(3) These rates of return assume (a) an investment of a fixed amount in the
stocks underlying the Index with the allocation of such amounts reflecting
the relative weights of such stocks in the Index; (b) linear increases or
decreases in the Index value from the Starting Index Value; (c) a constant
dividend yield of 1.75% per annum, paid quarterly from the date of initial
delivery of the Notes, applied to the value of the Index at the beginning of
each such quarter; (d) no transaction fees or expenses; (e) a term for the
Notes from January 30, 1998 to January 30, 2005; and (f) a final Index value
equal to the Total Percentage Change of Index Value applied to the Starting
Index Value.
(4) The Hypothetical Starting Index Value. For purposes of this illustration,
the Starting Index Value is assumed to be the Index Value on January 30,
1998. The actual Starting Index Value will be the Index value on February
, 1998.
The above figures are for purposes of illustration only. The actual
Supplemental Redemption Amount received by investors and the total and pretax
rate of return resulting therefrom will depend entirely on the actual Ending
Index Value determined by the Calculation Agent as provided herein. Historical
data regarding the Dow Jones Index is included in this Prospectus Supplement
under "The Index -- Historical Data on the Index."
MARKET DISRUPTION EVENTS
"Market Disruption Event" means any of the following events, as determined
by the Calculation Agent.
(a) The suspension or material limitation of trading in 20% or more of
the underlying stocks which then comprise the Dow Jones Index or any
Successor Index, in each case, for more than two hours of trading or during
the one-half hour period preceding the close of trading on the NYSE or any
other
S-11
<PAGE> 12
applicable organized U.S. exchange. For purposes of this definition,
limitations on trading during significant market fluctuations imposed
pursuant to NYSE Rule 80B (or any applicable rule or regulation enacted or
promulgated by the NYSE, any other self regulatory organization or the SEC
of similar scope or as a replacement for Rule 80B, as determined by the
Calculation Agent) shall be considered "material."
(b) The suspension or material limitation, in each case, for more than
two hours of trading or during the one-half hour period preceding the close
of trading (whether by reason of movements in price otherwise exceeding
levels permitted by the relevant exchange or otherwise) in (A) futures
contracts related to the Index or options on such futures contracts which
are traded on any major U.S. exchange or (B) options contracts related to
the Index which are traded on any major U.S. exchange.
(c) The unavailability, through a recognized system of public
dissemination of transaction information, for more than two hours of
trading or during the one-half hour period preceding the close of trading,
of accurate price, volume or related information in respect of 20% or more
of the underlying stocks which then comprise the Dow Jones Index or any
Successor Index or in respect of futures contracts related to the Index,
options on such futures contracts or options contracts related to the
Index, in each case traded on any major U.S. exchange.
For purposes of determining whether a Market Disruption Event has occurred:
(1) a limitation on the hours or number of days of trading will not constitute a
Market Disruption Event if it results from an announced change in the regular
business hours of the relevant exchange or market, (2) a decision to discontinue
permanently trading in the relevant futures or options contract will not
constitute a Market Disruption Event, (3) any suspension in trading in a futures
or options contract on the Index by a major securities market by reason of (x) a
price change violating limits set by such securities market, (y) an imbalance of
orders relating to such contracts or (z) a disparity in bid and ask quotes
relating to such contracts, will constitute a suspension or material limitation
of trading in futures or options contracts related to the Dow Jones Index,
notwithstanding that such suspension or material limitation is less than two
hours, and (4) a "suspension or material limitation" on an exchange or in a
market will include a suspension or material limitation of trading by one class
of investors provided that such suspension continues for more than two hours of
trading or during the last one-half hour period preceding the close of trading
on the relevant exchange or market (but will not include limitations imposed on
certain types of trading under NYSE Rule 80A) and will not include any time when
such exchange or market is closed for trading as part of such exchange's or
market's regularly scheduled business hours. Under certain circumstances, the
duties of Smith Barney as Calculation Agent in determining the existence of
Market Disruption Events could conflict with the interests of Smith Barney as an
affiliate of the issuer of the Notes.
Based on the information currently available to the Company, on October 27,
1997, the NYSE suspended all trading during the one-half hour period preceding
the close of trading, pursuant to NYSE Rule 80B. On April 3, 1992, no trading
took place on the Chicago Mercantile Exchange (the "CME"), as a flood that
severely affected the operations of many of the CME's member institutions caused
the CME to suspend trading (including trading in futures or options contracts on
the Index) for the entire day. If either of these suspensions of trading had
occurred during the term of the Notes, such event would have constituted a
Market Disruption Event. The existence or non-existence of such circumstances,
however, is not necessarily indicative of the likelihood of such circumstances
arising or not arising in the future.
DISCONTINUANCE OF THE DOW JONES INDEX
If Dow Jones discontinues publication of the Dow Jones Index and Dow Jones
or another entity publishes a successor or substitute index that the Calculation
Agent determines, in its sole discretion, to be comparable to such Index (any
such index being referred to hereinafter as a "Successor Index"), then the
Ending Index Value shall be determined by reference to the value of such
Successor Index using the methodology described above under "Payment at
Maturity."
S-12
<PAGE> 13
Upon any selection by the Calculation Agent of a Successor Index, the
Company shall cause notice thereof to be furnished to the Company and the
Trustee, who shall provide notice thereof to the holders of the Notes.
If Dow Jones discontinues publication of the Index and a Successor Index is
not selected by the Calculation Agent or is no longer published on any
Calculation Day, the value to be substituted for the Index for any such
Calculation Day used to calculate the Supplemental Redemption Amount at maturity
will be a value computed by the Calculation Agent for such Calculation Day in
accordance with the procedures last used to calculate the Index prior to any
such discontinuance.
If Dow Jones discontinues publication of the Index prior to the period
during which the Supplemental Redemption Amount is to be determined and the
Calculation Agent determines that no Successor Index is available at such time,
then on each Business Day until the earlier to occur of (a) the determination of
the Ending Index Value and (b) a determination by the Calculation Agent that a
Successor Index is available, the Calculation Agent shall determine the value
that would be used in computing the Supplemental Redemption Amount as described
in the preceding paragraph as if such day were a Calculation Day. The
Calculation Agent will cause notice of each such value to be published not less
often than once each month in the WSJ (or another newspaper of general
circulation), and arrange for information with respect to such values to be made
available by telephone. Notwithstanding these alternative arrangements,
discontinuance of the publication of the Index may adversely affect trading in
the Notes.
If a Successor Index is selected or the Calculation Agent calculates a
value as a substitute for the Dow Jones Index as described above, such Successor
Index or value shall be substituted for the Dow Jones Index for all purposes,
including for purposes of determining whether a Market Disruption Event exists.
Notwithstanding these alternative arrangements, discontinuance of the
publication of the Dow Jones Index may adversely affect the value of the Notes.
ALTERATION OF METHOD OF CALCULATION
If at any time the method of calculating the Dow Jones Index or a Successor
Index, or the value thereof, is changed in any material respect, or if the Index
or a Successor Index is in any other way modified so that such Index does not,
in the opinion of the Calculation Agent, fairly represent the value of the Index
or such Successor Index had such changes or modifications not been made, then,
from and after such time, the Calculation Agent shall, at the close of business
in New York, New York, on each date that the closing value with respect to the
Ending Index Value is to be calculated, make such adjustments as, in the good
faith judgment of the Calculation Agent, may be necessary in order to arrive at
a calculation of a value of a stock index comparable to the Index or such
Successor Index as if changes or modifications had not been made, and calculate
such closing value with reference to the Index, as adjusted. Accordingly, if the
method of calculating the Index or such Successor Index is modified so that the
value of such Index or such Successor Index is a fraction or a multiple of what
it would have been if it had not been modified (e.g., due to a split in such
Index), then the Calculation Agent shall adjust such Index in order to arrive at
a value of such Index as if it had not been modified (e.g., as if such split had
not occurred).
EVENTS OF DEFAULT AND ACCELERATION
In case an Event of Default with respect to any Notes shall have occurred
and be continuing, the amount declared due and payable upon any acceleration of
the Notes will be determined by the Calculation Agent and will equal, for each
Note, the principal amount plus the Supplemental Redemption Amount, if any,
calculated as though the date of early repayment were the stated maturity date
of the Notes. See "-- Determination of the Supplemental Redemption Amount"
above. If a bankruptcy proceeding is commenced in respect of the Company, the
claim of the beneficial owner of a Note may be limited, under Section 502(b) (2)
of Title 11 of the United States Code, to the principal amount of the Note plus
an additional amount of contingent interest calculated as though the date of the
commencement of the proceeding were the maturity date of the Notes.
In case of default in payment at the maturity date of the Notes (whether at
their stated maturity or upon acceleration), from and after the maturity date
the Notes shall bear interest, payable upon demand of the
S-13
<PAGE> 14
beneficial owners thereof, at the rate of % per annum (to the extent that
payment of such interest shall be legally enforceable) on the unpaid amount due
and payable on such date in accordance with the terms of the Notes to the date
payment of such amount has been made or duly provided for.
BOOK-ENTRY SYSTEM
Upon issuance, all Notes will be represented by one or more
fully-registered global securities (the "Global Notes"). Each such Global Note
will be deposited with, or on behalf of, The Depository Trust Company (the
"Depositary"), and registered in the name of the Depositary or a nominee
thereof. Unless and until it is exchanged in whole or in part for Notes in
definitive form, no Global Note may be transferred except as a whole by the
Depositary to a nominee of the Depositary or by a nominee of the Depositary to
the Depositary or another nominee of the Depositary or by the Depositary or any
such nominee to a successor of the Depositary or a nominee of such successor.
Accountholders in the Euroclear or Cedel Bank clearance systems may hold
beneficial interests in the Notes through the accounts each such system
maintains as a participant in the Depositary.
The Depositary has advised the Company as follows: the Depositary 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 Securities Exchange Act of 1934, as
amended. The Depositary was created to hold securities of its participants and
to facilitate the clearance and settlement of transactions among its
participants in such securities through electronic book-entry changes in
accounts of the participants, thereby eliminating the need for physical movement
of securities certificates. The Depositary's participants include securities
brokers and dealers (including the Underwriters), banks, trust companies,
clearing corporations, and certain other organizations, some of whom (and/or
their representatives) own the Depositary.
Access to the Depositary's book-entry system is also available to others,
such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a participant, either directly or
indirectly.
A further description of the Depositary's procedures with respect to the
Global Notes is set forth in the Prospectus under "Description of Debt
Securities -- Global Notes." The Depositary has confirmed to the Company, the
Underwriters and the Trustee that it intends to follow such procedures.
SAME-DAY SETTLEMENT AND PAYMENT
Settlement for the Notes will be made by the Underwriters in same-day
funds. All payments of principal and the Supplemental Redemption Amount, if any,
will be made by the Company in same-day funds so long as the Notes are
maintained in book-entry form.
CALCULATION AGENT
The "Calculation Agent" for the Notes will be Smith Barney. All
determinations made by the Calculation Agent shall be at the sole discretion of
the Calculation Agent and shall, in the absence of manifest error, be conclusive
for all purposes and binding on the Company and holders of the Notes. Because
the Calculation Agent is an affiliate of the Company, potential conflicts of
interest may exist between the Calculation Agent and the holders of the Notes,
including with respect to certain determinations and judgments that the
Calculation Agent must make in determining the Index Values or whether a Market
Disruption Event has occurred. See "-- Market Disruption Events,"
"-- Discontinuance of the Dow Jones Index" and "-- Alteration of Method of
Calculation" above. Smith Barney is obligated to carry out its duties and
functions as Calculation Agent in good faith and using its reasonable judgment.
S-14
<PAGE> 15
THE DOW JONES INDEX
GENERAL
Unless otherwise stated, all information herein on the Index is derived
from Dow Jones or other publicly available sources. Such information reflects
the policies of Dow Jones as stated in such sources and such policies are
subject to change by Dow Jones. Dow Jones is under no obligation to continue to
publish the Index and may discontinue publication of the Index at any time.
The Index is a price-weighted index (i.e., the weight of a component stock
in the Index is based on its price per share rather than the total market
capitalization of the issuer of such component stock) comprised of 30 common
stocks chosen by the editors of the WSJ as representative of the broad market of
U.S. industry. The corporations represented in the Index tend to be leaders
within their respective industries and their stocks are typically widely held by
individuals and institutional investors. Changes in the composition of the Index
are made entirely by the editors of the WSJ without consultation with the
corporations represented in the Index, any stock exchange, any official agency
or the Company. Changes to the common stocks included in the Index tend to be
made infrequently. Historically, most substitutions have been the result of
mergers, but from time to time, changes may be made to achieve what the editors
of the WSJ deem to be a more accurate representation of the broad market of U.S.
industry. In choosing a new corporation for the Index, the editors of the WSJ
look for leading industrial companies with a successful history of growth and
wide interest among investors. The component stocks of the Index may be changed
at any time for any reason. Dow Jones, publisher of the WSJ, is not affiliated
with the Company and has not participated in any way in the creation of the
Notes.
The Index initially consisted of twelve common stocks and was first
published in the WSJ in 1896. The Index was increased to include 20 common
stocks in 1916 and to 30 common stocks in 1928. The number of common stocks in
the Index has remained at 30 since 1928, and, in an effort to maintain
continuity, the constituent corporations represented in the Index have been
changed on a relatively infrequent basis.
The value of the Index is the sum of the primary exchange prices of each of
the 30 common stocks included in the Index, divided by a divisor that is
designed to provide meaningful continuity in the value of the Index. Because the
Index is price-weighted, stock splits or changes in the component stocks could
result in distortions in the Index value. In order to prevent such distortions
related to extrinsic factors, the divisor is changed in accordance with a
mathematical formula that reflects adjusted proportions within the Index. The
current divisor of the Index is published daily in the WSJ and other
publications. In addition, other statistics based on the Index may be found in a
variety of publicly available sources.
The Company or its affiliates may presently or from time to time engage in
business with Dow Jones or one or more of the issuers of the component stocks of
the Index, including extending loans to, or making equity investments in, Dow
Jones or such issuers or providing advisory services to such issuers, including
merger and acquisition advisory services. In the course of such business with
issuers, the Company or its affiliates may acquire non-public information with
respect to such issuers. The Company may also act as market maker for the common
stocks of such issuers. The Company does not make any representation to any
purchaser of Notes with respect to any matters whatsoever relating to Dow Jones
or such issuers. Any prospective purchaser of Notes should undertake an
independent investigation of the issuers of the component stocks of the Index
and with respect to the competency of Dow Jones to formulate and calculate the
Index as in its judgment is appropriate to make an informed decision with
respect to an investment in the Notes. The composition of the Index does not
reflect any investment or sell recommendations of the Company or its affiliates.
HISTORICAL DATA ON THE INDEX
The following table sets forth the closing level of the Index at the end of
each month in the period from January 1992 through December 1997, as published
by the WSJ. This historical data on the Index is not necessarily indicative of
the future performance of the Index or what the value of the Notes may be. Any
S-15
<PAGE> 16
historical upward or downward trend in the closing level of the Index during any
period set forth below is not any indication that the Index is more or less
likely to decline at any time during the term of the Notes.
