<PAGE> 1
Filed pursuant to Rule 424(b)(3)
Registration Number 333-38931
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED DECEMBER 1, 1997)
SALOMON SMITH BARNEY HOLDINGS INC.
1,100,000 CALL WARRANTS
ON THE
1998 TEN+ (SM) INDEX
EXPIRING ON JULY 17, 2000
------------------------
Each 1998 TEN+(SM) Index Call Warrant (a "Warrant") will entitle the holder
thereof, upon exercise (including automatic exercise), to receive from Salomon
Smith Barney Holdings Inc. (the "Company" and, together with its subsidiaries,
"Salomon Smith Barney") an amount in cash (the "Cash Settlement Value")
calculated by reference to increases, if any, in the 1998 TEN+ Index, which will
consist of a diversified basket of the common stocks (or American Depositary
Receipts ("ADRs")) of 15 corporations operating in several industry groups (the
"Index", as more fully defined on page S-3). A list of the underlying stocks
appears on page S-19. The Cash Settlement Value will equal the greater of (A)
zero and (B) the product (rounded down to the nearest cent) of (i) the quotient
obtained by dividing (x) the amount, if any, by which the Spot Index Value (as
defined on page S-4) for the applicable Valuation Date (as defined on page S-25)
exceeds the product of (a) .8 and (b) the Initial Index Value (as defined on
page S-4) by (y) the Initial Index Value and (ii) $10. The Initial Index Value,
which shall remain constant throughout the term of the Warrants once it is
determined, will be set on August 4, 1998 and will equal the closing value of
the Index on such date.
THE WARRANTS MAY NOT BE EXERCISED PRIOR TO AUGUST 5, 1998.
The Warrants have been approved for listing on the Chicago Board Options
Exchange (the "CBOE") under the symbol "TPW", subject to official notice of
issuance.
(CONTINUED ON NEXT PAGE)
INVESTING IN THE WARRANTS INVOLVES A HIGH DEGREE OF RISK, INCLUDING THE
RISK OF THE WARRANTS EXPIRING WORTHLESS IF THE SPOT INDEX VALUE IS LESS THAN OR
EQUAL TO 80% OF THE INITIAL INDEX VALUE. PURCHASERS SHOULD BE PREPARED TO
SUSTAIN A TOTAL LOSS OF THE PURCHASE PRICE OF THEIR WARRANTS AND ARE ADVISED TO
CONSIDER CAREFULLY THE "RISK FACTORS RELATING TO THE WARRANTS" BEGINNING ON PAGE
S-8.
------------------------
THESE WARRANTS 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 PROSPECTUS, IS ACCURATE OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNTS THE COMPANY(1)
- ------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
Per Warrant..................... $4.15 $0.25 $3.90
- ------------------------------------------------------------------------------------------------------------------------------
Total........................... $4,565,000.00 $275,000.00 $4,290,000.00
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Before deducting expenses payable by the Company estimated at $100,000.
------------------------
The Warrants are offered by the Underwriter named herein, subject to prior
sale, when, as and if accepted by it and subject to certain conditions. It is
expected that delivery of the Warrants 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 July 22, 1998.
SALOMON SMITH BARNEY
July 17, 1998
<PAGE> 2
(continued from cover page)
The Warrants will be exercisable on any Business Day (as defined on page
S-4) from August 5, 1998 until 3:00 P.M., New York City time, on the earlier of
(i) the fourth Business Day immediately preceding July 17, 2000 (the "Expiration
Date" for the Warrants) and (ii) the Business Day immediately preceding the
Delisting Date (as defined on page S-5), if any. Any Warrant not exercised at or
before 3:00 P.M., New York City time, on such Business Day will be automatically
exercised on the Expiration Date or on the Delisting Date, as the case may be,
subject to an automatic extension of the term of the Warrants as described
herein. All exercises of Warrants (other than automatic exercises) are subject,
at the Company's option, to the limitation that not more than 250,000 Warrants
in total may be exercised on any Exercise Date (as defined on page S-24) and not
more than 100,000 Warrants may be exercised by or on behalf of any person or
entity, either individually or in concert with any other person or entity, on
any Exercise Date. See "Description of the Warrants -- Exercise of
Warrants -- Maximum Exercise Amount".
The valuation of and payment for any exercised Warrant may be postponed as
a result of an Extraordinary Event or a Market Disruption Event (each as defined
on pages S-28 and S-27, respectively) or as a result of the exercise of a number
of Warrants exceeding the maximum permissible amount as described herein, in
which case the Warrantholder (as defined on page S-5) will receive the Cash
Settlement Value or, under certain circumstances, the Alternative Settlement
Amount (as defined on page S-28) for such Warrant, in either case determined as
of a later date.
A Warrantholder tendering Warrants for exercise (and, therefore, not in the
case of an automatic exercise) will have the option of specifying that such
Warrants are not to be exercised if the Spot Index Value as of the applicable
Valuation Date is five or more points lower than the closing level of the Spot
Index Value on the relevant Exercise Date. Warrants that are not exercised will
be treated as not having been tendered for exercise and will be returned to the
Warrantholder. See "Description of the Warrants -- Limit Option".
The CBOE requires that the Warrants be sold only to investors whose
accounts have been approved for options trading. In addition, the CBOE requires
that its members and member organizations and registered employees thereof make
certain suitability determinations before recommending transactions in the
Warrants.
For additional information as to the Cash Settlement Value, Initial Index
Value, Spot Index Value and certain United States federal income tax
consequences to holders of the Warrants you should refer to the sections
"Description of Warrants -- Determination of the Cash Settlement Value",
"-- Determination of the Initial Index Value" and "-- Determination of the Spot
Index Value", and "Certain United States Federal Income Tax Considerations" in
this Prospectus Supplement.
"TEN+" is a registered servicemark of the Company.
S-2
<PAGE> 3
SUMMARY INFORMATION -- Q&A
This summary includes questions and answers that highlight selected
information from this Prospectus Supplement and the accompanying Prospectus to
help you understand the Call Warrants based upon the 1998 TEN+(SM) Index (the
"Warrants")*. You should carefully read the entire Prospectus and Prospectus
Supplement to fully understand the terms of the Warrants, certain information
regarding how the 1998 TEN+(SM) Index (the "TEN+ 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
Warrants. You should, in particular, carefully review the section entitled "Risk
Factors Relating to the Warrants", which highlights certain risks, to determine
whether an investment in the Warrants 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 WARRANTS?
The Warrants are a series of Index Warrants (as defined in the Prospectus
accompanying this Prospectus Supplement) issued by the Company. The Warrants are
contractual obligations of the Company and are not secured by collateral. The
Warrants will rank equally with all other unsecured contractual obligations of
the Company and the Company's unsecured and unsubordinated debt. Since the
Company is a holding company, the Warrants will be effectively subordinated to
the claims of creditors of the Company's subsidiaries.
The initial purchase price of the Warrants is $4.15 per Warrant. The
Company will make no periodic payments on the Warrants. As explained more fully
below, the Company will make a payment to you upon your exercise of the Warrants
only if the Spot Index Value on the Valuation Date with respect to the time you
exercise the Warrants is greater than 80% of the Initial Index Value. The
Warrants expire on July 17, 2000, and any Warrants that have not been exercised
prior to such date or an earlier Delisting Date will be subject to automatic
exercise as described under "Description of the Warrants -- Automatic Exercise."
However, if the Spot Index Value at such time is less than or equal to 80% of
the Initial Index Value, then the Warrants will expire worthless and you will
receive no payment.
You will not have the right to receive physical certificates evidencing
your ownership of the Warrants except under limited circumstances. Instead, the
Company will issue the Warrants in book-entry form in the form of one or more
global certificates, which will be held by the Depository Trust Company ("DTC",
which term, as used herein and in the accompanying Prospectus, will include any
successor depositary selected by the Company) or its nominees. Direct and
indirect participants in DTC (including participants in the Euroclear and Cedel
clearing systems) will record beneficial ownership of the Warrants by individual
investors. You should refer to the section "Description of the
Warrants -- Book-Entry System" in this Prospectus Supplement.
WHAT WILL I RECEIVE UPON EXERCISE OF THE WARRANTS?
We have designed the Warrants to permit investors to participate in the
appreciation, if any, of the TEN+ Index, a diversified basket of the common
stocks (or ADRs) of 15 U.S. and foreign corporations operating in several
industry groups that is described in more detail below. Since warrants are
inherently leveraged instruments, the purchase of a Warrant allows investors to
benefit from the performance of a larger notional investment in the TEN+ Index
with a smaller initial investment in the Warrants.