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
January................ 3223.39 3310.03 3978.36 3843.86 5395.30 6813.09
February............... 3267.67 3370.81 3832.02 4011.05 5485.62 6877.74
March.................. 3235.47 3435.11 3635.96 4157.69 5587.14 6583.48
April.................. 3359.12 3427.55 3681.69 4321.27 5569.08 7008.99
May.................... 3396.88 3527.43 3758.37 4465.14 5643.18 7331.04
June................... 3318.52 3516.08 3624.96 4556.10 5654.63 7672.79
July................... 3393.78 3539.47 3764.50 4708.47 5528.91 8222.61
August................. 3257.35 3651.25 3913.42 4610.56 5616.21 7622.42
September.............. 3712.66 3555.12 3843.19 4789.08 5882.17 7945.26
October................ 3226.28 3680.59 3908.12 4755.48 6029.38 7442.08
November............... 3305.16 3683.95 3739.23 5074.49 6521.70 7823.13
December............... 3301.11 3754.09 3834.44 5117.12 6448.27 7908.25
</TABLE>
The closing value of the Index on February 2, 1998 was 8,107.78.
The following table sets forth the closing values of the Index on the last
business day of each year from 1945 through 1997, as published by the WSJ. The
historical experience of the Index should not be taken as an indication of
future performance and no assurance can be given that the value of the Index
will not decline and thereby reduce the Supplemental Redemption Amount, if any,
which may be payable to beneficial owners of Notes at maturity or otherwise.
YEAR-END VALUE OF THE INDEX
<TABLE>
<CAPTION>
YEAR-END YEAR-END YEAR-END YEAR-END
YEAR CLOSING VALUE YEAR CLOSING VALUE YEAR CLOSING VALUE YEAR CLOSING VALUE
- ----- ------------- ---- ------------- ---- ------------- ---- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1945 192.91 1959 679.36 1973 850.86 1987 1938.83
1946 177.20 1960 615.89 1974 616.24 1988 2168.57
1947 181.16 1961 731.14 1975 852.41 1989 2753.20
1948 177.30 1962 652.10 1976 1004.65 1990 2633.66
1949 200.52 1963 762.95 1977 831.17 1991 3168.83
1950 235.42 1964 874.13 1978 805.01 1992 3301.11
1951 269.23 1965 969.26 1979 838.74 1993 3754.09
1952 291.90 1966 785.69 1980 963.99 1994 3834.44
1953 280.90 1967 905.11 1981 875.00 1995 5117.12
1954 404.39 1968 943.75 1982 1046.54 1996 6448.27
1955 488.40 1969 800.36 1983 1258.64 1997 7908.25
1956 499.47 1970 838.92 1984 1211.57
1957 435.69 1971 890.20 1985 1546.67
1958 583.65 1972 1020.02 1986 1895.95
</TABLE>
S-16
<PAGE> 17
HISTORICAL YEAR-END CLOSING VALUES
The following graph illustrates the historical performance of the Index
based on the closing value thereof at the end of each year from 1945 through
1997. Past movements of the Index are not necessarily indicative of future Index
values.
CLOSING LEVEL OF THE DOW JONES INDUSTRIAL AVERAGE(SM)
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) Year-End Closing Value
<S> <C>
1945 192.91
1946 177.20
1947 181.16
1948 177.30
1949 200.52
1950 235.42
1951 269.23
1952 291.90
1953 280.90
1954 404.39
1955 488.40
1956 499.47
1957 435.69
1958 583.65
1959 679.36
1960 615.89
1961 731.14
1962 652.10
1963 762.95
1964 874.13
1965 969.26
1966 785.69
1967 905.11
1968 943.75
1969 800.36
1970 838.92
1971 890.20
1972 1020.02
1973 850.86
1974 616.24
1975 852.41
1976 1004.65
1977 831.17
1978 805.01
1979 838.74
1980 963.99
1981 875.00
1982 1046.45
1983 1258.64
1984 1211.57
1985 1546.67
1986 1895.95
1987 1938.83
1988 2168.57
1989 2753.20
1990 2633.66
1991 3168.83
1992 3301.11
1993 3754.09
1994 3834.44
1995 5117.12
1996 6448.27
1997 7908.25
</TABLE>
END OF YEAR
LICENSE AGREEMENT
The Notes are not sponsored, endorsed, sold or promoted by Dow Jones. Dow
Jones makes no representation or warranty, express or implied, to the owners of
the Notes or any member of the public regarding the advisability of investing in
securities generally or in the Notes particularly. Dow Jones' only relationship
to the Company is the licensing of certain trademarks, trade names and service
marks of Dow Jones and of the Dow Jones Industrial Average(SM), which is
determined, composed and calculated by Dow Jones without regard to the Company
or the Notes. Dow Jones has no obligation to take the needs of the Company or
the owners of the Notes into consideration in determining, composing or
calculating the Dow Jones Industrial Average(SM). Dow Jones is not responsible
for and has not participated in the determination of the timing of, prices at,
or quantities of the Notes to be issued or in the determination or calculation
of the equation by which the Notes are to be converted into cash. Dow Jones has
no obligation or liability in connection with the administration, marketing or
trading of the Notes.
DOW JONES(SM) DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF
THE DOW JONES INDUSTRIAL AVERAGE(SM) OR ANY DATA INCLUDED THEREIN AND DOW JONES
SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. DOW
JONES MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE
COMPANY, OWNERS OF THE NOTES, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE
DOW JONES INDUSTRIAL AVERAGE(SM) OR ANY DATA INCLUDED THEREIN. DOW JONES MAKES
NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES, OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE
DOW JONES INDUSTRIAL AVERAGE(SM) OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING
ANY OF THE FOREGOING, IN NO EVENT SHALL DOW JONES HAVE ANY LIABILITY FOR ANY
LOST PROFITS OR INDIRECT, PUNITIVE, SPECIAL OR CONSEQUENTIAL DAMAGES, EVEN IF
NOTIFIED OF THE POSSIBILITY THEREOF. THERE ARE NO THIRD PARTY BENEFICIARIES OF
ANY AGREEMENTS OR ARRANGEMENTS BETWEEN DOW JONES AND THE COMPANY.
S-17
<PAGE> 18
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a general summary of certain United States federal income
tax considerations that may be relevant to a holder of a Note. This summary is
based on laws, regulations, rulings and decisions now in effect, all of which
are subject to change (possibly with retroactive effect) and to differing
interpretations. Furthermore, there can be no assurance that the Internal
Revenue Service would not take a position contrary to those expressed herein.
This summary deals only with holders that will hold Notes as capital assets, and
does not address all aspects of U.S. federal income taxation that may be
applicable to investors in light of their particular circumstances, or to
investors subject to special treatment under U.S. federal income tax law
(including, but not limited to, financial institutions, tax-exempt entities,
insurance companies or dealers in securities or currencies, persons having a
functional currency other than the U.S. dollar, persons holding the Notes as a
position in a "straddle" or conversion transaction, or as part of a "synthetic
security" or other integrated financial transaction). This summary also does not
address the state, local or foreign tax consequences of an investment in the
Notes. The discussion below is based on the advice of Cleary, Gottlieb, Steen &
Hamilton, counsel to the Company.
Investors should consult their own tax advisors in determining the tax
consequences to them of holding Notes, including the application to their
particular situation of the U.S. federal income tax considerations discussed
below.
As used herein, the term "U.S. holder" means a person who is a citizen or
resident of the United States, or that is a corporation, partnership or other
entity created or organized in or under the laws of the United States or any
political subdivision thereof, an estate the income of which is subject to
United States federal income taxation regardless of its source or a trust if (i)
a U.S. court is able to exercise primary supervision over the trust's
administration and (ii) one or more U.S. persons have the authority to control
all of the trust's substantial decisions.
TAX CHARACTERIZATION OF THE NOTES
Each Note will be treated by the Company for U.S. federal income tax
purposes as a single debt instrument issued by the Company that is subject to
U.S. Treasury regulations governing contingent debt instruments (the "Contingent
Debt Regulations"). Moreover, each holder, by accepting a Note, agrees to this
treatment of such Note and to report all income (or loss) with respect to the
Notes in accordance with the Contingent Debt Regulations. The remainder of this
summary assumes the treatment of the Note as a single debt instrument subject to
the Contingent Debt Regulations and the holder's agreement thereto.
U.S. HOLDERS
Taxation of Interest. A U.S. holder of a Note will recognize income (or
loss) on a Note in accordance with the Contingent Debt Regulations. The
Contingent Debt Regulations require the application of a "noncontingent bond
method" to determine accruals of income, gain, loss and deduction with respect
to a contingent debt obligation. As described in more detail in the second
succeeding paragraph, under the noncontingent bond method, a U.S. holder of a
Note will be required for tax purposes to include in income each year an accrual
of interest at the rate of percent (the "comparable yield"). Solely for
purposes of determining the comparable yield pursuant to the Contingent Debt
Regulations, a holder of a Note will be assumed to be entitled to receive, in
respect of such Note, a payment of $ on the maturity date (the "Assumed
Supplemental Redemption Amount"). The Assumed Supplemental Redemption Amount is
calculated as the amount required to produce the comparable yield of a Note,
taking into account the Note's issue price.
The comparable yield and the Assumed Supplemental Redemption Amount are
used to determine accruals of interest for tax purposes only and are not
assurances or predictions by the Company with respect to the actual yield of, or
payment to be made in respect of, a Note. The comparable yield and the Assumed
Supplemental Redemption Amount do not necessarily represent the Company's
expectations regarding such yield or the amount of such payment.
S-18
<PAGE> 19
Each Note will be issued at par. However, there will be original issue
discount on each Note for U.S. federal income tax purposes ("Tax OID") because
Tax OID must be accrued at the comparable yield. Under the Tax OID rules of the
Internal Revenue Code of 1986, as amended (the "Code"), and the Treasury
regulations promulgated thereunder, a U.S. holder of a Note, whether such holder
uses the cash or the accrual method of tax accounting, will be required to
include as ordinary interest income the sum of the "daily portions" of Tax OID
on the Note for all days during the taxable year that the U.S. holder owns the
Note. As a result, a U.S. holder of a Note that employs the cash method of tax
accounting will be required to include amounts in respect of Tax OID accruing on
a Note in taxable income each year, even though cash payment on the Note is only
at maturity.
The daily portions of Tax OID on a Note are determined by allocating to
each day in any accrual period a ratable portion of the Tax OID allocable to
that accrual period. In the case of an initial holder, the amount of Tax OID on
a Note allocable to each accrual period is determined by multiplying the
"adjusted issue price" (as defined below) of a Note at the beginning of the
accrual period by the comparable yield of a Note (appropriately adjusted to
reflect the length of the accrual period). The "adjusted issue price" of a Note
at the beginning of any accrual period will generally be the sum of its issue
price and the amount of Tax OID allocable to all prior accrual periods.
Disposition of the Notes. When a U.S. holder sells, exchanges or otherwise
disposes of a Note (including the redemption of the Note at maturity) (a
"disposition"), the U.S. holder's gain (or loss) on such disposition will equal
the difference between the amount received by the U.S. holder for the Note and
the U.S. holder's tax basis in the Note. Upon a Note's maturity, if there is a
payment of a Supplemental Redemption Amount and such Supplemental Redemption
Amount exceeds the Assumed Supplemental Redemption Amount, the U.S. holder will
be required to include such excess in income as ordinary interest on the
maturity date. Alternatively, if there is a payment of a Supplemental Redemption
Amount and such Supplemental Redemption Amount is less than the Assumed
Supplemental Redemption Amount, the shortfall will be treated as an offset to
any interest otherwise includible in income by the U.S. holder with respect to
the Note for the taxable year in which the maturity date occurs but only to the
extent of the amount of such includible interest. Any remaining portion of such
shortfall may be recognized and deducted by the U.S. holder as an ordinary loss.
A U.S. holder's tax basis (i.e., adjusted cost) in a Note will be equal to the
U.S. holder's original purchase price for such Note, plus any Tax OID accrued by
the U.S. holder. Any gain realized by a U.S. holder on a disposition will be
treated as ordinary interest income. Any loss realized by a U.S. holder on a
disposition will be treated as ordinary loss, to the extent of the U.S. holder's
Tax OID inclusions with respect to the Note up to the date of disposition. Any
loss realized in excess of such amount generally will be treated as a capital
loss. An individual U.S. holder generally will be allowed a deduction for any
such ordinary loss without regard to the two-percent miscellaneous itemized
deduction rule of section 67 of the Code. Any capital loss recognized by a U.S.
holder will be a long-term capital loss if such U.S. holder has held such Note
for more than one year, and a short-term capital loss in other cases.
Prospective individual investors should consult their tax advisers to determine
the consequences to them of the changes in the treatment of capital losses
introduced by the Taxpayer Relief Act of 1997.
A U.S. holder that purchases a Note in the secondary market for an amount
that differs from the Note's adjusted issue price at the time of purchase will
be required to accrue Tax OID on the Note in accordance with the comparable
yield and Assumed Supplemental Redemption Amount, even if market conditions have
changed since the date of issuance. A U.S. holder must determine whether the
difference between the purchase price for a Note and the adjusted issue price of
the Note is attributable to a change in expectations as to the Supplemental
Redemption Amount, a change in interest rates, or both, and allocate the
difference accordingly. Adjustments allocated to a change in interest rates will
cause, as the case may be, a "positive adjustment" or a "negative adjustment" to
the U.S. holder's Tax OID inclusion. If the adjusted issue price is more than
the purchase price for the Note, a "positive adjustment" will result, and if the
adjusted issue price is less than the purchase price of the Note, a "negative
adjustment" will result. If the difference between a U.S. holder's purchase
price for a Note and the adjusted issue price of the Note is attributable to a
change in expectations as to the Supplemental Redemption Amount (and not to a
change in market interest rates), the U.S. holder will be required to allocate
that difference to the Supplemental Redemption Amount. Adjust-
S-19
<PAGE> 20
ments allocated to the Supplemental Redemption Amount are taken into account at
the time the Supplemental Redemption Amount is paid. If the purchaser's tax
basis in a Note is greater than the adjusted issue price of the Note, the excess
is treated as a "negative adjustment" that reduces the Supplemental Redemption
Amount; if the purchaser's tax basis in a Note is less than the adjusted issue
price of the Note, the difference is treated as a "positive adjustment" that
increases the Supplemental Redemption Amount. Any negative or positive
adjustment of the kind described above made by a U.S. holder of a Note will
decrease or increase, respectively, the U.S. holder's tax basis in the Note.
Certain U.S. holders may receive Forms 1099-OID reporting Tax OID accruals
on a Note. Those forms may not, however, reflect the effects of any positive or
negative adjustments resulting from the U.S. holder's purchase of the Note in
the secondary market at a price that differs from its adjusted issue price on
the date of purchase. U.S. holders are urged to consult their tax advisors as to
whether, and how, such adjustments should be made to the amounts reported on any
Form 1099-OID.
Information Reporting and Backup Withholding. A noncorporate U.S. holder
may be subject to information reporting and to backup withholding at a rate of
31 percent with respect to payments of principal, premium and interest
(including Tax OID) made on a Note, or the proceeds of a disposition of a Note
before maturity, unless such U.S. holder provides proof of an applicable
exemption or a correct taxpayer identification number, and otherwise complies
with applicable requirements of the information reporting and backup withholding
rules.
NON-U.S. HOLDERS
Taxation of Interest and Disposition of the Notes. Under current U.S.
federal income tax law: (a) payment of a Supplemental Redemption Amount to a
holder who is not a U.S. holder (a "non-U.S. holder") will not be subject to
withholding of U.S. federal income tax, provided that (i) the holder does not
actually or constructively own 10 percent or more of the combined voting power
of all classes of stock of the Company and is not a controlled foreign
corporation related to the Company through stock ownership and (ii) the
beneficial owner provides a statement signed under penalties of perjury that
includes its name and address and certifies that it is a non-U.S. holder in
compliance with applicable requirements or, with respect to payments made after
December 31, 1998, satisfies certain documentary evidence requirements for
establishing that it is a non-U.S. holder; and (b) a non-U.S. holder will not be
subject to U.S. federal income tax on gain realized on the disposition of a
Note. Notwithstanding the above, a non-U.S. holder that is subject to U.S.
federal income taxation on a net income basis with respect to its income from a
Note generally will be subject to the same rules to which a U.S. holder is
subject with respect to the accrual of interest (including Tax OID) on a Note
and with respect to gain or loss realized or recognized on the disposition of a
Note. Special rules might also apply to a non-U.S. holder that is a qualified
resident of a country with which the U.S. has an income tax treaty.
Information Reporting and Backup Withholding. U.S. information reporting
requirements and backup withholding tax will not apply to payments on, or
proceeds from the disposition of, a Note if the beneficial owner certifies its
non-U.S. status under penalties of perjury (or, with respect to payments made
after December 31, 1998, satisfies certain documentary evidence requirements for
establishing that it is a non-U.S. holder) or otherwise establishes an
exemption.
On October 7, 1997, the U.S. Treasury Department issued final Treasury
regulations governing information reporting and the certification procedures
regarding withholding and backup withholding on certain amounts paid to non-U.S.
persons after December 31, 1998. Such regulations, among other things, may
change the certification procedures relating to the receipt by intermediaries of
payments on behalf of a beneficial owner of a Note. Prospective investors should
consult their tax advisors regarding the effect, if any, of such new Treasury
regulations on an investment in the Notes.
With respect to payments made after December 31, 1998, for purposes of
applying the rules set forth in the three preceding paragraphs to an entity that
is treated as fiscally transparent (e.g. , a partnership or certain trusts) for
U.S. federal income tax purposes, the beneficial owner means each of the
ultimate beneficial owners of the entity.
S-20
<PAGE> 21
UNDERWRITING
Subject to the terms and conditions set forth in an Underwriting Agreement
(the "Underwriting Agreement") between the Company and the Underwriters named
therein (the "Underwriters"), the Company has agreed to sell to the
Underwriters, and each of the Underwriters have severally agreed to purchase
from the Company, the principal amount of Notes set forth opposite its name
below:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
UNDERWRITERS OF NOTES
------------------------------------------------------------- ----------------
<S> <C>
Smith Barney Inc. ........................................... $
CIBC Oppenheimer Corp. ...................................... $
--------
Total.............................................. $
========
</TABLE>
In the Underwriting Agreement, the several Underwriters have agreed,
subject to the terms and conditions set forth therein, to purchase all of the
Notes if any are purchased.
The Notes are offered subject to receipt and acceptance by the
Underwriters, to prior sale and to the Underwriters' right to reject any order
in whole or in part and to withdraw, cancel or modify the offer without notice.
It is expected that delivery of the Notes will be made at the office of Smith
Barney, 388 Greenwich Street, New York, New York, or through the facilities of
the Depositary, on or about February , 1998.
The Company has been advised that the Underwriters propose to offer the
Notes to the public initially at the public offering price set forth on the
cover page of this Prospectus Supplement (except that the price will be
$ per Note for the purchase of $ or more principal amount of
Notes in any single transaction) and to certain dealers at a price that
represents a concession not in excess of $ per Note, and that the
Underwriters may allow, and each such dealer may reallow, to other dealers a
concession not exceeding $ per Note. After the initial public offering,
the public offering price, the underwriting discount and such concessions may be
changed from time to time.
The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus Supplement (or if such 30th day is not a
Business Day, on the next Business Day thereafter), to purchase up to an
additional $ principal amount of Notes from the Company at the same
price per Note as the initial Notes to be purchased by the Underwriters. The
Underwriters may exercise such option only for the purpose of covering
over-allotments, if any, incurred in connection with the sale of Notes offered
hereby.
The Company has been advised by the Underwriters that the Underwriters may
make a market in the Notes, subject to applicable laws and regulations. However,
the Underwriters are not obligated to do so and may discontinue any such
market-making at any time without notice. No assurance can be given that an
active public market for the Notes will develop.
The Underwriting Agreement provides that the Company will indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended, or to contribute to payments the
Underwriters may be required to make in respect thereof.
The Notes may be offered to investors outside the United States. The
Underwriters have further agreed that any offers and sales made outside the
United States will be made in compliance with any selling restrictions
applicable in the jurisdictions where such offers and sales are made.
Smith Barney is an indirect wholly-owned subsidiary of the Company.
Accordingly, the offering is being made pursuant to the provisions of Rule 2720
of the Conduct Rules of the National Association of Notes Dealers, Inc.
regarding the offering by an affiliate of the securities of its parent.
S-21
<PAGE> 22
In connection with this offering, the Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Notes. Such
transactions may include stabilization transactions effected in accordance with
Rule 104 of Regulation M under the Securities Exchange Act of 1934, as amended,
pursuant to which such persons may bid for or purchase Notes for the purposes of
stabilizing their market price. The Underwriters also may create a short
position for their respective accounts by selling more Notes in connection with
this offering than they are committed to purchase from the Company, and in such
case may purchase Notes 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 an aggregate of $
aggregate principal amount of Notes, by exercising the Underwriters'
over-allotment option referred to above. In addition, Smith Barney, on behalf of
the Underwriters, may impose "penalty bids" under contractual arrangements
between the Underwriters whereby it may reclaim from an Underwriter (or a dealer
participating in this offering) for the account of the Underwriters, the selling
concession with respect to Notes that are distributed in this 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 Notes at a level above that which might
otherwise prevail in the open market. None of the transactions described in this
paragraph is required, and, if any are undertaken, they may be discontinued at
any time.
The Company or one or more its subsidiaries may from time to time purchase
or acquire a position in the Notes and may, at its option, hold, resell or
retire such Notes. This Prospectus Supplement and the Prospectus may be used by
Smith Barney, Salomon Brothers Inc and/or any successor thereto (the "Salomon
Smith Barney Subsidiaries"), each an indirect wholly-owned subsidiary of the
Company, in connection with offers and sales of the Notes in market-making
transactions at negotiated prices related to prevailing market prices at the
time of sale. Any Salomon Smith Barney Subsidiary may act as principal or agent
in such transactions.
LEGAL MATTERS
Certain legal matters relating to the Notes will be passed upon for the
Company by Cleary, Gottlieb, Steen & Hamilton and by Robert H. Mundheim, Esq.,
as counsel for the Company. Mr. Mundheim, General Counsel of the Company,
beneficially owns, or has rights to acquire under Travelers Group employee
benefit plans, an aggregate of less than one percent of the common stock of
Travelers Group.
Certain legal matters relating to the Notes will be passed upon for the
Underwriters by Skadden, Arps, Slate, Meagher & Flom, LLP, New York. Kenneth J.
Bialkin, a partner of that firm, is a director of Travelers Group, and he and
other attorneys of that firm beneficially own an aggregate of less than one
percent of the common stock of Travelers Group. Skadden, Arps, Slate, Meagher &
Flom, LLP has from time to time acted as counsel for Travelers Group and certain
of its subsidiaries and may do so in the future.
S-22
<PAGE> 23
APPENDIX A
LIST OF DOW JONES INDEX UNDERLYING STOCKS
The following table presents the listing symbol, industry group, price per
share, total number of shares outstanding and market capitalization for each of
the component stocks in the Index based on publicly available information as of
January 29, 1998(1).
<TABLE>
<CAPTION>
ISSUER OF COMPONENT PRICE PER TOTAL SHARES MARKET
STOCK(1) SYMBOL INDUSTRY SHARE OUTSTANDING(2) CAPITALIZATION(2)
- --------------------------- ------ ------------------------ --------------- -------------- -----------------
<S> <C> <C> <C> <C> <C>
General Electric Co. ...... GE Electronics $ 76.25 3,272,727 $ 249,545,440
The Coca-Cola Co.,......... KO Beverages 64.13 2,473,225 158,595,552
Exxon Corp. ............... XON Oil/Gas 59.19 2,465,911 145,951,104
Merck & Co. ............... MRK Pharmaceuticals 117.63 1,198,258 140,945,104
Procter & Gamble Co. ...... PG Household Products 79.25 1,343,922 106,511,368
AT&T Corp. ................ T Util-Telecom 62.06 1,624,253 100,805,200
Morris (Philip) Cos. ...... MO Tobacco 40.94 2,424,393 99,248,592
International Business
Machines Corp. .......... IBM Computers and Office 97.00 972,171 94,300,584
Equipment
Wal-Mart Stores Inc. ...... WMT Retail-Dept 40.63 2,245,907 91,239,968
Johnson & Johnson.......... JNJ Pharmaceuticals 66.88 1,343,675 89,858,264
Disney (Walt) Co. ......... DIS Entertainment 105.00 677,913 71,180,864
Hewlett-Packard Co. ....... HWP Computers 63.38 1,040,000 65,910,000
Du Pont (E.I.) DeNemours &
Co. ..................... DD Chemicals 57.88 1,131,577 65,490,020
Chevron Corp. ............. CHV Oil/Gas 76.13 656,753 49,995,324
Travelers Group Inc. ...... TRV Insurance 50.13 958,285 48,034,036
Boeing Co., The............ BA Aerospace/Defense 47.06 999,593 47,043,344
General Motors Corp. ...... GM Auto & Truck 59.25 745,621 44,178,044
American Express Co. ...... AXP Financial Services 82.94 468,801 38,881,184
Minnesota Mining &
Manufacturing Co. ....... MMM Manufacturing 84.50 408,668 34,532,448
McDonald's Corp. .......... MCD Restaurant/Food Service 47.63 688,777 32,803,004
Allied-Signal Inc. ........ LAD Aerospace/Defense 39.31 564,110 22,176,574
Eastman Kodak Co. ......... EK Manufacturing 65.56 324,901 21,301,322
United Technologies
Corp .................... UTX Aerospace/Defense 81.31 233,977 19,025,254
Sears Roebuck & Co. ....... S Retail-Dept 46.88 392,001 18,375,046
Morgan (JP) & Co. ......... JPM Financial/Banking 101.50 177,645 18,030,968
Caterpillar Inc. .......... CAT Machine Construction 48.13 372,286 17,916,264
International Paper Co. ... IP Forest Products 47.50 302,290 14,358,775
Aluminum Co. of America.... AA Metals 72.13 172,471 12,439,471
Goodyear Tire & Rubber
Co. ..................... GT Tire & Rubber 62.00 156,386 9,695,932
Union Carbide Corp. ....... UK Chemicals 43.56 137,926 6,008,401
------------
TOTAL MARKET CAPITALIZATION $ 1,934,377,451
============
AVERAGE MARKET CAPITALIZATION $ 64,479,248
</TABLE>
- ---------------
(1) The inclusion of a component stock in the portfolio should not be considered
a recommendation to buy or sell such stock, and neither the Company nor any
of its affiliates make any representation to any purchaser of securities as
to the performance of the portfolio or any component stock. Beneficial
owners of the Notes will not have any right to the component stocks or any
dividends paid thereon.
(2) Shares and Market Capitalization in thousands. The Index is a price-weighted
index, which means a component stock's weight in the Index is based on its
price per share rather than the total market capitalization of the issuer.
A-1
<PAGE> 24
PROSPECTUS
SALOMON SMITH BARNEY HOLDINGS INC.
may offer --
DEBT SECURITIES
INDEX WARRANTS
We will provide the specific terms of these securities in supplements to
this Prospectus. You should read this Prospectus and the supplements carefully
before you invest.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED BY THE SEC OR ANY STATE SECURITIES
COMMISSION, NOR HAS ANY OF THESE ORGANIZATIONS DETERMINED THAT THIS PROSPECTUS,
OR ANY ACCOMPANYING PROSPECTUS SUPPLEMENT OR PRICING SUPPLEMENT, IS ACCURATE OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------
SALOMON SMITH BARNEY
December 1, 1997
<PAGE> 25
PROSPECTUS SUMMARY
This summary highlights selected information from this document and may not
contain all of the information that is important to you. To understand the terms
of our securities, you should carefully read this document and the Prospectus
Supplement that explains the specific terms of the securities we are offering.
You should also read the documents we have referred you to in "Where You Can
Find More Information" on page 4 for information on our Company and our
financial statements. The Prospectus Supplement may also add, update or change
information contained in this Prospectus. It is important for you to consider
the information in the Prospectus and any Prospectus Supplement in making your
investment decision.
OUR COMPANY
Salomon Smith Barney Holdings Inc. is a holding company primarily engaged
in investment banking, proprietary trading, retail brokerage and asset
management activities through its U.S. and foreign broker-dealer subsidiaries.
THE SECURITIES WE MAY OFFER
We may use this Prospectus to offer up to $11,710,346,786 of Debt
Securities and Index Warrants. A Prospectus Supplement will describe the
specific types, amounts, prices, and detailed terms of any securities we offer.
DEBT SECURITIES
These securities are unsecured general obligations of our Company in the
form of senior or subordinated debt. Senior debt includes our notes, debt, and
guarantees, which are for money borrowed and not subordinated. Subordinated
debt, designated at the time it is issued, is not entitled to interest and
principal payments if payments on the senior debt are not made.
The senior and subordinated debt will be issued under separate indentures
between the Company and a trustee. The trustees under the indentures are bank or
trust companies; we have certain banking relationships with these companies. We
have summarized below the general features of the debt securities from these
indentures. We encourage you to read the indentures (which are incorporated by
reference in our registration statement No. 333-38931), our recent annual report
on Form 10-K, our recent quarterly reports on Form 10-Q and our recent Reports
on Form 8-K, including the Report on Form 8-K filed on November 28, 1997.
Directions on how you can receive copies of these documents are provided on page
4.
GENERAL INDENTURE PROVISIONS THAT APPLY TO SENIOR AND SUBORDINATED DEBT
- - None of the indentures limits the amount of debt that we may issue or provides
holders any protection should there be a highly leveraged transaction
involving our Company, although the senior debt indenture does limit our
company's ability to pledge the stock of certain of our important
subsidiaries.
- - Each indenture allows for different types of Debt Securities (including
indexed securities) to be issued in series and provides for the issuance of
securities in book-entry, certificated, and, in limited circumstances, bearer
form.
- - The indentures allow us to merge or to consolidate with another company, or
sell all or substantially all of our assets to another company. If any of
these events occur, the other company will be required to assume our
responsibilities on the debt, and, assuming that the transaction has not
resulted in an event of default, we will be released from all liabilities and
obligations under the Debt Securities.
- - The indentures provide that holders of a majority of the total principal
amount of the Debt Securities outstanding in any series may vote to change
certain of our obligations or your rights concerning those securities.
However, every holder of a particular security must consent to certain
important changes in the
2
<PAGE> 26
terms of that security, including changes in the payment of principal or
interest on any security or the currency of payment.
- - We may discharge certain of the Debt Securities issued under the indentures or
be released from our obligation to comply with the limitations discussed above
at any time by depositing sufficient amounts of cash or U.S. government
securities with the trustee to pay our obligations under the particular
securities when due. If we choose to discharge certain securities, all amounts
due to you on those securities will be paid by the trustee from the deposited
funds.
- - The indentures govern the actions of the trustee with regard to the Debt
Securities, including the circumstances under which the trustee is required to
give notices to holders of the securities and the procedures by which lost or
stolen Debt Securities may be replaced.
EVENTS OF DEFAULT
The events of default specified in the indentures include:
- Principal not paid when due.
- Sinking fund payment not made when due.
- Failure to pay interest for 30 days.
- Covenants not performed for 60 days following notice.
- Certain events of insolvency or bankruptcy, whether voluntary or not.
REMEDIES
If there is a default, the trustee or holders of 25% of the principal
amount of Debt Securities outstanding in a series may declare the principal
immediately payable. However, holders of a majority in principal amount of the
securities in that series may rescind this action.