- ---------------
* Refer to "Index of Terms" attached hereto as Appendix A for a listing of
defined terms and pages on which they are defined in this Prospectus
Supplement.
S-3
<PAGE> 4
Cash Settlement Value
The Cash Settlement Value, if any, that you will receive upon exercise
(including automatic exercise) of your Warrants is equal to:
<TABLE>
<C> <C> <S>
Spot Index Value - (.8 X Initial Index Value)
the greater of (A) zero and (B) ----------------------------------------------- X $10
Initial Index Value
</TABLE>
In certain circumstances, as described more fully below, you will receive
an Alternative Settlement Amount rather than the Cash Settlement Value of your
Warrants.
"Initial Index Value" means the value of the TEN+ Index at the close of
trading on the CBOE on August 4, 1998. Once determined, the Initial Index Value
will remain constant throughout the term of the Warrants. The closing value of
the Index as of July 16, 1998 has been set at 100; the Initial Index Value,
which will be determined approximately 18 days later, may be higher, lower or
equal to 100. Once it has been determined, the Initial Index Value will be
disseminated by the CBOE and published by the Company in The Wall Street
Journal.
"Spot Index Value" means the value of the TEN+ Index at the close of
trading on the CBOE on the applicable Valuation Date (as defined below);
provided, however, that the Spot Index Value with respect to the Expiration
Date, any Early Extended Expiration Date (as defined below) or any Extended
Expiration Date (as defined below) means the value of the TEN+ Index at the
opening of trading on the CBOE on the applicable Valuation Date. The Valuation
Date will generally be the Business Day following the date on which you exercise
your Warrants, but may be the second Business Day following such exercise,
depending on the timing of your exercise. The Valuation Date may also be
postponed as a result of an Extraordinary Event or a Market Disruption Event
(see "Description of the Warrants -- Market Disruption Events, Extraordinary
Events and Extension Events") or the exercise of a number of Warrants exceeding
certain limits on exercise (see "Description of the Warrants -- Exercise of
Warrants -- Maximum Exercise Amount").
As used in this Prospectus Supplement, "Business Day" means any day other
than a Saturday or Sunday or a day on which either the CBOE is not open for
securities trading or commercial banks in New York City are required or
authorized by law or executive order to remain closed, and a "Trading Day" means
any Business Day on which no Extraordinary Event or Market Disruption Event
(each as defined below) has occurred.
The Company will pay you a Cash Settlement Value only if the Spot Index
Value is greater than 80% of the Initial Index Value on the applicable Valuation
Date. IF THE SPOT INDEX VALUE ON THE RELEVANT VALUATION DATE IS EQUAL TO OR LESS
THAN 80% OF THE INITIAL INDEX VALUE, THE CASH SETTLEMENT VALUE WILL BE ZERO.
The Cash Settlement Value and any Alternative Settlement Amount will be
rounded down to the nearest cent.
For more specific information about the Cash Settlement Value, please refer
to the section "Description of the Warrants -- Determination of the Cash
Settlement Value" in this Prospectus Supplement.
S-4
<PAGE> 5
Cash Settlement Value -- Examples
Here are three examples of hypothetical Cash Settlement Value calculations:
Example 1: Spot Index Value is less than 80% of the Initial Index Value on
the Valuation Date relating to the relevant Exercise Date:
Hypothetical Initial Index Value: 110
Hypothetical Spot Index Value: 80
<TABLE>
<C> <C> <S>
80 - (.8 X 110)
Cash Settlement Value (per Warrant) = ----------------- X $10 = $0
110
(cannot be less than zero)
</TABLE>
The Cash Settlement Value is zero and exercise of the Warrant at such time
is worthless.
Example 2: Spot Index Value is greater than 80% of the Initial Index Value
on the Valuation Date relating to the relevant Exercise Date, but less than the
Initial Index Value:
Hypothetical Initial Index Value: 110
Hypothetical Spot Index Value: 100
<TABLE>
<C> <C> <S>
100 - (.8 X 110)
Cash Settlement Value (per Warrant) = ------------------- X $10 =
110 $1.09
</TABLE>
You would receive $1.09 per Warrant upon exercising your Warrants.
Example 3: Spot Index Value is greater than the Initial Index Value on the
Valuation Date relating to the relevant Exercise Date:
Hypothetical Initial Index Value: 110
Hypothetical Spot Index Value: 140
<TABLE>
<C> <C> <S>
140 - (.8 X 110)
Cash Settlement Value (per Warrant) = ------------------ X $10 = $4.72
110
</TABLE>
You would receive $4.72 per Warrant upon exercising your Warrants.
HOW DO I EXERCISE MY WARRANTS?
The Warrants will be exercisable on any Business Day from August 5, 1998
until 3:00 P.M., New York City time, on the earlier of (i) the fourth Business
Day immediately preceding the Expiration Date for the Warrants, which is July
17, 2000, or (ii) if the Warrants are delisted, the Business Day immediately
preceding the effective date of their delisting from, or permanent suspension
from trading on, the CBOE and failure to list the Warrants on another United
States national securities exchange (the "Delisting Date").
The Company will issue the Warrants in the form of one or more global
certificates, which will be held by DTC or its nominee. Direct and indirect
participants in DTC (including the depositaries in the Euroclear or Cedel
clearing systems) will record beneficial ownership of the Warrants by individual
investors. To exercise Warrants, a registered holder of a Warrant (a
"Warrantholder") must direct a broker, who may, in turn, need to direct a
participating organization in DTC (a "Participant"), to transfer Warrants held
by DTC on behalf of such Warrantholder and to submit an exercise notice in the
form of Appendix B hereto (an "Exercise Notice") to the Warrant Agent (as
defined below). In order for the Business Day on which a Warrantholder's
Warrants and an Exercise Notice are delivered on his behalf to the Warrant Agent
to constitute the Exercise Date for the Warrants being exercised, a
Warrantholder must cause such Warrants to be transferred free on the records of
DTC to, and such Exercise Notice to be received by, the Warrant Agent at or
prior to 3:00 P.M., New York City time, on such Business Day; provided, however,
that in the case of Warrants held through Cedel or Euroclear, the Warrants must
be transferred to the Warrant Agent prior to 3:00 P.M., New York City time, on
the applicable Valuation Date to achieve such objective. See "Risk
Factors -- Risks and
S-5
<PAGE> 6
Costs Associated with Exercise of Warrants" and "Description of the
Warrants -- Exercise and Settlement of Warrants".
Any Warrant not exercised on or before the Expiration Date or the Delisting
Date, if any, will be automatically exercised on such date. See "Description of
the Warrants -- Exercise and Settlement of Warrants".
All exercises of Warrants (other than automatic exercises) are subject, at
the Company's option, to the limitation that not more than 250,000 Warrants in
total may be exercised on any Exercise Date and not more than 100,000 Warrants
may be exercised by or on behalf of any person or entity, either individually or
in concert with any other person or entity, on any Exercise Date. See
"Description of the Warrants -- Maximum Exercise Amount".
WHO SHOULD CONSIDER INVESTMENTS IN THE WARRANTS?
Since the Warrants are tied to the results of an underlying equity index,
they may be appropriate for investors with specific investment horizons who seek
to participate in the potential price appreciation of the underlying stocks
comprising the Index with risk limited to the cost of the Warrants they
purchase. The CBOE requires that the Warrants be sold only to investors whose
accounts have been approved for options trading. In addition, the CBOE requires
that its members and member organizations and registered employees thereof make
certain suitability determinations before recommending transactions in the
Warrants.
In particular, the Warrants may be an attractive investment for investors
who:
- Want to participate in the appreciation potential offered by the
stocks underlying the Index, but are concerned about limiting their
investment risk to the cost of the Warrants they purchase.
- Seek to add a leveraged equity-linked investment to balance out a
portfolio otherwise dominated by fixed income investments.
- Desire to benefit from the potential appreciation and diversification
offered by an index based on a portfolio of 15 stocks with a
significantly smaller initial investment than would otherwise be
required.
- Are willing to forego dividend payments on the stocks underlying the
Index.
WHO PUBLISHES THE INDEX AND WHAT DOES IT MEASURE?