INDEX WARRANTS
We may issue Index Warrants independently or together with Debt Securities.
We will issue each series of Index Warrants under a separate Warrant Agreement
between our Company and a bank or trust company. We encourage you to read the
standard form of the Warrant Agreement, which is incorporated by reference in
our registration statement No. 333-38931. We provide directions on how you can
get copies of these documents on page 4.
Index Warrants are securities that, when exercised by the purchaser at a
time when certain conditions are met, entitle you to receive from our Company an
amount in cash or number of securities that will be indexed to prices, yields,
or other specified measures or changes in an index or differences between two or
more indexes. You may only exercise Index Warrants during a specified period and
the Index Warrants expire on a specified date. Depending on circumstances and
the terms and conditions of the particular Index Warrant, you may not be
entitled to receive any amount for an Index Warrant during any period when you
may exercise it or at its expiration.
The Prospectus Supplement for a series of Index Warrants will set forth the
formula for determining the amount in cash or number of securities, if any, that
we will pay you when you exercise an Index Warrant and certain information about
the relevant underlying assets, as well as other information about the specific
terms of the Index Warrant.
We will generally issue Index Warrants in book-entry form and list Index
Warrants for trading on a national securities exchange, such as the New York
Stock Exchange, American Stock Exchange or Chicago Board Options Exchange.
The Warrant Agreement for any series of Index Warrants will provide that
holders of a majority of the total principal amount of the Index Warrants
outstanding in any series may vote to change certain of our
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<PAGE> 27
obligations or your rights concerning those Index Warrants. However, every
holder of a particular Index Warrant must consent to certain important changes
in the terms of that security, including changes in the amount or manner of
payment on an Index Warrant or further limits on the time during which it may be
exercised.
Index Warrants can involve a high degree of risk, including risks arising
from changes in the values of the underlying assets that are used to determine
the amount to be paid to you when you exercise the Index Warrant. Certain Index
Warrants may also involve risks linked to changes in foreign exchange rates,
securities markets, interest rates and the business of certain companies or
groups of companies. You should recognize that any Index Warrant that does not
have a specified minimum expiration value may be worthless when it expires.
Buyers of Index Warrants should be experienced in options transactions and
understand these types of risks. You should only decide to buy Index Warrants
after careful consideration with your advisers about the suitability of the
Index Warrants in light of your particular financial circumstances and the terms
and conditions of the particular Index Warrant.
Any prospective purchasers of Index Warrants should be aware of special
United States federal income tax considerations applicable to instruments such
as the Index Warrants. The Prospectus Supplement relating to each series of
Index Warrants will describe certain tax considerations.
USE OF PROCEEDS
We will use the net proceeds we receive from any offering of these
securities for general corporate purposes, primarily to fund our operating units
and subsidiaries. We may use some of the proceeds to refinance or extend the
maturity of some of the Company's existing debt obligations. We will use a
portion of the proceeds from the sale of Index Warrants and Indexed Notes to
hedge our exposure to payments that we may have to make on such Index Warrants
and Indexed Notes.
PLAN OF DISTRIBUTION
We may sell the securities in any of the following ways: (i) through
underwriters or dealers; (ii) directly to one or more purchasers; (iii) through
agents or (iv) through a combination of any of these methods of sale. The
Prospectus Supplement will explain the ways in which we are selling specific
securities, including the names of any underwriters and details of the pricing
of the securities, including the commissions, concessions or discounts we are
granting the underwriters, dealers or agents.
If we use underwriters in any sale, the underwriters will buy the
securities for their own account and may resell the securities from time to time
in one or more transactions, at a fixed public offering price or at varying
prices determined at the time of sale. In connection with an offering,
underwriters and selling group members and their affiliates may engage in
transactions to stabilize, maintain or otherwise affect the market price of the
securities, in accordance with applicable law.
We expect that the underwriters for any offering will include one or more
of our broker-dealer subsidiaries.
These broker-dealer subsidiaries (including their successors) also expect
to offer and sell previously issued Debt Securities and Index Warrants as part
of their business, and may act as a principal or agent in such transactions. We
or any of our subsidiaries may use this Prospectus and the related Prospectus
Supplements and Pricing Supplements in connection with these activities.
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<PAGE> 28
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any document we file at the
SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms. SEC filings are also available to the public from
the SEC's web site at http://www.sec.gov.
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to other documents. The information incorporated by reference is
considered to be part of this Prospectus, and later information filed with the
SEC will update and supersede this information. We incorporate by reference the
documents listed below and any future filings made with the SEC under Section
13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of 1934 until our
offering is completed:
(a) Annual Report on Form 10-K for the year ended December 31, 1996;
(b) Quarterly Reports on Form 10-Q for the quarters ended March 31, 1997, June
30, 1997 and September 30, 1997;
(c) Current Reports on Form 8-K filed on January 21, 1997, March 17, 1997, April
15, 1997, July 17, 1997, September 24, 1997, September 29, 1997 (as amended
by the Current Report on Form 8-K/A filed on October 28, 1997 and the
Current Report on Form 8-K/A2 filed on December 1, 1997), October 21, 1997,
October 28, 1997 (as amended by the Current Report on Form 8-K/A filed on
December 1, 1997), November 21, 1997 (as amended by the Current Report on
Form 8-K/A filed on December 1, 1997), and November 28, 1997.
You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address:
Treasurer
Salomon Smith Barney Holdings Inc.
388 Greenwich Street
New York, NY 10013
212-816-6000
You should rely only on the information incorporated by reference or
provided in this Prospectus or the Prospectus Supplement. We have authorized no
one to provide you with different information. We are not making an offer of
these securities in any state where the offer is not permitted. You should not
assume that the information in this Prospectus or the Prospectus Supplement is
accurate as of any date other than the date on the front of the document.
5
<PAGE> 29
THE COMPANY
Pursuant to an agreement and plan of merger dated as of September 24, 1997,
a newly-formed wholly owned subsidiary of Travelers Group Inc. ("Travelers
Group") merged with and into Salomon Inc ("Salomon") on November 28, 1997;
Salomon then became a wholly owned subsidiary of Travelers Group and was renamed
Salomon Smith Barney Holdings Inc. (the "Company"). Immediately thereafter,
Smith Barney Holdings Inc., another wholly owned subsidiary of Travelers Group,
was merged into the Company. The Company is a holding company primarily engaged
in investment banking, proprietary trading, retail brokerage and asset
management activities through its two broker-dealer subsidiaries, Smith Barney
Inc. ("Smith Barney") and Salomon Brothers Inc ("Salomon Brothers").
The principal offices of the Company are located at 388 Greenwich Street,
New York, New York 10013 (telephone number: (212) 816-6000).
SMITH BARNEY
Smith Barney provides investment banking, asset management, brokerage and
other financial services for United States and foreign corporations, governments
and institutional and individual investors. These activities include securities,
options and commodities brokerage for domestic and international institutional
and individual clients; underwriting and distribution of securities; arranging
for the private placement of securities; assisting in mergers and acquisitions
and providing financial advisory services; market making and trading in
corporate debt and equity, United States government and agency, mortgage-related
and municipal securities and foreign exchange, futures and forward contracts;
consumer financing activities; securities lending activities; investment
management and advisory services; securities research; and other related
activities.
SALOMON
Together with Salomon Brothers Holding Company Inc and its subsidiaries
(which subsidiaries include Salomon Brothers), Salomon Brothers engages in
global investment banking and global securities trading activities; provides
capital raising, advisory, trading and risk management services to its
customers; and executes proprietary trading strategies on its own behalf.
Certain of the Company's commodities trading activities are conducted by the
Company's wholly owned subsidiary, Phibro Inc., and its subsidiaries.
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
NINE MONTHS ENDED -----------------------------------------------
SEPTEMBER 30, 1997 1996 1995 1994 1993 1992
------------------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed
charges.......................... 1.29 1.37 1.20 0.98* 1.32 1.27
</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 fixed charges has been computed by dividing earnings
before income taxes and fixed charges by the fixed charges. For the purpose of
this ratio, fixed charges consist of interest expense and that portion of
rentals deemed representative of the appropriate interest factor.
THE OFFERED SECURITIES
The Company intends to issue from time to time (i) debt securities ("Debt
Securities"), which may be subordinated to other indebtedness of the Company; or
(ii) warrants ("Index Warrants") representing the right to receive, upon
exercise, an amount in cash or number of securities that will be determined by
reference to prices, yields, levels or other specified objective measures, or
changes in an Index or differences between two or more Indexes all having an
aggregate initial public offering price or purchase price of up to
$11,710,346,786, or the equivalent thereof in one or more foreign or composite
currencies. The Debt Securities and Index Warrants are referred to herein
collectively as the "Offered Securities." The Offered Securities may
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<PAGE> 30
be offered separately or as units with other Offered Securities, in separate
series in amounts, at prices and on terms to be determined at or prior to the
time of sale. The sale of other securities under the registration statement of
which this Prospectus forms a part or under a registration statement to which
this Prospectus relates will reduce the amount of Offered Securities which may
be sold hereunder.
The specific terms of the Offered Securities with respect to which this
Prospectus is being delivered will be set forth in an accompanying supplement to
this Prospectus (a "Prospectus Supplement"), together with the terms of the
offering of the Offered Securities and the initial price and the net proceeds to
the Company from the sale thereof. The Prospectus Supplement will also contain
information, where applicable, about material United States federal income tax
considerations relating to, and any listing on a securities exchange of, the
Offered Securities covered by such Prospectus Supplement. This Prospectus may
not be used to consummate sales of Offered Securities unless accompanied by a
Prospectus Supplement.
DESCRIPTION OF DEBT SECURITIES
The Debt Securities will be unsecured general obligations of the Company.
As a holding company, the Company's sources of funds are derived principally
from advances and dividends from subsidiaries, certain of which are subject to
regulatory considerations, and from sales of assets and investments. The Debt
Securities will constitute either senior or subordinated debt of the Company and
will be issued, in the case of Debt Securities that will be senior debt, under a
senior debt indenture (as amended or supplemented from time to time, the "Senior
Debt Indenture") and, in the case of Debt Securities that will be subordinated
debt, under a subordinated debt indenture (as amended or supplemented from time
to time, the "Subordinated Debt Indenture"). The Senior Debt Indenture and the
Subordinated Debt Indenture are sometimes hereinafter referred to individually
as an "Indenture" and collectively as the "Indentures." The institutions named
as trustees under the Indentures are hereinafter referred to individually as a
"Trustee" and collectively as the "Trustees." Forms of the Indentures have been
filed with the Securities and Exchange Commission (the "Commission") and are
incorporated by reference as part of the registration statement on Form S-3
under the Securities Act of 1933, as amended (the "Securities Act") that the
Company has filed with the Commission relating to the Offered Securities (such
registration statement, together with all exhibits and amendments, the
"Registration Statement"). The following summaries of certain provisions of the
Indentures and the Debt Securities do not purport to be complete and such
summaries are subject to the detailed provisions of the applicable Indenture to
which reference is hereby made for a full description of such provisions,
including the definition of certain terms used, and for other information
regarding the Debt Securities. Numerical references in parentheses below are to
sections in the applicable Indenture or, if no Indenture is specified, to
sections in each of the Indentures. Wherever particular sections or defined
terms of the applicable Indenture are referred to, such sections or defined
terms are incorporated herein by reference as part of the statement made, and
the statement is qualified in its entirety by such reference.
Unless otherwise provided in the applicable Prospectus Supplement, the
Trustee under the Senior Debt Indenture will be Citibank, N.A., a national
banking association, under an Indenture dated as of December 1, 1988, as amended
or supplemented from time to time, and the Trustee under the Subordinated Debt
Indenture will be Bankers Trust Company, a New York banking corporation, under
an Indenture dated as of December 1, 1988, as amended or supplemented from time
to time.
GENERAL
Neither of the Indentures limits the amount of Debt Securities that may be
issued thereunder, and each Indenture provides that Debt Securities may be
issued from time to time in series (Section 301). The Debt Securities to be
issued under either of the Indentures will be unsecured senior or subordinated
obligations of the Company as set forth below. Debt Securities of a series may
be issuable as individual securities in registered form without coupons
("Registered Securities") or in bearer form ("Bearer Securities") with or
without coupons ("Coupons") attached or as one or more global securities in
registered or bearer form (each a "Global Security").
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<PAGE> 31
Reference is made to the Prospectus Supplement for a description of the
following terms of the Debt Securities in respect of which this Prospectus is
being delivered: (i) the title and series of such Debt Securities, whether such
Debt Securities will be senior or subordinated debt of the Company and under
which indenture such Debt Securities are being issued; (ii) the limit, if any,
upon the aggregate principal amount of such Debt Securities and the method by
which such principal amount (and premium, if any) will be determined; (iii) the
dates on which or periods during which such Debt Securities may be issued and
the dates on which, or the range of dates within which, the principal of (and
premium, if any, on) such Debt Securities will be payable or the method by which
such date or dates shall be determined; (iv) the rate or rates (which may be
fixed or variable) or the method of determination thereof, at which such Debt
Securities will bear interest, if any; the date or dates from which such
interest will accrue; the dates on which such interest will be payable (each, an
"Interest Payment Date"); in the case of Registered Securities, the regular
record dates for the interest payable on such Interest Payment Dates (each, a
"Regular Record Date"); and the place or places where the principal of, premium,
if any, and interest on the Debt Securities shall be payable; (v) the
obligation, if any, of the Company to redeem or purchase such Debt Securities
pursuant to any sinking fund or analogous provisions, or at the option of the
Company or a Holder, and the periods within which or the dates on which, the
prices at which and the terms and conditions upon which such Debt Securities
will be redeemed or repurchased, in whole or in part, pursuant to such
obligation or option; (vi) the periods within which or the dates on which, the
prices at which and the terms and conditions upon which such Debt Securities may
be redeemed, if any, in whole or in part, at the option of the Company; (vii) if
other than denominations of $1,000 and any integral multiple thereof, the
denominations in which such Debt Securities will be issuable; (viii) whether
such Debt Securities are to be issued as Discount Securities (as defined below)
and the amount of discount with which such Debt Securities will be issued; (ix)
provisions, if any, for the defeasance of such Debt Securities; (x) whether such
Debt Securities are to be issued as Registered Securities or Bearer Securities
or both and, if Bearer Securities are to be issued, whether Coupons will be
attached thereto, whether Bearer Securities of the series may be exchanged for
Registered Securities having the same terms and the circumstances under which
and the place or places at which any such exchanges, if permitted, may be made;
(xi) whether such Debt Securities are to be issued in whole or in part in the
form of one or more Global Securities and, if so, the identity of the Depositary
(as defined below) for such Global Security or Securities; (xii) if a temporary
Debt Security is to be issued with respect to such Debt Securities, whether any
interest thereon payable on an Interest Payment Date prior to the issuance of a
definitive Debt Security of the series will be credited to the account of the
persons entitled thereto on such Interest Payment Date; (xiii) if a temporary
Global Security is to be issued with respect to such Debt Securities, the terms
upon which beneficial interests in such temporary Global Security may be
exchanged in whole or in part for beneficial interests in a definitive Global
Security or for individual Debt Securities of the series and the terms upon
which beneficial interests in a definitive Global Security, if any, may be
exchanged for individual Debt Securities having the same terms; (xiv) if other
than United States dollars, the foreign or composite currency in which such Debt
Securities are to be denominated, or in which payment of the principal of (and
premium, if any) and any interest on such Debt Securities will be made and the
circumstances, if any, under which such currency of payment may be changed; (xv)
if the principal of (and premium, if any) or any interest on such Debt
Securities are to be payable, at the election of the Company or a Holder, in a
currency other than that in which such Debt Securities are denominated or stated
to be payable, the periods within which, and the terms and conditions upon
which, such election may be made and the time and the manner of determining the
exchange rate between the currency in which such Debt Securities are denominated
or stated to be payable and the currency in which such Debt Securities are to be
paid pursuant to such election; (xvi) if the amount of payments of principal of
(and premium, if any) or any interest on such Debt Securities may be determined
with reference to an index based on a currency or currencies other than that in
which such Debt Securities are stated to be payable, the manner in which such
amounts shall be determined; (xvii) if the amount of payments of principal of
(and premium, if any) or any interest on such Debt Securities may be determined
with reference to an index based on the prices, changes in prices, or
differences between prices, of one or more securities, currencies, intangibles,
goods, articles or commodities or by application of a formula (any such index,
or index referred to in clause (xvi) being referred to herein as an "Index"),
the manner in which such amounts shall be determined; (xviii) any additional
Events of Default (as defined below) or restrictive covenants provided for with
respect to such Debt Securities; (xix) whether and under what circumstances the
8
<PAGE> 32
Company will pay additional interest on such Debt Securities held by a Person
who is not a U.S. Person (as defined herein) in respect of any tax, assessment
or governmental charge withheld or deducted and, if so, whether the Company will
have the option to redeem such Debt Securities under such circumstances; (xx)
whether and under what circumstances the Company will be obligated to redeem
such Debt Securities if certain events occur involving United States information
reporting requirements; (xxi) the terms, if any, upon which such Debt Securities
may or shall be exchangeable or exercisable for or payable in, among other
things, securities of any kind, instruments, contracts, currencies, commodities,
or other forms of property, rights or interests, or any combination of the
foregoing, and the terms and conditions upon which such exchange, exercise or
payment shall be effected, including, but not limited to, the initial, exchange
or exercise price, rate or ratio, and the relevant exchange or exercise period;
and (xxii) any other terms of such Debt Securities not inconsistent with the
provisions of the Indenture under which they are issued (Section 301).