The TEN+ Index is a stock index calculated, published and disseminated by
the CBOE that is intended to measure the composite price performance of the
underlying stocks. The underlying stocks that comprise the Index have been
selected by Salomon Smith Barney's TEN+ Selection Committee as undervalued
stocks deemed to have above average appreciation potential over the 12 months
following the selection of such stocks. A list of the underlying stocks,
together with certain information about the historical price performance of the
Index, is included in the section "Description of the Index" in this Prospectus
Supplement.
WHAT ABOUT TAXES?
Unlike certain other publicly-traded index and currency warrants, you
generally will not be required to mark the Warrants offered hereby to market
(i.e., treat them as sold at fair market value) for federal income tax purposes
on the last business day of each taxable year. Rather, when you sell or exercise
the Warrants, you will have a gain or loss equal to the difference between the
cash you receive and your tax basis in the Warrants. If you hold Warrants that
are worthless when they expire or at the time of an automatic exercise, you will
have a loss equal to your tax basis in the Warrants. All such gains or losses
will generally be capital gains or losses. Please refer to the section "Certain
United States Federal Income Tax Considerations".
S-6
<PAGE> 7
WILL THE WARRANTS BE LISTED ON A STOCK EXCHANGE?
The Warrants have been approved for listing on the CBOE under the symbol
"TPW", subject to official notice of issuance. You should be aware that the
listing of the Warrants on the CBOE will not ensure that a liquid trading market
will develop or, if any such market does develop, that it will remain available
throughout the term of the Warrants. The delisting of the Warrants from, or
permanent suspension of trading of the Warrants on, the CBOE, and failure to
list the Warrants on another national securities exchange will result in the
automatic exercise of the Warrants, and could result in an investor's total loss
of the purchase price for his Warrants. You should review the sections "Risk
Factors -- Possible Illiquidity of the Secondary Market" and "Description of the
Warrants -- Automatic Exercise" in this Prospectus Supplement.
WHAT IS THE ROLE OF SALOMON SMITH BARNEY AND OUR SUBSIDIARY, SMITH BARNEY INC.?
Salomon Smith Barney's TEN+ Selection Committee has selected the underlying
stocks that comprise the TEN+ Index. See "Description of the Index." The
inclusion of an underlying stock in the TEN+ Index should not be considered a
recommendation to buy or sell such security, and neither Salomon Smith Barney
nor any of its affiliates make any representation to any purchaser of the
Warrants as to the performance of the Index or any underlying stock. Beneficial
owners of the Warrants will not have any right to receive any underlying stock
or any dividends on any underlying stock.
The underlying stocks in the Index comprise all of the portfolio securities
(the "Portfolio Securities") included in the Uncommon Values Trust, 1998 Series
(the "Trust"). See "Description of the Index." The Trust is a unit investment
trust sponsored by Smith Barney Inc. ("Smith Barney"), a subsidiary of the
Company, which offered units in the Trust for initial sale to the public on July
6, 1998. In connection with the offering of units in the Trust (as well as in
connection with satisfying redemptions from the Trust), Smith Barney, as the
sponsor of the Trust, or the Trust itself has bought (and sold) and will buy
(and sell) the Portfolio Securities. Especially during the period of the initial
offering of units in the Trust, during which Smith Barney as sponsor or the
Trust is expected to purchase a material amount of the Portfolio Securities, the
volume of such transactions in the Portfolio Securities may impact upon the
value of the Portfolio Securities. Such activity in the Portfolio Securities may
have an impact on the value of the underlying stocks comprising the Index, and
thus, on the value of the Index. The publication of the list of the Portfolio
Securities selected for the Trust may also cause increased trading activity in
certain of the Portfolio Securities. In response to such announcement,
investment advisory and brokerage clients of Smith Barney and its affiliates may
have purchased and may purchase some or all of the individual Portfolio
Securities appearing on the list during the period of the initial offering of
units in the Trust. Such activity in the Portfolio Securities may have an impact
on the value of the stocks underlying the Index, and thus, on the value of the
Index. Moreover, throughout the term of the Warrants, purchasing and selling
activity, including by such clients and including in response to research
coverage or other analysis by Smith Barney or other affiliates of the Company,
may impact the value of the stocks underlying the Index. The Company has decided
to set the Initial Index Value of the Warrants on a date approximately one month
after the selection of the Portfolio Securities (and the public offering of
units in the Trust) in the expectation that such delay in setting the Initial
Index Value will tend to reduce the impact that the activity of the Trust (and
of investment advisory and brokerage clients of Smith Barney) will have on the
value of the underlying stocks comprising the Index, and thus, on the value of
the Index, as this impact is expected to be most significant in the
twenty-Trading Day period following the public offering of units in the Trust.
No assurance can be given, however, that such activity will not affect the
Initial Index Value or the Spot Index Value at any given time, and therefore the
trading value and Cash Settlement Value of the Warrants.
Smith Barney is also the underwriter for the offering and sale of the
Warrants. After the initial offering of the Warrants, Smith Barney and/or other
subsidiaries of the Company intend to buy and sell Warrants to create a
secondary market for Warrantholders. However, neither Smith Barney nor any of
such affiliates will be obligated to engage in any of these market activities or
to continue them once they have been started.
Smith Barney will also be our Determination Agent (as defined below) for
purposes of calculating the Initial Index Value, any Spot Index Value, the Cash
Settlement Value and any Alternative Settlement
S-7
<PAGE> 8
Amount, and in determining whether an Extraordinary Event or Market Disruption
Event has occurred. Potential conflicts of interest may exist between Smith
Barney and the Warrantholders.
CAN YOU TELL ME MORE ABOUT THE COMPANY?
Salomon Smith Barney Holdings Inc. is a holding company that provides
investment banking, securities and commodities trading, brokerage, asset
management and other financial services through its subsidiaries. The Company is
a subsidiary of Travelers Group Inc. ("Travelers Group"), a diversified
financial services holding company. On April 6, 1998, Travelers Group and
Citicorp announced that they entered into a definitive agreement to combine in a
merger of equals. The transaction, which is expected to be completed during the
third quarter of 1998, is subject to various regulatory approvals, including
approval by the Federal Reserve Board. The transaction is also subject to
approval by the stockholders of each of Travelers Group and Citicorp.
For additional information about the Company, you should refer to the
section "The Company" in the Prospectus. You should also read the other
documents the Company has filed with the Securities and Exchange Commission (the
"SEC"), which you can find by referring to the section "Where You Can Find More
Information" in the Prospectus.
ARE THERE ANY RISKS ASSOCIATED WITH MY INVESTMENT?
Yes, investing in the Warrants involves a high degree of risk, including
the risk of the Warrants expiring worthless if the Spot Index Value with respect
to the Expiration Date is equal to or less than 80% of the Initial Index Value.
You should be prepared to sustain a total loss of the purchase price of your
Warrants and are advised to consider carefully the "Risk Factors Relating to the
Warrants" below.
------------------------
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, filed by the Company with the SEC pursuant to
Section 13 of the Securities Exchange Act of 1934, as amended (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, 1997, (ii) the Quarterly
Report on Form 10-Q for the quarter ended March 31, 1998 and (iii) the Current
Reports on Form 8-K filed on January 9, 1998, January 26, 1998, February 2,
1998, March 3, 1998, April 17, 1998, April 20, 1998, May 13, 1998, June 8, 1998,
June 10, 1998, June 17, 1998 and July 17, 1998. See "The Company -- Where You
Can Find More Information" and "Incorporation of Certain Documents by Reference"
in the Prospectus. Such documents may be accessed electronically by means of the
SEC's home page on the world wide web on the internet at "http://www.sec.gov."
------------------------
RISK FACTORS RELATING TO THE WARRANTS
The Warrants involve a high degree of risk. Prospective purchasers of the
Warrants should recognize that their Warrants may expire worthless and should be
prepared to sustain a total loss of the purchase price of their Warrants.
Prospective purchasers of the Warrants should be experienced with respect to
options and options transactions, should understand the risks of transactions in
equity-indexed instruments and should reach an investment decision only after
careful consideration, with their advisers, of the suitability of the Warrants
in light of their particular financial circumstances, the information set forth
below and the other information set forth in this Prospectus Supplement and the
Prospectus.
GENERAL MARKET AND TIMING RISKS
A Warrantholder will receive a cash payment from the Company upon exercise
(including automatic exercise) of a Warrant only if such Warrant has a Cash
Settlement Value greater than zero at such time. The "Cash Settlement Value" of
a Warrant will equal the greater of (A) zero and (B) the product (rounded down
to the nearest cent) of (i) the quotient obtained by dividing (x) the amount, if
any, by which the Spot Index Value for the applicable Valuation Date exceeds the
product of (a) .8 and (b) the Initial Index Value by
S-8
<PAGE> 9
(y) the Initial Index Value and (ii) $10. If the Spot Index Value for any
Valuation Date is less than or equal to 80% of the Initial Index Value, the Cash
Settlement Value will be zero. The Initial Index Value, which shall remain
constant throughout the term of the Warrants, will be set on August 4, 1998 and
will equal the closing value of the Index on such date. Accordingly, the
Warrants may not be exercised before August 5, 1998. See "Description of the
Warrants -- Determination of Cash Settlement Value of Warrants".
Investment decisions relating to equity-indexed warrants, such as the
Warrants offered hereby, require the investor to predict the direction of
movements in the values of the stocks underlying the relevant index as well as
the amount and timing of those movements. Equity-indexed warrants may change
substantially in value, or lose all of their value, with relatively small
movements in the value of the relevant index. Moreover, an equity-indexed
warrant is a "wasting asset" in that, in the absence of countervailing factors,
such as an offsetting movement in the value of the relevant index, the market
value of an equity-indexed warrant will tend to decrease over time and the
warrant will have no market value after the time for exercise has expired.
Accordingly, equity-indexed warrants, such as the Warrants offered hereby,
involve a high degree of risk and are not appropriate for every investor.
Investors who are considering purchasing the Warrants must be able to understand
and bear the risk of a speculative investment in the Warrants, be experienced
with respect to options and option transactions and understand the risks of
transactions in equity-indexed instruments. Investors should reach an investment
decision only after careful consideration, with their advisors, of the
suitability of the Warrants in light of their particular financial circumstances
and the information set forth in this Prospectus Supplement and in the
Prospectus.
RELATIONSHIP OF THE WARRANTS AND THE 1998 TEN+ INDEX
While the trading prices of the stocks underlying the Index will determine
the value of the Index, it is impossible to predict whether the value of the
Index will fall or rise. Trading prices of the stocks underlying the Index will
be influenced by 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. There is, of course,
no assurance that any of the underlying stocks comprising the Index will
appreciate in value, and indeed any or all of such underlying stocks (and the
Index) may depreciate in value at any time in the future.
The policies of the CBOE or any subsequent publisher of the Index
concerning additions, deletions and substitutions of the stocks underlying the
Index and the manner in which such publisher takes account of certain changes
affecting the stocks comprising the Index may affect the value of the Index, as
may the policies of such publisher with respect to the calculation of the Index.
The CBOE or any such subsequent publisher may discontinue or suspend calculation
or dissemination of the Index or materially alter the methodology by which it
calculates the Index. Any such actions could affect the value of the Warrants.
You should refer to the section "Description of the Index" in this Prospectus
Supplement for more information.
CERTAIN FACTORS AFFECTING TRADING VALUE OF WARRANTS
The Warrants may not be exercised before August 5, 1998. The Cash
Settlement Value of the Warrants at any time prior to their expiration is
expected typically to be less than the trading price of the Warrants at that
time. The difference between the trading price and the Cash Settlement Value
will reflect, among other things, a "time value" for the Warrants. The "time
value" of the Warrants will depend partly upon the length of time remaining to
their expiration and expectations concerning the value of the Index and the
underlying stocks during such period. The expiration date of the Warrants will
be accelerated should the Warrants be delisted from, or should there be a
permanent suspension of their trading on, the CBOE, unless the Warrants
simultaneously are accepted for listing on another national securities exchange.
Any such acceleration would result in the total loss of any otherwise remaining
"time value", and could occur when such Warrants are "at-the-money" or
"out-of-the-money" (as such terms are defined in the following paragraphs), thus
resulting in the total loss of the purchase price of such Warrants.
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The Spot Index Value on any given day will determine whether the Warrants
have a Cash Settlement Value greater than zero on such day. The Warrants will be
"at-the-money" (i.e., their Cash Settlement Value will be zero) on any given day
if the Spot Index Value is equal to 80% of the Initial Index Value, will be
"out-of-the-money" (i.e., their Cash Settlement Value will be zero) on any given
day if the Spot Index Value is less than 80% of the Initial Index Value and will
be "in-the-money" (i.e., their Cash Settlement Value will be greater than zero)
on any given day only if the Spot Index Value exceeds 80% of the Initial Index
Value. An increase in the positive difference, if any, between the Spot Index
Value and the Initial Index Value will result in a greater Cash Settlement
Value, and a decrease in such difference will result in a lesser or zero Cash
Settlement Value. Potential profit or loss upon exercise (including automatic
exercise) of a Warrant will be a function of the Cash Settlement Value of such
Warrant upon exercise, the purchase price of such Warrant and any related
transaction costs.
Warrantholders should be aware that the Company and its affiliates may take
positions in the stocks underlying the Index to facilitate client transactions
and as principal positions for the Company or such affiliates' own accounts.
Through such activities, the Company and its affiliates may take positions in
the underlying stocks that are inconsistent with an investment in the Warrants.
See "Risk Factors -- Certain Relationships and Related Transactions".
Before purchasing, exercising or selling Warrants, Warrantholders should
carefully consider, among other things, (i) the trading price of the Warrants,
(ii) the value of the Index at such time, (iii) the time remaining to their
expiration, (iv) the probable range of Cash Settlement Values and (v) any
related transaction costs.
The trading value of a Warrant at any time is expected to be dependent on
(i) the relationship between the Initial Index Value and the Spot Index Value at
such time and (ii) a number of other interrelated factors, including those
listed below. The relationship among these factors is complex, and 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 trading
value of the Warrants given a change in a specific factor, assuming all other
conditions remain constant.
Index Value. The trading of the Warrants at any given time will likely
depend substantially on the amount, if any, by which the then current Spot Index
Value exceeds 80% of the Initial Index Value. If the value of the Index falls in
relation to the Initial Index Value, the trading value of a Warrant is expected
to decrease; if the value of the Index rises in relation to the Initial Index
Value, the trading value of a Warrant is expected to increase. If you choose to
sell your Warrants when the Spot Index Value is below 80% of the Initial Index
Value, you can expect to receive less than the initial purchase price of the
Warrants (especially if a relatively short period of time remains until
maturity).
Volatility of the Index. Volatility is the term used to describe the size
and frequency of market fluctuations. If the volatility of the Index increases,
the trading value of the Warrants may be favorably affected. If the volatility
of the Index decreases, the trading value of the Warrants may be adversely
affected.
Time Remaining to Expiration. The Warrants may trade at a value above that
which would be expected based on the level of the Index due to a "time premium"
resulting from expectations concerning the value of the Index prior to the
expiration of the Warrants. However, as the time remaining to the expiration of
the Warrants decreases, this time premium may decrease, adversely affecting the
trading value of the Warrants.
Interest Rates. If interest rates increase, the trading value of the
Warrants may be favorably affected due to the increased carrying costs of an
investment in the underlying stocks, which makes an investment in the Warrants
relatively more attractive, and, accordingly, if interest rates decrease, the
value of the Warrants may be adversely affected.
Dividend Yields. If dividend yields on the underlying stocks comprising
the Index increase, the trading value of the Warrants 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 trading value
of the Warrants may be favorably affected.
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Company Credit Ratings, Financial Condition and Earnings Results. Real or
anticipated changes in the Company's credit ratings, financial condition or
earnings results may affect the trading value of the Warrants.
Economic Conditions and Earnings Performance of Underlying Companies. Real
or anticipated changes in general economic conditions, the values of common
stocks generally, the earnings results and financial condition of the companies
whose stocks comprise the Index and conditions in a given issuer's industry
and/or the markets in which it operates may affect the trading value of the
Warrants.
We want you to understand that the impact of one of the factors specified
above, such as a decrease in the time remaining to the expiration of the
Warrants, may offset some or all of any change in the trading value of the
Warrants attributable to another factor, such as an increase in the Index value.