Under the Indentures, the Company may authorize the issuance and provide
the terms of a series of Debt Securities pursuant to a supplemental indenture or
pursuant to a resolution of its Board of Directors, any duly authorized
committee of the Board or any committee of officers or other representatives of
the Company duly authorized by the Board of Directors for such purpose. The
provisions of the Indentures provide the Company with the ability, in addition
to the ability to issue Securities with terms different from those of Debt
Securities previously issued, to "reopen" a previous issue of a series of
Securities and to issue additional Securities of such series.
Unless otherwise indicated in the applicable Prospectus Supplement, Debt
Securities will be issued only as Registered Securities in denominations of
$1,000 and any integral multiple thereof and will be payable only in United
States dollars (Section 302).
If Bearer Securities are issued, the United States federal income tax
consequences and other special considerations applicable to such Bearer
Securities will be described in the Prospectus Supplement relating thereto.
If the amount of payments of principal of (and premium, if any) or any
interest on Debt Securities is determined with reference to any type of Index,
the United States federal income tax consequences, specific terms and other
information with respect to such Debt Securities and such index or formula,
securities, currencies, intangibles, goods, articles or commodities will be
described in the Prospectus Supplement relating thereto.
If the principal of (and premium, if any) or any interest on Debt
Securities are payable in a foreign or composite currency, the restrictions,
elections, United States federal income tax consequences, specific terms and
other information with respect to such Debt Securities and such currency will be
described in the Prospectus Supplement relating thereto.
Debt Securities may be sold at a substantial discount below their stated
principal amount, bearing no interest or interest at a rate that at the time of
issuance is below market rates ("Discount Securities"). Debt Securities may be
variable rate debt securities that may be exchangeable for fixed rate debt
securities. United States federal income tax consequences and other special
considerations applicable to any such Debt Securities will be described in the
Prospectus Supplement relating thereto.
Unless otherwise provided in the applicable Prospectus Supplement, the
principal of (and premium, if any) and any interest on Debt Securities will be
payable (in the case of Registered Securities) at the corporate trust office or
agency of the applicable Trustee in the City and State of New York or (in the
case of Bearer Securities) at the principal London office of the applicable
Trustee; provided, however, that payment of interest on Registered Securities
may be made at the option of the Company by check mailed to the Registered
Holders thereof or, if so provided in the applicable Prospectus Supplement, at
the option of a Holder by wire transfer to an account designated by such Holder
(Section 307). Except as otherwise provided in the applicable Prospectus
Supplement, no payment on a Bearer Security will be made by mail to an address
in the United States or by wire transfer to an account maintained by the Holder
thereof in the United States.
Unless otherwise provided in the applicable Prospectus Supplement,
Registered Securities may be transferred or exchanged at the corporate trust
office or agency of the applicable Trustee in the City and State
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<PAGE> 33
of New York, subject to the limitations provided in the applicable Indenture,
without the payment of any service charge, other than any tax or governmental
charge payable in connection therewith (Section 305). Bearer Securities will be
transferable by delivery. Provisions with respect to the exchange of Bearer
Securities will be described in the applicable Prospectus Supplement.
All moneys paid by the Company to a paying agent for the payment of
principal of (and premium, if any) or any interest on any Debt Security that
remain unclaimed at the end of two years after such principal, premium or
interest shall have become due and payable will be repaid to the Company, and
the Holder of such Debt Security or any Coupon appertaining thereto will
thereafter look only to the Company for payment thereof (Section 1204).
Unless otherwise indicated in the applicable Prospectus Supplement, the
covenants contained in the Indenture and the Debt Securities would not afford
Holders protection in the event of a highly leveraged or other similar
transaction that may adversely affect Holders.
GLOBAL SECURITIES
Debt Securities having the same issue date and the same terms may be issued
in whole or in part in the form of one or more Global Securities that will be
deposited with, or on behalf of, a depositary (the "Depositary") identified in
the Prospectus Supplement relating to such Debt Securities. Global Securities
may be issued in either registered or bearer form and in either temporary or
definitive form. Unless and until it is exchanged in whole or in part for the
individual Debt Securities represented thereby, a Global Security may not be
transferred except as a whole by the Depositary for such Global Security to a
nominee of such Depositary or by a nominee of such Depositary to such Depositary
or another nominee of such Depositary or by such Depositary or any such nominee
to a successor of such Depositary or a nominee of such successor (Sections 303
and 305).
The specific terms of the depositary arrangement with respect to any Debt
Securities of a series will be described in the Prospectus Supplement relating
to such series. The Company anticipates that the following provisions will apply
to all depositary arrangements for Debt Securities.
Upon the issuance of a Global Security, the Depositary for such Global
Security will credit, on its book-entry registration and transfer system, the
respective principal amounts of the individual Debt Securities represented by
such Global Security to the accounts of institutions that have accounts with
such Depositary ("participants"). The accounts to be credited shall be
designated by the underwriters of such Debt Securities or, if such Debt
Securities are offered and sold directly by the Company or through one or more
agents, by the Company or such agent or agents. Ownership of beneficial
interests in a Global Security will be limited to participants or Persons that
may hold beneficial interests through participants. Ownership of beneficial
interests in a Global Security will be shown on, and the transfer of that
ownership will be effected only through, records maintained by the Depositary
for such Global Security or by participants or Persons that hold through
participants. The laws of some states require that certain purchasers of
securities take physical delivery of such securities. Such limits and such laws
may limit the market for beneficial interests in a Global Security.
So long as the Depositary for a Global Security, or its nominee, is the
owner of such Global Security, such Depositary or such nominee, as the case may
be, will be considered the sole Holder of the individual Debt Securities
represented by such Global Security for all purposes under the Indenture
governing such Debt Securities. Except as set forth below, owners of beneficial
interests in a Global Security will not be entitled to have any of the
individual Debt Securities represented by such Global Security registered in
their names, will not receive or be entitled to receive physical delivery of any
such Debt Securities and will not be considered the Holders thereof under the
Indenture governing such Debt Securities.
Subject to the restrictions discussed under "Limitations on Issuance of
Bearer Securities and Bearer Warrants" below, payments of principal of (and
premium, if any) and any interest on individual Debt Securities represented by a
Global Security will be made to the Depositary or its nominee, as the case may
be, as the Holder of such Global Security. None of the Company, the Trustee for
such Debt Securities, any
10
<PAGE> 34
paying agent or the security registrar for such Debt Securities will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial interests in such Global Security or for
maintaining, supervising or reviewing any records relating to such beneficial
interests.
The Company expects that the Depositary for any Debt Securities, upon
receipt of any payment of principal, premium or interest in respect of a
definitive Global Security representing any of such Debt Securities, will credit
immediately participants' accounts with payments in amounts proportionate to
their respective beneficial interests in the principal amount of such Global
Security as shown on the records of such Depositary. The Company also expects
that payments by participants to owners of beneficial interests in such Global
Security held through such participants will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers in bearer form or registered in "street name," and
will be the responsibility of such participants. Receipt by owners of beneficial
interests in a temporary Global Security of payments of principal, premium or
interest in respect thereof will be subject to the restrictions discussed under
"Limitations on Issuance of Bearer Securities and Bearer Warrants" below.
If the Depositary for any Debt Securities is at any time unwilling or
unable to continue as depositary and a successor depositary is not appointed by
the Company within ninety days, the Company will issue individual Debt
Securities in exchange for the Global Security or Securities representing such
Debt Securities. In addition, the Company may at any time and in its sole
discretion determine not to have certain Debt Securities represented by one or
more Global Securities and, in such event, will issue individual Debt Securities
in exchange for the Global Security or Securities representing such Debt
Securities. Further, if the Company so specifies with respect to any Debt
Securities, an owner of a beneficial interest in a Global Security representing
such Debt Securities may, on terms acceptable to the Company and the Depositary
for such Global Security, receive individual Debt Securities in exchange for
such beneficial interest. In any such instance, an owner of a beneficial
interest in a Global Security will be entitled to physical delivery of
individual Debt Securities represented by such Global Security equal in
principal amount to such beneficial interest and to have such Debt Securities
registered in its name (if the Debt Securities are issuable as Registered
Securities). Individual Debt Securities so issued will be issued (i) as
Registered Securities in denominations, unless otherwise specified by the
Company, of $1,000 and integral multiples thereof if the Debt Securities are
issuable as Registered Securities, (ii) as Bearer Securities in the denomination
or denominations specified by the Company if the Debt Securities are issuable as
Bearer Securities or (iii) as either Registered or Bearer Securities, if the
Debt Securities are issuable in either form (Section 305). See, however,
"Limitations on Issuance of Bearer Securities and Bearer Warrants," below, for a
description of certain restrictions on the issuance of individual Bearer
Securities in exchange for beneficial interests in a Global Security.
SENIOR DEBT
The Debt Securities and Coupons that will constitute part of the senior
debt of the Company will be issued under the Senior Debt Indenture and will rank
pari passu with all other unsecured debt of the Company except subordinated
debt.
SUBORDINATED DEBT
The Debt Securities and Coupons that will constitute part of the
subordinated debt of the Company will be issued under the Subordinated Debt
Indenture and will be subordinate and junior in the right of payment, to the
extent and in the manner set forth in the Subordinated Debt Indenture, to all
"Senior Indebtedness" of the Company. The Subordinated Debt Indenture defines
"Senior Indebtedness" as the following indebtedness or obligations, whether
outstanding at the date of such Indenture or thereafter incurred, assumed,
guaranteed or otherwise created, unless in the instrument creating or evidencing
any such indebtedness or obligation or pursuant to which the same is outstanding
it is provided that such indebtedness or obligation is not superior in right of
payment to the subordinated Debt Securities and any appurtenant Coupons: (a) all
indebtedness of the Company (including indebtedness of others guaranteed by the
Company), other than the subordinated Debt Securities and any appurtenant
Coupons and other than the debt securities issuable under the indenture dated as
of July 1, 1986 between the Company and The Bank of New York, as trustee, that
(i) is for money borrowed, (ii) arises in connection with the acquisition of any
business, properties, securities or assets of any
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kind, other than in the ordinary course of the Company's business as heretofore
conducted or (iii) is secured, in whole or in part, by real or personal
property, (b) obligations of the Company (including obligations of others
guaranteed by the Company) as lessee under leases required to be capitalized on
the balance sheet of the lessee under generally accepted accounting principles
and leases of property or assets made as part of any sale and lease-back
transaction and (c) amendments, renewals, extensions, modifications and
refundings of any such indebtedness or obligation (Subordinated Debt Indenture,
Section 101). The subordinated Debt Securities and any appurtenant Coupons will
not be superior in right of payment to the debt securities issuable under the
indenture dated as of July 1, 1986 between the Company and The Bank of New York,
as trustee (Subordinated Debt Indenture, Section 1601).
In the event (a) of any insolvency or bankruptcy proceedings, or any
receivership, liquidation, reorganization or other similar proceedings in
respect of the Company or a substantial part of its property, or (b) that (i) a
default shall have occurred with respect to the payment of principal of (and
premium, if any) or any interest on or other monetary amounts due and payable on
any Senior Indebtedness, or (ii) there shall have occurred an event of default
(other than a default in the payment of principal, premium, if any, or interest,
or other monetary amounts due and payable) with respect to any Senior
Indebtedness, as defined therein or in the instrument under which the same is
outstanding, permitting the holder or holders thereof to accelerate the maturity
thereof (with notice or lapse of time, or both), and such event of default shall
have continued beyond the period of grace, if any, in respect thereof, and such
default or event of default shall not have been cured or waived or shall not
have ceased to exist, or (c) that the principal of and accrued interest on the
subordinated Debt Securities issued under the Subordinated Debt Indenture shall
have been declared due and payable upon an Event of Default pursuant to Section
502 thereof and such declaration shall not have been rescinded and annulled as
provided therein, then the holders of all Senior Indebtedness shall first be
entitled to receive payment of the full amount due thereon, or provision shall
be made for such payment in money or money's worth, before the Holders of any of
the subordinated Debt Securities or Coupons issued under the Subordinated Debt
Indenture are entitled to receive a payment on account of the principal of (and
premium, if any) or any interest on the indebtedness evidenced by such Debt
Securities or such Coupons (Subordinated Debt Indenture, Section 1601). If this
Prospectus is being delivered in connection with a series of subordinated Debt
Securities, the related Prospectus Supplement will set forth the amount of
Senior Indebtedness outstanding as of the most recent practicable date.
LIMITATION ON LIENS
The Senior Debt Indenture provides that the Company will not, and will not
permit any Restricted Subsidiary to, incur, issue, assume, guarantee or suffer
to exist any indebtedness for borrowed money if the payment of such indebtedness
is secured by a pledge of, lien on or security interest in any shares of stock
of any Restricted Subsidiary without effectively providing for the equal and
ratable securing of the payment of the Debt Securities issued thereunder
(Section 1205). The term "Restricted Subsidiary" is defined in the Senior Debt
Indenture to mean each of Salomon Brothers Inc, Smith Barney Inc. and any
Subsidiary of the Company owning, directly or indirectly, any of the common
stock of, or succeeding to any substantial part of the business now conducted
by, any of such corporations.