RISKS AND COSTS ASSOCIATED WITH EXERCISE OF WARRANTS
The Company will issue the Warrants in the form of one or more global
certificates, which will be held by DTC or its nominee. Direct and indirect
participants in DTC (including the depositaries in the Euroclear or Cedel
clearing systems) will record beneficial ownership of the Warrants by individual
investors. To exercise Warrants, a registered holder of a Warrant must direct a
broker, who may, in turn, need to direct a Participant, to transfer Warrants
held by DTC on behalf of such Warrantholder and to submit an Exercise Notice to
the Warrant Agent. In order for the Business Day on which a Warrantholder's
Warrants and an Exercise Notice are delivered on his behalf to the Warrant Agent
to constitute the Exercise Date for the Warrants being exercised, a
Warrantholder must cause the Warrants to be transferred free on the records of
DTC to, and such Exercise Notice to be received by, the Warrant Agent at or
prior to 3:00 P.M., New York City time, on such Business Day; provided, however,
that in the case of Warrants held through Cedel or Euroclear, the Warrants must
be transferred to the Warrant Agent prior to 3:00 P.M., New York City time, on
the applicable Valuation Date to achieve this objective. To ensure that the
Warrants and Exercise Notice will be received by the Warrant Agent at or prior
to such time, the Warrantholder must give the appropriate direction to his
broker before such broker's (and, if such broker is not a Participant, the
applicable Participant's) cut-off time for accepting exercise instructions from
customers for that day. Different brokerage firms may have different cut-off
times for accepting and implementing exercise instructions from their customers.
Therefore, Warrantholders should consult with their brokers or other
intermediaries, if applicable, as to applicable cut-off times and other exercise
mechanics. See "Description of the Warrants -- Exercise and Settlement of
Warrants", "-- Cedel and Euroclear" and "-- Limit Option". A Form of Exercise
Notice for Warrants appears in Appendix B hereto. Additional forms may be
obtained at the Warrant Agent's Office (as defined below) during the Warrant
Agent's normal business hours. See "Description of the Warrants -- General".
If a Warrant is not exercised prior to 3:00 P.M., New York City time, on
the earlier of (i) the fourth Business Day preceding the Expiration Date and
(ii) the Delisting Date, if any, such Warrant will be subject to automatic
exercise as described under "Description of the Warrants." However, if at such
time, the Spot Index Value on the appropriate Valuation Date is equal to or less
than 80% of the Initial Index Value, such Warrant will expire worthless and the
Warrantholder will have sustained a total loss of the purchase price of such
Warrant.
RISKS ASSOCIATED WITH LIMITS ON EXERCISE OF WARRANTS
The Company will have the option to limit the number of Warrants
exercisable on any date (except on automatic exercise) to an aggregate of
250,000 and, in conjunction with such limitation, to limit the number of
Warrants exercisable by or on behalf of any person or entity, either
individually or in concert with any other person or entity, on such date to
100,000. In the event that the total number of Warrants being exercised on any
date exceeds such maximum number and the Company elects to limit the number of
Warrants exercisable on such date, a Warrantholder may not be able to exercise
on such date all Warrants that such holder desires to exercise. Warrants to be
exercised on such date will be selected on a pro rata basis. The Warrants
tendered for exercise but not exercised on such date will be automatically
exercised on the next date on which Warrants may be exercised, subject to the
same daily maximum limitation and certain delayed exercise provisions. Any such
limitation will not apply in the event of automatic exercise, including at
expiration.
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RISKS DUE TO DELAY OR POSTPONEMENT OF VALUATION OF WARRANTS
Except under the circumstances described in this risk factor and the
following risk factor "Market Disruption Events, Extraordinary Events, Maximum
Exercise Amount", the Valuation Date for an exercised Warrant will be the first
Business Day after the related Exercise Date. Generally, the Exercise Date for
an exercised Warrant, subject to certain exceptions described under "Description
of the Warrants -- Exercise and Settlement of Warrants", "-- Limit Option" and
"-- Automatic Exercise", will be the Business Day on which such Warrant and an
Exercise Notice in proper form are received by the Warrant Agent if received at
or prior to 3:00 P.M., New York City time, on such day; if such Warrant and
Exercise Notice are received after such time, the Exercise Date will be the next
succeeding Business Day. See "Description of the Warrants -- Exercise and
Settlement of Warrants".
The Valuation Date for an exercised Warrant will occur after the Exercise
Date (see "Description of the Warrants -- Exercise and Settlement of Warrants").
Therefore, a Warrantholder will not be able to determine, at the time of
exercise of a Warrant, the Spot Index Value that will be used in calculating the
Cash Settlement Value of such Warrant (and will thus be unable to determine such
Cash Settlement Value). In addition, the Valuation Date for exercised Warrants
may be postponed as a result of the exercise of Warrants in a number exceeding
the limits on exercise described below under "Description of the Warrants --
Maximum Exercise Amount" or upon the occurrence and continuation of an
Extraordinary Event or a Market Disruption Event. See "Description of the
Warrants -- Extension Events, Extraordinary Events and Market Disruption
Events".
Any downward movement in the value of the Index between the time a
Warrantholder submits an Exercise Notice and the time the Spot Index Value for
such exercise is determined (which period will, at a minimum, represent an
entire Business Day and, in the case of a Valuation Date postponed as a result
of there being exercised a number of Warrants exceeding the maximum permissible
amount or the occurrence and continuance of a Market Disruption Event or an
Extraordinary Event, may be substantially longer) will, subject to the Limit
Option described in the next paragraph and under "Description of the
Warrants -- Limit Option", result in such Warrantholder receiving a Cash
Settlement Value that is less than the Cash Settlement Value anticipated by such
Warrantholder (including a zero Cash Settlement Value) based on the Spot Index
Value most recently reported prior to the time of exercise.
Except in the event of automatic exercise, a Warrantholder may be able to
limit to some extent the risk associated with any downward movement in the value
of the Index between an Exercise Date and the applicable Valuation Date if such
Warrantholder, in connection with an exercise of Warrants, elects the Limit
Option. Pursuant to the Limit Option, Warrants tendered for exercise will not be
exercised if the Spot Index Value for the applicable Valuation Date has declined
by five or more points from the Spot Index Value for the applicable Exercise
Date. See "Description of the Warrants -- Limit Option".
MARKET DISRUPTION EVENTS; EXTRAORDINARY EVENTS; MAXIMUM EXERCISE AMOUNT
The Valuation Date for an exercised Warrant may be postponed upon the
occurrence and continuation of an Extraordinary Event or a Market Disruption
Event described under "Description of the Warrants -- Market Disruption Events,
Extraordinary Events and Extension Events", or as a result of the exercise of a
number of Warrants exceeding the limits on exercise described under "Description
of the Warrants -- Exercise of Warrants -- Maximum Exercise Amount". If the
Company determines that an Extraordinary Event or a Market Disruption Event has
occurred and is continuing on any day that would otherwise be a Valuation Date
for any exercised Warrant, then the Valuation Date for such Warrant will be
postponed to the next Business Day on which there is no Extraordinary Event or
Market Disruption Event; provided, however, that, subject to an automatic
extension of the term of the Warrants or to a determination that the Warrants
are worthless, as described under "Description of the Warrants -- Market
Disruption Events, Extraordinary Events and Extension Events", if the postponed
Valuation Date has not occurred on or prior to the Expiration Date or any
Delisting Date, the Warrantholders may receive the Alternative Settlement Amount
(as described below) in lieu of the Cash Settlement Value; and provided,
further, that, in the case of an Extraordinary Event, if the Company determines
that such Extraordinary Event is expected to continue and
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the Company notifies the Warrant Agent that it is canceling the Warrants, then
the date on which such notice is given will become the Valuation Date for such
Warrants, in which case such Warrantholder will receive, in lieu of the Cash
Settlement Value of such Warrant, the Alternative Settlement Amount thereof,
which is equal to the sum of the Intrinsic Value of the Warrants on such
Valuation Date (determined as provided under "Description of the
Warrants -- Market Disruption Events, Extraordinary Events and Extension
Events") and a ratable portion of 50% of the initial offering price of the
Warrants, subject to certain exceptions and adjustments. The Cash Settlement
Value or the Alternative Settlement Amount of a Warrant determined as of any
such postponed Valuation Date may be substantially lower (including zero) than
the otherwise applicable Cash Settlement Value thereof. See "Description of the
Warrants -- Market Disruption Events, Extraordinary Events and Extension
Events", which includes a description of events, circumstances or causes
constituting an Extraordinary Event or a Market Disruption Event.
RISKS DUE TO COMPANY'S INABILITY TO TRADE IN THE UNDERLYING STOCKS OR RELATED
INSTRUMENTS
In the event that a Market Disruption Event (including (i) the suspension,
material limitation or absence of trading of (A) 20% or more of the stocks
underlying the Index or (B) if futures or options contracts related to the Index
are then approved for trading, such contracts or (ii) the unavailability of
accurate price, volume or related information in respect of 20% or more of the
underlying stocks or such futures or options contracts) is continuing on the
Expiration Date, the term of the Warrants will be extended for a period of
thirty days, except that if the Cash Settlement Value or the Intrinsic Value (as
defined below) used in calculating the Alternative Settlement Amount, as the
case may be, of the Warrants would have been zero if the Warrants had been
exercised using as the Valuation Date the Measurement Date (as defined below),
then the term of the Warrants will not be extended and the Warrants will be
deemed to be worthless, and, as a result, investors will suffer a total loss of
the purchase price of their Warrants. See "Description of the Warrants -- Market
Disruption Events, Extraordinary Events and Extension Events".
NON-COMPARABILITY OF WARRANTS TO DIRECT INVESTMENT IN THE UNDERLYING STOCKS
The Warrants are subject to certain risk factors that are distinct from
those associated with a direct investment in the underlying stocks that comprise
the Index. The Cash Settlement Value will not include the payment of any
dividends on the underlying stocks.
AMERICAN DEPOSITARY RECEIPTS
One of the stocks underlying the Index (Alcatel Alsthom S.A.) is in the
form of an ADR. An ADR is a negotiable receipt which is issued by a depositary,
generally a bank, representing shares (the "Underlying Shares") of a foreign
issuer (a "Foreign Issuer") that have been deposited and are held, on behalf of
the holders of the ADRs, at a custodian bank in the Foreign Issuer's home
country. While the market for Underlying Shares will generally be in the country
in which the Foreign Issuer is organized and while trading in such market will
generally be based on that country's currency, ADRs trade in U.S. Dollars.
Although ADRs are distinct securities from the Underlying Shares, the
trading characteristics and valuations of ADRs will usually, but not
necessarily, mirror the characteristics and valuations of the Underlying Shares
represented by the ADRs. Active trading volume and efficient pricing in the
principal market in the home country for the Underlying Shares will usually, but
not necessarily, indicate similar characteristics in respect of the ADRs.
Because of the size of an offering of Underlying Shares in ADR form outside the
home country and/or other factors that have limited or increased the float of
certain ADRs, the liquidity of such securities may be less than or greater than
that with respect to the Underlying Shares. In addition, the terms and
conditions of depositary facilities may result in less liquidity or lower market
values for the ADRs than for the Underlying Shares. Inasmuch as holders of ADRs
may surrender the ADR in order to take delivery of and trade the Underlying
Shares, a characteristic that allows investors in ADRs to take advantage of
price differentials between different markets, a market for the Underlying
Shares that is not liquid will generally result in an illiquid market for the
ADR representing such Underlying Shares.
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SECURITIES OF NON-U.S. ISSUERS
The Index includes stocks of two non-U.S. issuers (Alcatel Alsthom S.A. and
Schlumberger Ltd.). There are certain risks involved in investing in securities
of foreign companies, which are in addition to the usual risks inherent in U.S.
investments. These risks include those resulting from fluctuations in currency
exchange rates, revaluation of currencies, future adverse political and economic
developments and the possible imposition of currency exchange controls or other
foreign governmental laws or restrictions, reduced availability of public
information concerning issuers and the lack of uniform accounting, auditing and
financial reporting standards or of other regulatory practices and requirements
comparable to those applicable to domestic companies. Moreover, securities of
many foreign companies may be less liquid and their prices more volatile than
those of securities of comparable domestic companies. In addition, with respect
to certain foreign countries, there is the possibility of expropriation,
nationalization, confiscatory taxation and limitations on the use or removal of
funds or other assets including the withholding of dividends. Foreign securities
may be subject to foreign government taxes that could reduce the yield on such
securities. The adoption of exchange control regulations and other legal
restrictions could also have an adverse impact on the marketability or value of
foreign securities underlying the Index. In addition, foreign issuers are not
necessarily subject to uniform accounting, auditing and financial reporting
standards, practices and requirements comparable to those applicable to domestic
issuers.
The prices of the securities of non-U.S. issuers may also be affected by
political, economic, financial and social factors in the relevant country or
region. These factors (including the possibility that recent or future changes
in a country's government, economic and fiscal policies, the possible imposition
of, or changes in, currency exchange laws or other laws or restrictions
applicable to such companies or investments in non-U.S. equity securities and
the possibility of fluctuations in the rate of exchange between currencies)
could negatively affect the price of securities of non-U.S. issuers. Moreover,
the relevant non-U.S. economies may differ favorably or unfavorably from the
U.S. economy in such respects as growth of gross national product, rate of
inflation, capital reinvestment, resources and self-sufficiency.
OFFERING PRICE OF WARRANTS; WARRANTS NOT A PERFECT HEDGE
The initial offering price of the Warrants may be in excess of the price
that a commercial user of options on the Index or the underlying stocks might
pay for a comparable option in a private transaction. The Warrants should not be
considered to be a perfect hedge with respect to the level of the Index or all
or any portion of the underlying stocks.
EFFECT OF CREDIT RATING REDUCTION
The value of the Warrants is expected to be affected, in part, by
investors' general appraisal of the Company's creditworthiness. Such perceptions
are generally influenced by the ratings accorded to the Company's outstanding
debt securities by the standard statistical rating services, such as Moody's
Investors Service, Inc., Standard & Poor's Corporation and Fitch ICBA, Inc. A
reduction in the rating, if any, accorded to outstanding debt securities of the
Company by one of these rating agencies could result in a reduction in the
trading value of the Warrants.
WARRANTS ARE UNSECURED OBLIGATIONS; CONSIDERATIONS REGARDING INDEX WARRANTS
The Warrants are unsecured contractual obligations of the Company and will
rank equally with the Company's other unsecured contractual obligations and with
the Company's unsecured and unsubordinated debt. The Company may issue several
series of Index Warrants relating to various indices, currencies or other
commodities. However, no assurance can be given that the Company will issue any
Index Warrants other than the Warrants to which this Prospectus Supplement
relates. At any given time, the number of Index Warrants outstanding may be
substantial. Options and warrants provide opportunities for investment and pose
risks to investors as a result of fluctuations in the value of the underlying
investment. In general, certain of the risks associated with the Warrants are
similar to those generally applicable to other options or warrants of private
corporate issuers. However, unlike options or warrants on equity or debt
securities, which are priced primarily
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on the basis of the value of a single underlying security, the trading value of
a Warrant is likely to reflect primarily present and expected values of the
Index, which will comprise 15 underlying stocks.
INVESTOR SUITABILITY
The CBOE requires that the Warrants be sold only to investors whose
accounts have been approved for options trading. In addition, the CBOE requires
that its members and member organizations and registered employees thereof make
certain suitability determinations before recommending transactions in the
Warrants. It is suggested that investors considering the purchase of Warrants be
experienced with respect to options on securities and option transactions and
reach an investment decision only after carefully considering, with their
advisers, the suitability of the Warrants in light of their particular
circumstances. The Warrants are not suitable for persons solely dependent upon a
fixed income, for retirement plan accounts or for accounts under the Uniform
Gift to Minors Act. Before making any investment in the Warrants, it is
important that a prospective investor become informed about and understand the
nature of the Warrants in general, the specific terms of the Warrants and the
nature of the Index and the underlying stocks that will comprise the Index. An
investor should understand the consequences of liquidating his investment in a
Warrant by exercising, as opposed to selling, the Warrant. It is especially
important for an investor to be familiar with the procedures governing the
exercise of Warrants, since a failure to exercise a Warrant properly prior to
its expiration could result in the loss of his entire investment. This includes
knowing when Warrants are exercisable and how to exercise them.
POSSIBLE ILLIQUIDITY OF THE SECONDARY MARKET
Although the Warrants have been approved for listing on the CBOE, subject
to official notice of issuance, it is not possible to predict the price at which
the Warrants will trade in the secondary market or whether such market will
develop or, if developed, will be liquid or illiquid. To the extent Warrants are
exercised, the number of Warrants outstanding will decrease, resulting in a
decrease in the liquidity of the Warrants. In addition, during the life of the
Warrants, the Company or its affiliates may from time to time purchase and
exercise Warrants, resulting in a decrease in the liquidity of the Warrants. If
additional warrants or options relating to the Index or the underlying stocks
are subsequently offered to the public, the supply of warrants and options
relating to Index or the underlying stocks in the market will increase, which
could cause the price at which the Warrants and such other warrants and options
trade in the secondary market to decline significantly.