EVENTS OF DEFAULT
The following will constitute Events of Default under each Indenture with
respect to any series of Debt Securities issued thereunder: (i) default in the
payment of the principal of (and premium, if any, on) any Debt Security of such
series when due; (ii) default for 30 days in the payment of any interest on any
Debt Security of such series or of any related Coupon when due; (iii) default in
the deposit of any sinking fund payment, when and as due by the terms of any
Debt Security of such series; (iv) default in the performance of any other
covenant in such Indenture, continued for 60 days after written notice thereof
by the applicable Trustee or the Holders of at least 25% in principal amount of
the Debt Securities then outstanding (the "Outstanding Debt Securities") of such
series; and (v) certain events of bankruptcy, insolvency or reorganization
(Section 501). Any additional Events of Default provided with respect to a
series of Debt Securities will be set forth in the applicable Prospectus
Supplement. No Event of Default with respect to a particular series of Debt
Securities issued under either Indenture necessarily constitutes an Event of
Default with respect to any other series of Debt Securities.
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Each Indenture provides that if an Event of Default specified therein shall
occur and be continuing with respect to a series of Debt Securities issued
thereunder, either the Trustee thereunder or the Holders of at least 25% in
principal amount of the Outstanding Debt Securities of such series may declare
the principal of and all accrued interest on all Debt Securities of such series
(or, in the case of Discount Securities or Indexed Notes (as defined herein), an
amount equal to such portion of the principal amount thereof as will be
specified in the related Prospectus Supplement or Pricing Supplement) to be due
and payable. In certain cases, the Holders of a majority in principal amount of
the Outstanding Debt Securities of a series may, on behalf of the Holders of all
such Debt Securities, rescind and annul such declaration and its consequences
(Section 502).
Each Indenture contains a provision entitling the Trustee thereunder,
subject to the duty of such Trustee during the continuance of a default to act
with the required standard of care, to be indemnified by the Holders of the Debt
Securities or any Coupons of any series thereunder before proceeding to exercise
any right or power under such Indenture with respect to such series at the
request of such Holders (Section 603). Each Indenture provides that no Holder of
a Debt Security or any Coupon of any series thereunder may institute any
proceeding, judicial or otherwise, to enforce such Indenture except in the case
of failure of the Trustee thereunder, for 60 days, to act after it receives (i)
written notice of such default, (ii) a written request to enforce such Indenture
by the Holders of at least 25% in aggregate principal amount of the Outstanding
Debt Securities of such series (and the Trustee receives no direction
inconsistent with such written request from the Holders of a majority in
aggregate principal amount of the Outstanding Debt Securities of such series)
and (iii) an offer of reasonable indemnity (Section 507). This provision will
not prevent any Holder of any such Debt Security from enforcing payment of the
principal thereof (and premium, if any, thereon) and any interest thereon or of
any such Coupon from enforcing payment thereof at the respective due dates
thereof (Section 508). The Holders of a majority in aggregate principal amount
of the Outstanding Debt Securities of any series may direct the time, method and
place of conducting any proceedings for any remedy available to the applicable
Trustee or of exercising any trust or power conferred on it with respect to the
Debt Securities of such series. However, such Trustee may refuse to follow any
direction that conflicts with law or the applicable Indenture or that would be
unjustly prejudicial to Holders not joining therein (Section 512).
Each Indenture provides that the Trustee thereunder will, within 90 days
after the occurrence of a default with respect to any series of Debt Securities
thereunder known to it, give to the Holders of Debt Securities and Coupons of
such series notice of such default, unless such default shall have been cured or
waived; but, except in the case of a default in the payment of the principal of
(and premium, if any) or any interest on any Debt Security or of any Coupon of
such series or in the payment of any sinking fund installment with respect to
Debt Securities of such series, the Trustee shall be protected in withholding
such notice if it determines in good faith that the withholding of such notice
is in the interest of the Holders of such Debt Securities and Coupons (Section
602).
The Company will be required to file annually with each Trustee a
certificate of an appropriate officer of the Company as to the absence of
certain defaults under the terms of the appropriate Indenture (Section 1206;
Subordinated Debt Indenture, Section 1205).
MODIFICATION AND WAIVER
Each Indenture contains provisions for convening meetings of Holders to
consider matters affecting their interests (Article Nine).
Modifications of and amendments to each Indenture may be made by the
Company and the Trustee thereunder with the consent of the Holders of a majority
in principal amount of the Outstanding Debt Securities of each series issued
thereunder that is affected by such modification or amendment, voting
separately; provided, however, that no such modification or amendment may,
without the consent of the Holder of each Outstanding Debt Security affected
thereby: (i) change the stated maturity of the principal of, or any installment
of interest or additional amounts payable on, any Debt Security or Coupon; (ii)
reduce the principal amount (including the amount payable on a Discount Security
upon the acceleration of the maturity thereof) of, or any interest on or any
premium payable upon redemption of, or additional amounts payable on, any Debt
Security or Coupon; (iii) change the currency or composite currency of
denomination or payment of the principal of (and premium, if any, on) or any
interest or additional amounts payable on any Debt Security or Coupon; (iv)
impair the right to institute suit for the enforcement of any payment on or with
respect to any
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Debt Security or Coupon; (v) reduce the percentage of the principal amount of
the Outstanding Debt Securities of any series, the consent of the Holders of
which is required for modification or amendment of the applicable Indenture with
respect to waiver of compliance with certain provisions of the applicable
Indenture or waiver of certain defaults; (vi) limit the Company's obligation to
maintain a paying agent outside the United States for Bearer Securities; or
(vii) limit the obligation of the Company to redeem certain Bearer Securities if
certain events occur involving United States information reporting requirements
(Section 1102).
The Subordinated Debt Indenture may not be amended to alter or impair the
subordination of the subordinated Debt Securities issued thereunder without the
consent of each holder of Senior Indebtedness then outstanding (Subordinated
Debt Indenture, Section 1107).
The Holders of a majority in principal amount of the Outstanding Debt
Securities of each series may, on behalf of all Holders of Debt Securities of
that series, waive, insofar as that series is concerned, compliance by the
Company with certain restrictive provisions of the applicable Indenture before
the time for such compliance (Section 1207; Subordinated Debt Indenture, Section
1206). The Holders of a majority in principal amount of the Outstanding Debt
Securities of each series may, on behalf of all Holders of Debt Securities of
that series, waive any past default under the applicable Indenture with respect
to Debt Securities of that series, except a default in the payment of the
principal of (and premium, if any) or any interest on any such Debt Security or
in the payment of any Coupon of that series and except a default in respect of a
covenant or provision the modification or amendment of which would require the
consent of the Holder of each Outstanding Debt Security affected thereby
(Section 513).
CONSOLIDATION, MERGER AND TRANSFER OR LEASE OF ASSETS
Each Indenture provides that the Company may not consolidate with or merge
into any corporation, or transfer or lease its assets substantially as an
entirety to any Person, unless (i) the successor corporation or transferee or
lessee (the "Successor Corporation") is a corporation organized under the laws
of the United States or any political subdivision thereof; (ii) the Successor
Corporation assumes the Company's obligations under the applicable Indenture and
on the Debt Securities and any Coupons issued thereunder; (iii) after giving
effect to the transaction no Event of Default and no event that, after notice or
lapse of time, or both, would become an Event of Default shall have occurred and
be continuing; (iv) the Successor Corporation waives any right to redeem any
Bearer Security under circumstances in which the Successor Corporation would be
entitled to redeem such Bearer Security but the Company would not have been so
entitled if such consolidation, merger, transfer or lease had not occurred; and
(v) certain other conditions are met (Section 1001).
DEFEASANCE
If so specified in the applicable Prospectus Supplement with respect to
Debt Securities of any series that are Registered Securities payable only in
United States dollars, the Company, at its option, (i) will be discharged from
any and all obligations in respect of the Debt Securities of such series (except
for certain obligations to register the transfer or exchange of Debt Securities
of such series, replace stolen, lost or mutilated Debt Securities of such
series, maintain paying agencies and hold moneys for payment in trust) or (ii)
will not be subject to provisions of the applicable Indenture described above
under "Limitation on Liens" and "Consolidation, Merger and Transfer or Lease of
Assets" with respect to the Debt Securities of such series, in each case if the
Company deposits with the applicable Trustee, in trust, money or U.S. Government
Obligations that through the payment of interest thereon and principal thereof
in accordance with their terms will provide money in an amount sufficient to pay
all the principal of (and premium, if any) and any interest on the Debt
Securities of such series on the dates such payments are due in accordance with
the terms of such Debt Securities. To exercise any such option under either of
the Indentures, the Company is required to deliver to the applicable Trustee an
opinion of counsel to the effect that (1) the deposit and related defeasance
would not cause the Holders of the Debt Securities of such series to recognize
income, gain or loss for Federal income tax purposes and, in the case of a
discharge pursuant to clause (i) above, a ruling to such effect received from or
published by the United States Internal Revenue Service, and (2) if the Debt
Securities of such series are then listed on the New York Stock Exchange, such
Debt Securities would not be delisted from
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the New York Stock Exchange as a result of the exercise of such option (Sections
1501 and 1502). Defeasance provisions, if any, with respect to any other Debt
Securities of any series will be described in the applicable Prospectus
Supplement.
REPLACEMENT DEBT SECURITIES
Unless otherwise provided in the applicable Prospectus Supplement, if a
Debt Security of any series or any related Coupon is mutilated, destroyed, lost
or stolen, it may be replaced at the corporate trust office or agency of the
applicable Trustee in the City and State of New York (in the case of Registered
Securities) or at the principal London office of the applicable Trustee (in the
case of Bearer Securities and Coupons) upon payment by the Holder of such
expenses as may be incurred by the Company and the applicable Trustee in
connection therewith and the furnishing of such evidence and indemnity as the
Company and such Trustee may require. Mutilated Debt Securities and Coupons must
be surrendered before new Debt Securities (with or without Coupons) will be
issued (Section 306).
NOTICES
Unless otherwise provided in the applicable Prospectus Supplement, any
notice required to be given to a Holder of a Debt Security of any series that is
a Registered Security will be mailed to the last address of such Holder set
forth in the applicable security register. Any notice required to be given to a
Holder of a Debt Security that is a Bearer Security will be published in a daily
morning newspaper of general circulation in the city or cities specified in the
Prospectus Supplement relating to such Bearer Security (Section 105).
CONCERNING THE TRUSTEES
The Company and certain of its subsidiaries maintain lines of credit and
have other customary banking relationships with Citibank, N.A. and Bankers Trust
Company, and certain of their respective affiliates, and may have such
relationships with other Trustees and their affiliates.
DESCRIPTION OF INDEX WARRANTS
The following description of the terms of the Index Warrants sets forth
certain general terms and provisions of the Index Warrants to which any
Prospectus Supplement may relate. The particular terms of the Index Warrants
offered by any Prospectus Supplement and the extent, if any, to which such
general provisions do not apply to the Index Warrants so offered will be
described in such Prospectus Supplement.
Index Warrants may be issued independently or together with Debt Securities
offered by any Prospectus Supplement and may be attached to or separate from any
such Offered Securities. Each series of Index Warrants will be issued under a
separate index warrant agreement (each, an "Index Warrant Agreement") to be
entered into between the Company and a bank or trust company, as warrant agent
(the "Index Warrant Agent"), all as described in the Prospectus Supplement
relating to such Index Warrants. A single bank or trust company may act as Index
Warrant Agent for more than one series of Index Warrants. The Index Warrant
Agent will act solely as the agent of the Company under the applicable Index
Warrant Agreement and will not assume any obligation or relationship of agency
or trust for or with any owners of such Index Warrants. A copy of the form of
Index Warrant Agreement, including the form of index warrant certificate (the
"Index Warrant Certificate," or, if issued in global form, the "Index Warrant
Global Certificate"), is filed as an exhibit to or incorporated by reference in
the Registration Statement. The following summaries of certain provisions of the
Index Warrants and the form of Index Warrant Agreement do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, all of the provisions of the Index Warrant Agreement and the Index Warrant
Certificate or Index Warrant Global Certificate.
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GENERAL
The Index Warrant Agreement does not limit the number of Index Warrants
that may be issued thereunder. The Company will have the right to "reopen" a
previous series of Index Warrants and to issue additional Index Warrants of such
series.
Each Index Warrant will entitle the holder (each, a "Warrant Holder") to
receive from the Company, upon exercise, including any automatic exercise, an
amount in cash or a number of securities that will be determined by reference to
an Index calculated by reference to prices, yields, levels or other specified
objective measures in respect of specified securities or securities indexes or
specified foreign currencies or currency indexes, or a combination thereof, or
changes in such measure or differences between two or more such measures. The
Prospectus Supplement for a series of Index Warrants will set forth the formula
or methodology pursuant to which the amount payable or distributable on the
Index Warrants will be determined by reference to the relevant Index or Indexes.
Certain Index Warrants will, if specified in the Prospectus Supplement,
entitle the Warrant Holder to receive from the Company, upon automatic exercise
at expiration and under certain other circumstances, a minimum or maximum
amount.
The Prospectus Supplement applicable to any series of Index Warrants will
set forth any circumstances in which the payment or distribution or the
determination of the payment or distribution on the Index Warrants may be
postponed and the period for which such payment or distribution or determination
may be postponed. Conversely, the Index Warrants may be subject to early
exercise or cancellation in certain circumstances described in the applicable
Prospectus Supplement. The amount due, or the means by which the amount due, on
the Index Warrants may be determined after any such delay or postponement, or
early exercise or cancellation will be set forth in the applicable Prospectus
Supplement.
Unless otherwise specified in the applicable Prospectus Supplement, the
Company will be under no obligation to, nor will it, purchase or take delivery
of or sell or deliver any securities or currencies (including the Underlying
Assets), other than the payment of any cash or distribution of any securities
due on the Index Warrants, from or to Warrant Holders pursuant to the Index
Warrants.
Unless otherwise specified in the applicable Prospectus Supplement, the
Index Warrants will be deemed to be automatically exercised upon expiration.
Upon such automatic exercise, Warrant Holders will be entitled to receive the
cash amount or number of securities due, if any, on such exercise of the Index
Warrants.
Reference is hereby made to the Prospectus Supplement relating to the
particular series of Index Warrants offered thereby for the terms of such Index
Warrants, including, where applicable: (i) the aggregate number of such Index
Warrants; (ii) the offering price of such Index Warrants; (iii) the measure or
measures by reference to which payment or distribution on such Index Warrants
will be determined; (iv) certain information regarding the underlying
securities, foreign currencies or indexes; (v) the amount of cash or number of
securities due, or the means by which the amount of cash or number of securities
due may be calculated, on exercise of the Index Warrants, including automatic
exercise, or upon cancellation; (vi) the date on which the Index Warrants may
first be exercised and the date on which they expire; (vii) any minimum number
of Index Warrants exercisable at any one time; (viii) any maximum number of
Index Warrants that may, subject to the Company's election, be exercised by all
Warrant Holders (or by any person or entity) on any day; (ix) any provisions
permitting a Warrant Holder to condition an exercise of Index Warrants; (x) the
method by which the Index Warrants may be exercised; (xi) the currency in which
the Index Warrants will be denominated and in which payments on the Index
Warrants will be made or the securities that may be distributed in respect of
the Index Warrants; (xii) the method of making any foreign currency translation
applicable to payments or distributions on the Index Warrants; (xiii) the method
of providing for a substitute Index or Indexes or otherwise determining the
amount payable in connection with the exercise of Index Warrants if an Index
changes or is no longer available; (xiv) the time or times at which amounts will
be payable or distributable in respect of such Index Warrants following exercise
or automatic exercise; (xv) any national securities exchange on, or
self-regulatory organization with which, such Index Warrants will be listed;
(xvi) any provisions for issuing such Index Warrants in certificated form;
(xvii) if
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such Index Warrants are not issued in book-entry form, the place or places at
and the procedures by which payments or distributions on the Index Warrants will
be made; and (xviii) any other terms of such Index Warrants.
Prospective purchasers of Index Warrants should be aware of special United
States federal income tax considerations applicable to instruments such as the
Index Warrants. The Prospectus Supplement relating to each series of Index
Warrants will describe such tax considerations. The summary of United States
federal income tax considerations contained in the Prospectus Supplement will be
presented for informational purposes only, however, and will not be intended as
legal or tax advice to prospective purchasers. Prospective purchasers of Index
Warrants are urged to consult their own tax advisors prior to any acquisition of
Index Warrants.
BOOK-ENTRY PROCEDURES AND SETTLEMENT FOR INDEX WARRANTS
Subject to the rules of the Warrant Depositary (as defined below) and
unless otherwise specified in the Prospectus Supplement, the Index Warrants
offered thereby will be issued in the form of a single Index Warrant Global
Certificate that will be deposited with, or on behalf of, a depositary (the
"Warrant Depositary"), which shall be, unless otherwise specified in the
applicable Prospectus Supplement, the Depository Trust Company, New York, New
York ("DTC"). Index Warrants will be registered in the name of the Warrant
Depositary or a nominee of the Warrant Depositary. Unless and until it is
exchanged in whole or in part for the individual Index Warrants represented
thereby, an Index Warrant Global Certificate may not be transferred except as a
whole by the Warrant Depositary to a nominee of the Warrant Depositary or by a
nominee of the Warrant Depositary to the Warrant Depositary or another nominee
of the Warrant Depositary or by the Warrant Depositary or any such nominee to a
successor of the Warrant Depositary or a nominee of such successor.
The Company anticipates that the following provisions will apply to all
depository arrangements.
Upon the issuance of an Index Warrant Global Certificate, the Warrant
Depositary will credit, on its book-entry registration and transfer system, the
respective numbers of the individual Index Warrants represented by such Index
Warrant Global Certificate to the accounts of institutions that have accounts
with the Warrant Depositary ("depositary participants"). The accounts to be
credited shall be designated by the underwriters of such Index Warrants or, if
such Index Warrants are offered and sold directly by the Company or through one
or more agents, by the Company or such agent or agents. Ownership of beneficial
interests in an Index Warrant Global Certificate will be limited to participants
or persons that may hold beneficial interests through participants. Ownership of
beneficial interests in an Index Warrant Global Certificate will be shown on,
and the transfer of that ownership will be effected only through, records
maintained by the Warrant Depositary for such Index Warrant Global Certificate
or by participants or persons that hold through participants. The laws of some
states require that certain purchasers of securities take physical delivery of
such securities. Such limits and such laws may limit the market for beneficial
interests in an Index Warrant Global Certificate.
The Warrant Depositary's nominee for all purposes will be considered the
sole owner or holder of the Index Warrants under the related Index Warrant
Agreement. Except as set forth below, owners of beneficial interests in the
Index Warrant Global Certificate will not be entitled to have any of the
individual Index Warrants represented by such Index Warrant Global Certificate
registered in their names, will not receive or be entitled to receive physical
delivery of any such Index Warrants, and will not be considered the holders
thereof under the related Index Warrant Agreement.
Neither the Company nor the Index Warrant Agent will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the Index Warrant
Global Certificate or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests.
If the Warrant Depositary is at any time unwilling or unable to continue as
depositary and a successor depositary is not appointed by the Company within 90
days, the Company will issue individual Index Warrant
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Certificates in exchange for the Index Warrant Global Certificate. In addition,
the Company may at any time and in its sole discretion determine not to have
certain Index Warrants represented by an Index Warrant Global Certificate and,
in such event, will issue individual Index Warrant Certificates in exchange for
such Global Certificate. Further, if the Company so specifies with respect to
any Index Warrants, an owner of a beneficial interest in an Index Warrant Global
Certificate may, on such terms acceptable to the Company and the Warrant
Depositary, receive individual Index Warrants in exchange for such beneficial
interest. In any such instance, an owner of a beneficial interest in the Index
Warrant Global Certificate will be entitled to have Index Warrants equal in
aggregate number to such beneficial interest registered in its name and will be
entitled to physical delivery of such Index Warrants. The registered owner of
such Index Warrants will be entitled to receive any amounts payable in respect
of such Index Warrants, upon surrender of such Index Warrants to the Index
Warrant Agent in accordance with the procedures set forth in the Prospectus
Supplement.
LISTING
Unless otherwise indicated in the Prospectus Supplement, the Index Warrants
will be listed on a national securities exchange or with a self-regulatory
organization, the rules and regulations of which are filed with the Commission
pursuant to Section 19(b) of the Exchange Act (a "Self-Regulatory
Organization"), in each case as specified in the Prospectus Supplement. It is
expected that such Self-Regulatory Organization will cease trading a series of
Index Warrants as of the close of business on the related expiration date of
such Index Warrants.
MODIFICATION
The Index Warrant Agreement and the terms of the related Index Warrants may
be amended by the Company and the Index Warrant Agent, without the consent of
the holders of any Index Warrants, for the purpose of curing any ambiguity or of
curing, correcting or supplementing any defective or inconsistent provision
contained therein, maintaining the listing of such Index Warrants on any
national securities exchange or with any other Self-Regulatory Organization or
registration of such Index Warrants under the Exchange Act, permitting the
issuance of individual Index Warrant certificates to Warrant Holders, reflecting
the issuance by the Company of additional Index Warrants of the same series or
reflecting the appointment of a successor depository, or for any other purpose
which the Company may deem necessary or desirable and which will not materially
and adversely affect the interests of the Warrant Holders.
The Company and the Index Warrant Agent also may modify or amend the Index
Warrant Agreement and the terms of the related Index Warrants, with the consent
of the holders of not less than a majority in number of the then outstanding
Warrants affected by such modification or amendment, for any purposes; provided,
however, that no such modification or amendment that changes the amount to be
paid to the Warrant Holder or the manner in which such amount is to be
determined, shortens the period of time during which the Index Warrants may be
exercised, or otherwise materially and adversely affects the exercise rights of
the holders of the Index Warrants or reduces the percentage of the number of
outstanding Index Warrants the consent of whose holders is required for
modification or amendment of the Index Warrant Agreement or the terms of the
related Index Warrants, may be made without the consent of each Holder affected
thereby.
MERGER, CONSOLIDATION, SALE OR OTHER DISPOSITION
If at any time there is a merger or consolidation involving the Company or
a sale, transfer, conveyance (other than by way of lease) or other disposition
of all or substantially all of the assets of the Company, then the successor or
assuming corporation will succeed to and be substituted for the Company under
the Index Warrant Agreement and the related Index Warrants, with the same effect
as if it had been named in such Index Warrant Agreement and Index Warrants as
the Company. The Company will thereupon be relieved of any further obligation
under such Index Warrant Agreement and Index Warrants and may at any time
thereafter be dissolved, wound up or liquidated.
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ENFORCEABILITY OF RIGHTS BY WARRANT HOLDERS
Any Warrant Holder may, without the consent of the Index Warrant Agent or
any other Warrant Holder, enforce by appropriate legal action on his own behalf
his right to exercise, and to receive payment for, his Index Warrants.
SPECIAL CONSIDERATIONS RELATING TO INDEX WARRANTS
The Index Warrants involve a high degree of risk, including risks arising
from fluctuations in the values of the underlying securities, foreign currencies
or indexes, risks relating to the relevant Index or Indexes by which payments or
distributions on the Index Warrants are calculated, general risks applicable to
the securities or currency markets on which the underlying securities, foreign
currencies or indexes are traded and, in the case of certain Index Warrants,
foreign exchange, interest rate, issuer and other risks. Purchasers should
recognize that their Index Warrants, other than Index Warrants having a minimum
expiration value, may expire worthless. Purchasers should be prepared to sustain
a total loss of the purchase price of their Index Warrants, and are advised to
consider carefully the information set forth herein and under "Risk Factors
Relating to the Index Warrants" in the applicable Prospectus Supplement.
Prospective purchasers of the Index Warrants should be experienced with respect
to options and options transactions and understand the risks of the relevant
Index or Indexes and the underlying securities, foreign currencies or indexes
(and, if applicable, foreign currency transactions), and should reach an
investment decision only after careful consideration, with their advisers, of
the suitability of the Index Warrants in light of their particular financial
circumstances, the information set forth herein under "Description of Index
Warrants," and the information regarding the Index Warrants, the relevant Index
or Indexes and the underlying securities, foreign currencies or indexes set
forth in the Prospectus Supplement.
LIMITATIONS ON ISSUANCE OF BEARER SECURITIES AND BEARER WARRANTS
In compliance with United States federal income tax laws and regulations,
the Company and any underwriter, agent or dealer participating in the offering
of any Bearer Security will agree that, in connection with the original issuance
of such Bearer Security and during the period ending 40 days after the issue
date of such Bearer Security, they will not offer, sell or deliver such Bearer
Security, directly or indirectly, to a U.S. Person or to any person within the
United States, except to the extent permitted under United States Treasury
regulations.
Bearer Securities will bear a legend to the following effect: "Any United
States Person who holds this obligation will be subject to limitations under the
United States income tax laws, including the limitations provided in Sections
165(j) and 1287(a) of the Internal Revenue Code." The sections referred to in
the legend provide that, with certain exceptions, a U.S. Person who holds Bearer
Securities will not be allowed to deduct any loss with respect to, and will not
be eligible for capital gain treatment with respect to any gain realized on a
sale, exchange, redemption or other disposition of, such Bearer Securities.
As used herein, "U.S. Person" means a person who is a citizen or resident
of the United States, or that is a corporation, partnership or other entity
created or organized in or under the laws of the United States or any political
subdivision thereof, an estate the income of which is subject to United States
federal income taxation regardless of its source or a trust if (i) a United
States 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, and the term "United States"
means the United States of America (including the States and the District of
Columbia).
Pending the availability of a definitive Global Security or individual
Bearer Securities, as the case may be, Debt Securities that are issuable as
Bearer Securities may initially be represented by a single temporary Global
Security, without interest coupons, to be deposited with a common depositary in
London for Morgan Guaranty Trust Company of New York, Brussels Office, as
operator of the Euroclear System ("Euroclear"), and Cedel Bank, Societe Anonyme
("Cedel") for credit to the accounts designated by or on behalf of the
purchasers thereof. Following the availability of a definitive Global Security
in bearer form, without coupons
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<PAGE> 43
attached, or individual Bearer Securities and subject to any further limitations
described in the applicable Prospectus Supplement, the temporary Global Security
will be exchangeable for interests in such definitive Global Security or for
such individual Bearer Securities, respectively, only upon receipt of a
"Certificate of Non-U.S. Beneficial Ownership". A "Certificate of Non-U.S.
Beneficial Ownership" is a certificate to the effect that a beneficial interest
in a temporary Global Security or Bearer Warrant is owned by a person that is
not a U.S. Person or is owned by or through a financial institution in
compliance with applicable U.S. Treasury regulations. In no event will a
definitive Bearer Security be delivered to a purchaser without the receipt of a
Certificate of Non-U.S. Beneficial Ownership. No Bearer Security will be
delivered in or to the United States. If so specified in the applicable
Prospectus Supplement, interest on a temporary Global Security will be paid to
each of Euroclear and Cedel with respect to that portion of such temporary
Global Security held for its account, but only upon receipt as of the relevant
Interest Payment Date of a Certificate of Non-U.S. Beneficial Ownership.
Limitations on the offer, sale, delivery and exercise of Bearer Warrants
(including a requirement that a Certificate of Non-U.S. Beneficial Ownership be
delivered upon exercise of a Bearer Warrant) will be described in the Prospectus
Supplement relating to such Bearer Warrants.
EUROPEAN MONETARY UNION
Stage III of the European Economic and Monetary Union ("Stage III") is
presently scheduled to commence on January 1, 1999 for those member states of
the European Union that satisfy the economic convergence criteria set forth in
the Treaty on European Union. Certain of the foreign currencies in which Debt
Securities may be denominated or payments in respect of Index Warrants may be
due or by which amounts due on the Offered Securities may be calculated are
issued by countries that are signatories to such Treaty (any such country, a
"Relevant Jurisdiction" with respect to such Offered Securities). Stage III
includes the introduction of a single currency (the "Euro") which will be legal
tender in such member states. It is anticipated that the European Union will
adopt regulations or other legislation providing specific rules for the
introduction of the Euro in substitution for the respective current national
currencies of such member states, which regulations or legislation may be
supplemented by legislation of the individual member states. In the event that
any Relevant Jurisdiction adopts the Euro, the laws and regulations of the
European Union (and, if any, of such Relevant Jurisdiction) relating to the Euro
implemented pursuant to or by virtue of the Treaty on European Union shall apply
to the relevant Offered Securities, Indenture or Indentures and Index Warrant
Agreement or Agreements, and, except as provided in the following paragraph, the
payment of principal of, or interest on, or any other amounts in respect of such
relevant Offered Securities or the calculation of amounts due thereon at any
time after the official date of introduction of the Euro by the Relevant
Jurisdiction shall be effected in Euro in conformity with any such legally
applicable measures.
If, following the introduction of the Euro by a Relevant Jurisdiction, the
Company has the option, pursuant to legally applicable measures, to make
payments of principal of, or interest on or any other amounts in respect of, the
relevant Offered Securities, or to calculate amounts due thereon, in either the
current national currency of such Relevant Jurisdiction or Euro, the Company
will make such payments or calculations in such national currency or Euro at its
sole discretion. To the extent that the terms and conditions of the relevant
Offered Securities require the rounding up or down of certain amounts or
quotations expressed in Euro, such rounding will be made to the smallest
currency unit of the Euro.
The circumstances and consequences described in this section and any
resultant amendment to the terms and conditions of the relevant Offered
Securities will not entitle any Holder of such Offered Securities (i) to any
legal remedy, including, without limitation, redemption, rescission, notice,
repudiation, adjustment or renegotiation of the terms and conditions of the
Offered Securities, Indenture or Indentures and Index Warrant Agreement or
Agreements, or (ii) to raise any defense or make any claim (including, without
limitation, claims of breach, force majeure, frustration of purpose or
impracticability) or any other claim for compensation, damages or any other
relief, nor will any such events affect any of the other obligations of the
Company under the Offered Securities, Indenture or Indentures and Index Warrant
Agreement or Agreements.
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<PAGE> 44
USE OF PROCEEDS AND HEDGING
General. The proceeds to be received by the Company from the sale of the
Offered Securities will be used for general corporate purposes, principally to
fund the business of its operating units and to fund investments in, or
extensions of credit or capital contributions to, its subsidiaries and to
lengthen the average maturity of liabilities, which may include the reduction of
short-term liabilities or the refunding of maturing indebtedness. In order to
fund its business, the Company expects to incur additional indebtedness in the
future. The Company or an affiliate may enter into a swap agreement with one of
the Company's affiliates in connection with the sale of the Offered Securities
and may earn additional income as a result of payments pursuant to such swap or
related hedge transactions.