DELISTING OF THE WARRANTS
In the event the Warrants are delisted from, or permanently suspended from
trading on (within the meaning of the Exchange Act and the rules and regulations
thereunder) the CBOE and not accepted at the same time for listing on another
United States national securities exchange, Warrants not previously exercised
will be deemed automatically exercised on the Delisting Date, and any Cash
Settlement Value or Alternative Settlement Amount, as the case may be, will be
calculated and settled as provided under "Description of the
Warrants -- Delisting of Warrants". In the event of a delisting or suspension of
trading on the CBOE, the Company will use its best efforts to list the Warrants
on another United States national securities exchange.
CERTAIN OTHER RISK CONSIDERATIONS
The purchaser of a Warrant may lose his entire investment. This risk
reflects the nature of a Warrant as an asset which, other factors held constant,
tends to decline in value over time and which may, depending on the prevailing
Spot Index Value as compared to the Initial Index Value, become worthless when
it expires. Assuming all other factors are held constant, the more a Warrant is
"out-of-the-money" and the shorter its remaining term to expiration, the greater
the risk that a purchaser of the Warrant will lose all or part of his purchase
price for the Warrant. This means that if the Spot Index Value at expiration is
less than or equal to 80% of the Initial Index Value, then a Warrantholder who
has not sold his Warrant in the secondary market prior to expiration will
necessarily lose his entire purchase price for the Warrant upon expiration.
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The risk of the loss of some or all of the purchase price of a Warrant upon
expiration means that, in order to recover and realize a return upon his
investment, a purchaser of a Warrant must generally be correct about both the
direction, timing and magnitude of an anticipated change in the value of the
Index. If the Spot Index Value as compared to the Initial Index Value does not
rise before the Warrant expires to an extent sufficient to cover a purchaser's
cost of the Warrant (i.e., the purchase price plus transaction costs, if any),
the purchaser will lose all or part of his purchase price for such Warrant upon
expiration. Warrantholders will thus bear the risk of a decline in the value of
the Index.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Potential investors should be aware that Smith Barney, in its capacity as
Determination Agent, is under no obligation to take the interests of the
Warrantholders into consideration in the event it determines the Cash Settlement
Value of the Warrants. Because Smith Barney is an affiliate of the Company,
conflicts of interest may arise in connection with Smith Barney performing its
role as Determination Agent. 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 Warrants to restrict the use of information
relating to the calculation of the Cash Settlement Value prior to its
dissemination of such calculations. Smith Barney is obligated to carry out its
duties and functions as Determination Agent in good faith and using its
reasonable judgment.
Smith Barney and its affiliates may from time to time engage in
transactions involving the Index or the underlying stocks that comprise the
Index for their proprietary accounts and for other accounts under their
management, which may influence the value of the Index and therefore the value
of the Warrants. Smith Barney and its affiliates will also be the writers of the
hedge of the Company's obligations under the Warrants and will be obligated to
pay to the Company upon exercise of Warrants an amount equal to the value of the
exercised Warrants. See "Use of Proceeds and Hedging". Accordingly, under
certain circumstances, conflicts of interest may arise between Smith Barney's
responsibilities as Determination Agent with respect to the Warrants and its
obligations under its hedge.
The stocks underlying the Index comprise all of the Portfolio Securities to
be included in the Trust. See "Description of the Index." The Trust is a unit
investment trust sponsored by Smith Barney, a subsidiary of the Company, which
offered units in the Trust for initial sale to the public on July 6, 1998. In
connection with the offering of units in the Trust (as well as in connection
with satisfying redemptions from the Trust), Smith Barney, as the sponsor of the
Trust, or the Trust itself has bought (and sold) and will buy (and sell) the
Portfolio Securities. Especially during the period of the initial offering of
units of the Trust, during which Smith Barney as sponsor or the Trust is
expected to purchase a material amount of the Portfolio Securities, the volume
of such transactions in the Portfolio Securities may impact upon the value of
the Portfolio Securities. Such activity in the Portfolio Securities may have an
impact on the value of the underlying stocks comprising the Index, and thus, on
the value of the Index. The publication of the list of the Portfolio Securities
selected for the Trust may also cause increased activity in certain of the
Portfolio Securities. In response to such announcement, investment advisory and
brokerage clients of Smith Barney and its affiliates may have purchased and may
purchase some or all of the individual Portfolio Securities appearing on the
list during the period of the initial offering of units in the Trust. Such
activity in the Portfolio Securities may have an impact on the value of the
stocks underlying the Index, and thus, the Index. Moreover, throughout the term
of the Warrants, purchasing and selling activity, including by such clients and
including in response to research coverage or other analysis by Smith Barney or
other affiliates of the Company, may impact the value of the stocks underlying
the Index. The Company has decided to set the Initial Index Value of the
Warrants on a date approximately one month after the selection of the Portfolio
Securities (and the public offering of Units in the Trust) in the expectation
that such delay in setting the Initial Index Value will tend to reduce the
impact that the activity of the Trust (and of investment advisory and brokerage
clients of Smith Barney) will have on the value of the underlying stocks
comprising the Index, and thus, on the value of the Index, as this impact is
expected to be most significant in the twenty-Trading Day period following the
public offering of Units in the Trust. No assurance can be given, however, that
such activity will not affect the Initial Index Value or the Spot Index Value at
any given time, and therefore the trading value and Cash Settlement Value of the
Warrants.
S-16
<PAGE> 17
------------------------
INVESTORS ARE ADVISED TO CONSIDER CAREFULLY THE FOREGOING RISK FACTORS AND
THE RISKS AND OTHER MATTERS DISCUSSED UNDER "DESCRIPTION OF INDEX
WARRANTS -- SPECIAL CONSIDERATIONS RELATING TO INDEX WARRANTS" IN THE
ACCOMPANYING PROSPECTUS AND "DESCRIPTION OF THE INDEX" AND "CERTAIN UNITED
STATES FEDERAL INCOME TAX CONSIDERATIONS" IN THIS PROSPECTUS SUPPLEMENT, AS WELL
AS THE OTHER INFORMATION IN THE PROSPECTUS AND THIS PROSPECTUS SUPPLEMENT, PRIOR
TO PURCHASING WARRANTS.
We suggest that prospective investors who consider purchasing the Warrants
reach an investment decision only after carefully considering the suitability of
the Warrants in light of their particular circumstances.
------------------------
S-17
<PAGE> 18
DESCRIPTION OF THE INDEX
SELECTION OF THE UNDERLYING STOCKS
The Index represents a diversified basket of the common stocks (or ADRs) of
15 U.S. and foreign corporations operating in several industry groups. The
stocks underlying the Index consist of all of the Portfolio Securities of the
Trust, and have been selected by the TEN+ Selection Committee of Salomon Smith
Barney (the "Committee"), which is comprised of senior management and equity
strategists, with the assistance of the Salomon Smith Barney Research
Department. Salomon Smith Barney's Research Department is staffed by over 100
investment analysts, who currently follow equities issued by more than 1,600
companies (both domestic and foreign) in 85 industry groups or stock areas of
the market. The underlying stocks comprising the Index have been selected by
Salomon Smith Barney as undervalued stocks deemed to have above average
appreciation potential over the 12 months following their selection. In arriving
at the underlying stocks, the Committee evaluated each analyst's top selections
based on the Committee's analysis of industry trends, overall market conditions
and the current economic environment. The selection is not limited to small,
high-growth companies. The investment rankings by Salomon Smith Barney normally
pertain to an outlook for a 12-18 month period (see footnote 2 to the table on
page S-19). In selecting the underlying stocks, Salomon Smith Barney does not
express any belief as to the potential of these securities for capital
appreciation over a period longer than one year. There is, of course, no
assurance that any of the underlying stocks comprising the Index will appreciate
in value, and indeed any or all of such underlying stocks (and the Index) may
depreciate in value at any time in the future. Each January for the last 15
years, Smith Barney has published a list of the top pick in each of the industry
groups followed by its equity analysts. The selection of underlying stocks
comprising the Index differs from these top picks both in that it is made in the
middle of the year and in that the Salomon Smith Barney analysts' selections
have been screened by the Committee, as described, to arrive at the list of the
stocks underlying the Index.