Use of Proceeds Relating to Index Warrants and Indexed Notes. All or a
portion of the proceeds to be received by the Company from the sale of Index
Warrants or Debt Securities on which certain or all payments of interest,
principal or premium may be linked to an Index ("Indexed Notes") may be used by
the Company or one or more of its subsidiaries to purchase or maintain positions
in all or certain of the assets by reference to which the relevant Index or
Indexes are determined or calculated ("Underlying Assets"), or options, futures
contracts, forward contracts or swaps, or options on the foregoing, or other
derivative or synthetic instruments relating to such Index or Underlying Assets,
as the case may be, and, if applicable, to pay the costs and expenses of hedging
any currency, interest rate or other Index-related risk with respect to such
Index Warrants and Indexed Notes. From time to time after the initial offering
and prior to the maturity of the Index Warrants and Indexed Notes, depending on
market conditions (including the value of the Index and/or the Underlying
Assets), in connection with hedging with respect to such Offered Securities, the
Company expects that it or one or more of its subsidiaries will increase or
decrease their initial hedging positions using dynamic hedging techniques and
may take long or short positions in the Index, the Underlying Assets, options,
futures contracts, forward contracts, swaps, or other derivative or synthetic
instruments related to, the Index and such Assets. In addition, the Company or
one or more of its subsidiaries may purchase or otherwise acquire a long or
short position in Index Warrants and Indexed Notes from time to time and may, in
their sole discretion, hold, resell, exercise, cancel or retire such Offered
Securities. The Company or one or more of its subsidiaries may also take hedging
positions in other types of appropriate financial instruments that may become
available in the future. To the extent that the Company or one or more of its
subsidiaries has a long hedge position in, options contracts in, or other
derivative or synthetic instruments related to, the Underlying Assets or Index,
the Company or one or more of its subsidiaries may liquidate all or a portion of
its holdings at or about the time of the maturity of the Index Warrants and
Indexed Notes. 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 the Company has no reason to believe that its hedging activity
will have a material impact on the price of such options, swaps, futures
contracts, options on the foregoing, or other derivative or synthetic
instruments, or on the value of the Index or the Underlying Assets, there can be
no assurance that the Company will not affect such prices or value as a result
of its hedging activities. The remainder of the proceeds from the sale of Index
Warrants and Indexed Notes will be used by the Company or its subsidiaries for
general corporate purposes, as described above.
PLAN OF DISTRIBUTION
The Company may sell Offered Securities in any of the following ways: (i)
through underwriters or dealers; (ii) directly to one or more purchasers; (iii)
through agents or (iv) through a combination of any such methods of sale. The
applicable Prospectus Supplement will set forth the terms of the offering of any
Offered Securities, including the names of any underwriter or underwriters, the
purchase price of such Offered Securities and the proceeds to the Company from
such sale, any underwriting discounts and other items constituting underwriters'
compensation, any initial public offering price, any discounts or concessions
allowed or reallowed or paid to dealers, any securities exchanges on which such
Offered Securities may be listed and any restrictions on the sale and delivery
of Offered Securities in bearer form. The Company reserves the right to
withdraw, cancel or modify the offer of any Offered Securities at any time
without notice.
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<PAGE> 45
If underwriters are used in the sale, the Offered Securities will be
acquired by the underwriters for their own account and may be resold from time
to time in one or more transactions, including negotiated transactions, at a
fixed public offering price or at varying prices determined at the time of sale.
Such Offered Securities may be offered to the public either through underwriting
syndicates represented by one or more managing underwriters or by underwriters
without a syndicate. The Company expects that such managing underwriters or
underwriters in the United States will include one or more broker-dealer
subsidiaries of the Company. Unless otherwise set forth in the applicable
Prospectus Supplement, the obligations of the underwriters to purchase such
Offered Securities will be subject to certain conditions precedent, and the
underwriters will be obligated to purchase all of such Offered Securities if any
of such Offered Securities are purchased. Any initial public offering price and
any discounts or concessions allowed or reallowed or paid to dealers may be
changed from time to time.
In connection with underwritten offerings of Offered Securities, 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 Offered Securities. Such transactions may include stabilization
transactions effected in accordance with Rule 104 of Regulation M under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), pursuant to
which such persons may bid for or purchase Offered Securities for the purposes
of stabilizing their market price. The underwriters also may create a short
position for their respective accounts by selling more Offered Securities in
connection with this offering than they are committed to purchase from the
Company, and in such case may purchase Offered Securities 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 Offered
Securities, by exercising any underwriters' over-allotment option that may be
applicable with respect to the particular underwritten offering. In addition,
the managing underwriter for the particular offering, 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 Offered Securities that are distributed in the
relevant 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 Offered Securities 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.
Offered Securities may also be offered and sold, if so indicated in the
Prospectus Supplement, in connection with a remarketing upon their purchase, in
accordance with a redemption or repayment pursuant to their terms, by one or
more firms ("remarketing firms") acting as principals for their own accounts or
as agents for the Company. Any remarketing firm will be identified and the terms
of its agreement, if any, with the Company and its compensation will be
described in the Prospectus Supplement. Remarketing firms may be deemed to be
underwriters in connection with the Offered Securities remarketed thereby.
Offered Securities may also be sold directly by the Company or through
agents designated by the Company from time to time. Any agent involved in the
offer or sale of Offered Securities will be named, and any commissions payable
by the Company to such agent will be set forth, in the applicable Prospectus
Supplement. Unless otherwise indicated in the applicable Prospectus Supplement,
any such agent will act on a best efforts basis for the period of its
appointment.
As one of the means of direct issuance of Offered Securities, the Company
may utilize the services of an entity through which it may conduct an electronic
"dutch auction" or similar offering of the Offered Securities among potential
purchasers who are eligible to participate in the auction or offering of such
Offered Securities, if so described in the applicable Prospectus Supplement.
If so indicated in the applicable Prospectus Supplement, the Company will
authorize agents, underwriters or dealers to solicit offers by certain specified
institutions to purchase Offered Securities at the public offering price set
forth in such Prospectus Supplement pursuant to delayed delivery contracts
providing for payment and delivery on a future date specified in such Prospectus
Supplement. Such contracts will be subject only to those conditions set forth in
the applicable Prospectus Supplement, and such Prospectus Supplement will set
forth the commissions payable for solicitation of such contracts.
22
<PAGE> 46
The anticipated date of delivery of Offered Securities will be as set forth
in the Prospectus Supplement relating to the offering of such Securities.
Any underwriters, dealers or agents participating in the distribution of
Offered Securities may be deemed to be underwriters and any discounts or
commissions received by them on the sale or resale of Offered Securities may be
deemed to be underwriting discounts and commissions under the Securities Act.
Agents, underwriters and dealers may be entitled under agreements entered into
with the Company to indemnification by the Company against certain civil
liabilities, including liabilities under the Securities Act, or to contribution
with respect to payments that the agents or underwriters may be required to make
in respect thereof or reimbursement of certain legal and other expenses. Agents,
underwriters and dealers may be customers of, engage in transactions with, or
perform services for, the Company or its affiliates in the ordinary course of
business.
The participation of any affiliate of the Company in the offer and sale of
Offered Securities 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. Each of the Company's
broker-dealer affiliates may act as an underwriter in an "at the market" equity
offering pursuant to Rule 415(a)(4) under the Securities Act.
Certain of the Company's affiliates expect to offer and sell previously
issued Offered Securities in the course of each of their respective business in
market-making transactions at negotiated prices related to prevailing market
prices at the time of sale, and may act as principal or agent in such
transactions, but no such entity is obligated to do so, and any such entity may
discontinue any market-making at any time without notice, at its sole
discretion. This Prospectus and the related Prospectus Supplements and Pricing
Supplements may be used by the Company or any of its affiliates in connection
with such transactions.
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus (including any accompanying Prospectus Supplement and Pricing
Supplement) and the accompanying 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 the company or an agent. Neither
the delivery of this Prospectus (including any accompanying Prospectus
Supplement and Pricing Supplement) nor any sale made hereunder shall, under any
circumstances, create an implication that there has been no change in the
affairs of the Company since the dates as of which information is given in this
Prospectus (including any accompanying Prospectus Supplement and Pricing
Supplement). This Prospectus (including any accompanying Prospectus Supplement
and Pricing Supplement) does not constitute an offer or solicitation by anyone
in any jurisdiction in which such offer or solicitation is not authorized or in
which the person making such offer or solicitation is not qualified to do so or
to any person to whom it is unlawful to make such offer or solicitation.
ERISA MATTERS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
imposes certain restrictions on employee benefit plans ("Plans") that are
subject to ERISA and on persons who are fiduciaries with respect to such Plans.
In accordance with ERISA's general fiduciary requirements, a fiduciary with
respect to any such Plan who is considering the purchase of the Offered
Securities on behalf of such Plan should determine whether such purchase is
permitted under the governing Plan documents and is prudent and appropriate for
the Plan in view of its overall investment policy and the composition and
diversification of its portfolio. Other provisions of ERISA and Section 4975 of
the Internal Revenue Code of 1986, as amended (the "Code"), prohibit certain
transactions involving the assets of a Plan and persons who have certain
specified relationships to the Plan ("parties in interest" within the meaning of
ERISA or "disqualified persons" within the meaning of Section 4975 of the Code).
Thus, a Plan fiduciary considering the purchase of the Offered Securities should
consider whether such a purchase might constitute or result in a prohibited
transaction under ERISA or Section 4975 of the Code.
The Company, directly or through its affiliates, may be considered a "party
in interest" or a "disqualified person" with respect to many Plans that are
subject to ERISA. The purchase of Offered Securities by a Plan that is subject
to the fiduciary responsibility provisions of ERISA or the prohibited
transaction provisions of
23
<PAGE> 47
Section 4975 of the Code (including individual retirement accounts and other
plans described in Section 4975(e)(1) of the Code) and with respect to which the
Company is a party in interest or a disqualified person may constitute or result
in a prohibited transaction under ERISA or Section 4975 of the Code, unless such
Offered Securities are acquired pursuant to and in accordance with an applicable
exemption, such as Prohibited Transaction Class Exemption ("PTCE") 84-14 (an
exemption for certain transactions determined by an independent qualified
professional asset manager), PTCE 91-38 (an exemption for certain transactions
involving bank collective investment funds), PTCE 90-1 (an exemption for certain
transactions involving insurance company pooled separate accounts), or PTCE
95-60 (an exemption for certain transactions involving insurance company general
accounts). ANY PENSION OR OTHER EMPLOYEE BENEFIT PLAN PROPOSING TO ACQUIRE ANY
OFFERED SECURITIES SHOULD CONSULT WITH ITS COUNSEL.
EXPERTS
The consolidated financial statements and schedules 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, included in Salomon Inc's Annual Report on Form 10-K
for the year ended December 31, 1996 (the "Salomon Financials"), are
incorporated by reference herein, in reliance upon the report (also incorporated
by reference herein) of Arthur Andersen LLP, independent public accountants, and
upon the authority of said firm as experts in accounting and auditing.
The consolidated financial statements and schedule of Smith Barney Holdings
Inc. and its subsidiaries for the fiscal years ended December 31, 1996 and 1995,
and for each of the three years in the period ended December 31, 1996, included
in the Company's Current Report on Form 8-K filed on September 29, 1997, have
been audited by Coopers & Lybrand L.L.P., independent certified public
accountants, as set forth in their report therein, included thereon and
incorporated herein by reference. Such financial statements referred to above
are incorporated by reference herein in reliance upon such report given upon the
authority of said firm as experts in accounting and auditing.
The supplemental consolidated financial statements of the Company and its
subsidiaries for the fiscal years ended December 31, 1996 and 1995 and for each
of the three years in the period ended December 31, 1996, included in the
Company's Current Report on Form 8-K filed on November 28, 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 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 referred to above are incorporated by reference
herein in reliance upon such reports given upon the authority of said firm as
experts in accounting and auditing.
LEGAL MATTERS
Certain legal matters relating to the Offered Securities will be passed
upon for the Company by Robert H. Mundheim, Esq., General Counsel of the
Company. Mr. Mundheim beneficially owns, or has rights to acquire under
Travelers Group employee benefit plans, an aggregate of less than one percent of
the common stock of Travelers Group.
Certain legal matters relating to the Offered Securities will be passed
upon for any underwriters or agents by Cleary, Gottlieb, Steen & Hamilton, New
York or Skadden, Arps, Slate, Meagher & Flom LLP, New York. Kenneth J. Bialkin,
a partner of Skadden, Arps, Slate, Meagher & Flom LLP, is a director of
Travelers Group, the parent of the Company, and he and other attorneys in such
firm beneficially own an aggregate of less than one percent of the common stock
of Travelers Group. Each of Cleary, Gottlieb, Steen & Hamilton and Skadden,
Arps, Slate, Meagher & Flom LLP has from time to time acted as counsel for
Travelers Group and certain of its subsidiaries and may do so in the future.
24
<PAGE> 48
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports, proxy statements and other
information with the Commission. Reports, proxy statements and other information
concerning the Company 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, and at the Commission's Regional Offices at Seven World
Trade Center, 13th Floor, New York, New York 10048, and Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material can be obtained upon written request addressed to the Commission,
Public Reference Section, 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 the
Company, that file electronically with the Commission. Such reports and other
information may also be inspected at the offices of the New York Stock Exchange,
Inc., 20 Broad Street, New York, New York 10005 and the American Stock Exchange,
86 Trinity Place, New York, New York 10006.
The Company has filed the Registration Statement under the Securities Act
relating to the Offered Securities with the Commission. 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.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, filed by the Company with the Commission pursuant
to Section 13 of the Exchange Act (File No. 1-4346), are incorporated herein by
reference: (i) the Annual Report on Form 10-K for the year ended December 31,
1996, (ii) the Quarterly Reports on Form 10-Q for the quarters ended March 31,
1997, June 30, 1997 and September 30, 1997 and (iii) the Current Reports on Form
8-K filed on January 21, 1997, March 17, 1997, April 15, 1997, July 17, 1997,
September 24, 1997, September 29, 1997 (as amended by the Current Report on Form
8-K/A filed on October 28, 1997 and the Current Report on Form 8-K/A2 filed on
December 1, 1997), October 21, 1997, October 28, 1997 (as amended by the Current
Report on Form 8-K/A filed on December 1, 1997), November 21, 1997 (as amended
by the Current Report on Form 8-K/A filed on December 1, 1997) and November 28,
1997.
All documents filed by the Company 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 Offered Securities 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.
The Company will provide without charge to each person, including any
beneficial owner of Offered Securities, 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.
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YOU SHOULD RELY ONLY ON THE INFORMATION INCORPORATED BY REFERENCE OR
PROVIDED IN THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION. WE ARE NOT
MAKING AN OFFER OF THESE SECURITIES IN ANY STATE WHERE THE OFFER IS NOT
PERMITTED. YOU SHOULD NOT ASSUME THAT THE INFORMATION IN THIS PROSPECTUS IS
ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE FRONT OF THE DOCUMENT.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Summary Information -- Q&A............ S-2
Incorporation of Certain Documents by
Reference........................... S-5
Risk Factors Relating to the Notes.... S-6
Description of the Notes.............. S-9
The Dow Jones Index................... S-15
Certain United States Federal Income
Tax Considerations.................. S-18
Underwriting.......................... S-21
Legal Matters......................... S-22
List of Dow Jones Index Underlying
Stocks.............................. A-1
PROSPECTUS
Prospectus Summary.................... 2
The Company........................... 6
Ratio of Earnings to Fixed Charges.... 6
The Offered Securities................ 6
Description of Debt Securities........ 7
Description of Index Warrants......... 15
Limitations on Issuance of Bearer
Securities and Bearer Warrants...... 19
European Monetary Union............... 20
Use of Proceeds and Hedging........... 21
Plan of Distribution.................. 21
ERISA Matters......................... 23
Experts............................... 24
Legal Matters......................... 24
Available Information................. 25
Incorporation of Certain Documents by
Reference........................... 25
</TABLE>
======================================================
======================================================
$
SALOMON SMITH
BARNEY HOLDINGS INC.
EQUITY LINKED NOTES
BASED UPON THE
DOW JONES
INDUSTRIAL AVERAGE(SM)
DUE , 2005
------------
PROSPECTUS SUPPLEMENT
FEBRUARY , 1998
(INCLUDING PROSPECTUS
DATED DECEMBER 1, 1997)
------------
SALOMON SMITH BARNEY
CIBC OPPENHEIMER CORP.
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