All of the Portfolio Securities are publicly traded on a stock exchange. In
addition, the stocks comprising the Index met the following criteria at the time
they were selected: (i) minimum market capitalization of $150 million, except
that up to 10 percent of the underlying stocks may have a market capitalization
of not less than $50 million; (ii) trading volume during each of the six months
prior to the offering of the Warrants of not less than one million shares,
except that up to 10 percent of the underlying stocks may have a trading volume
during each of the six months prior to the offering of the Warrants of not less
than 500,000 shares; (iii) at least 80 percent of the underlying stocks met the
then current criteria for standardized options trading set forth in CBOE Rule
5.3; (iv) at least 80 percent of the underlying stocks are listed on the New
York Stock Exchange (the "NYSE") or the American Stock Exchange (the "AMEX"), or
are traded through the Nasdaq National Market of the Nasdaq Stock Market, Inc.
("NASDAQ"); (v) all of the underlying stocks that are issued by companies
incorporated in the U.S. are "reported securities" as defined in Rule 11Aa3-1
under the Exchange Act; and (vi) no more than 20 percent of the underlying
stocks are listed only on a foreign stock exchange.
S-18
<PAGE> 19
1998 TEN+(SM) INDEX
UNDERLYING STOCKS
<TABLE>
<CAPTION>
JURISDICTION INDUSTRY PRINCIPAL TRADING STOCK INVESTMENT
ISSUER OF INCORPORATION GROUP(1) MARKET SYMBOL RANKING(2)
--------------------------------- -------------------- ---------------------- ----------------- ------ ----------
<S> <C> <C> <C> <C> <C>
Alcatel Alsthom S.A. ADR......... France Communication Services Paris(+) ALA 1-M
Allstate Corp.................... Delaware Financial NYSE ALL 1-M
Amgen Inc.*...................... Delaware Health Care NASDAQ AMGN 1-H
Applied Materials Inc.*.......... Delaware Technology NASDAQ AMAT 1-H
Black & Decker Corp.............. Maryland Consumer Cyclical NYSE BDK 1-H
Chase Manhattan Corp.#........... Delaware Financial NYSE CMB 1-H
Honeywell Inc.................... Delaware Conglomerates NYSE HON 1-M
International Business Machines
Corp.#......................... New York Technology NYSE IBM 1-M
Motorola Inc..................... Delaware Communication Services NYSE MOT 1-M
Navistar International Corp.#.... Delaware Capital Goods NYSE NAV 1-H
Schering-Plough Corp............. New Jersey Health Care NYSE SGP 1-M
Schlumberger Ltd................. Netherlands Antilles Energy NYSE SLB 1-L
Wal-Mart Stores Inc.............. Delaware Consumer Cyclical NYSE WMT 1-L
Williams Companies Inc.#......... Delaware Energy NYSE WMB 1-M
Xerox Corp.#..................... New York Technology NYSE XRX 1-M
</TABLE>
- ---------------
(1) As designated by the Salomon Smith Barney Research Department.
(2) These rankings are current as of the date of this Prospectus Supplement, and
are subject to change without notice. Salomon Smith Barney has assigned
these rankings according to the following system, which uses two codes: a
letter for the level of risk (L,M,H,S or V) and a number for performance
expectation (1-5).
Risk assesses predictability of earnings/dividends and stock price volatility:
L (Low Risk): highly predictable earnings/dividends, low price volatility
M (Moderate Risk): moderately predictable earnings/dividends, moderate
price volatility
H (High Risk): low predictability of earnings/dividends, high price
volatility
S (Speculative): exceptionally low predictability of earnings/dividends,
highest risk of price volatility
V (Venture): Risk and return consistent with venture capital, suitable only
for well-diversified portfolios
Performance rankings indicate the expected total return (capital gain or
loss plus dividends) over the next 12-18 months, assuming an unchanged or "flat"
market; performance expectations depend on the risk category assigned to the
stock, as shown in the following chart.
<TABLE>
<CAPTION>
LOW RISK MODERATE RISK HIGH RISK SPECULATIVE
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
(Buy)
1 Over 15% Over 20% Over 25% Over 30%
(Outperform)
2 5% to 15% 5% to 20% 10% to 25% 10% to 30%
(Neutral)
3 -5% to 5% -5% to 5% -10% to 10% -10% to 10%
(Underperform)
4 -5% to -15% -5% to -15% -10% to -20% -10% to -20%
(Sell)
5 -15% or worse -15% or worse -20% or worse -20% or worse
</TABLE>
These rankings represent current opinions of Salomon Smith Barney research
analysts and are of course, subject to change without notice; no assurance can
be given that the stocks will perform in line with such rankings. These rankings
have not been audited.
------------------------
* Smith Barney and/or Salomon Brothers Inc, including their respective
subsidiaries and/or affiliates, usually maintains a market in the securities
of this company.
# Within the last three years, Smith Barney and/or Salomon Brothers Inc,
including their respective subsidiaries and/or affiliates, have acted as
manager or co-manager of a public offering of the securities of this company
or an affiliate.
+ Alcatel Alsthom S.A. ADRs, which represent ordinary shares of Alcatel Alsthom
S.A. as traded on the Paris Stock Exchange, are traded on the NYSE.
S-19
<PAGE> 20
INDICATIVE SPOT INDEX VALUES
The following table sets forth indicative Spot Index Values on the last
business day of each month in the period from January 1995 through June 1998,
each calculated as if the Index has been created on January 1, 1995 and based on
historical trading data for each of the stocks underlying the Index obtained
from the primary trading market for such stocks. These indicative Spot Index
Values should not be taken as an indication of future performance. The
indicative values set forth herein have been adjusted to reflect certain
corporate events that affected the relevant trading data, including, but not
limited to, stock splits and stock dividends. Certain adjustments to the Index
will be made by the CBOE as set forth under "Calculation of the Index" below.
Those adjustments may not correspond to the adjustments made in determining the
indicative Spot Index Values set forth herein.
<TABLE>
<CAPTION>
MONTH 1995 1996 1997 1998
----- ---- ---- ---- ----
<S> <C> <C> <C> <C>
January............................... 38.4734 49.7441 63.3116 80.8272
February.............................. 39.8107 50.8196 62.2017 86.9403
March................................. 40.7173 51.3448 61.3555 93.2910
April................................. 43.0416 53.9063 64.3256 94.1650
May................................... 45.1169 54.3872 71.1423 93.5338
June.................................. 47.2895 52.6732 74.8412 93.6151
July.................................. 51.2523 49.5866 83.5874
August................................ 51.0162 51.8117 80.1584
September............................. 51.3559 53.9461 83.2344
October............................... 48.8058 53.9433 78.1433
November.............................. 50.3912 59.4010 78.8851
December.............................. 49.6015 56.7542 78.8835
</TABLE>
CALCULATION OF THE INDEX
The Index will be calculated by the CBOE using an "equal dollar-weighting"
methodology designed to ensure that each of the underlying stocks is represented
in an approximately equal dollar amount in the Index. To create the Index,
Salomon Smith Barney has calculated a notional portfolio of the underlying
stocks representing an investment of $10,000 in each component security (rounded
to the nearest whole share). The value of the Index will equal the market value
of the sum of the assigned number of shares of each of the underlying stocks
divided by an Index divisor. The Index divisor initially has been set to provide
a benchmark value of 100.00 as of July 16, 1998. However, the Initial Index
Value, which will be determined on August 4, 1998, may be higher, lower or equal
to 100.00.
The number of shares of each underlying stock in the Index will remain
fixed except in the event of certain types of corporate actions such as the
payment of a dividend (other than an ordinary cash dividend), a stock
distribution, stock split, reverse stock split, rights offering, distribution,
reorganization, recapitalization, or similar event with respect to the
underlying stocks. The number of shares of each underlying stock also may be
adjusted by the CBOE, if necessary, in the event of a merger, consolidation,
dissolution, or liquidation of an issuer or in certain other events such as the
distribution of property by an issuer to shareholders, the expropriation or
nationalization of a foreign issuer, or the imposition of certain foreign taxes
on shareholders of a foreign issuer. Shares of an underlying stock may be
replaced (or supplemented) by the CBOE with another security only under certain
circumstances, such as in the event of a merger or consolidation, the conversion
of an underlying stock into another class of security, the termination of a
depository receipt program, or the spin-off of a subsidiary. No attempt will be
made by the CBOE to find a replacement stock or to otherwise compensate for an
underlying stock that is extinguished due to bankruptcy or similar
circumstances.
More specifically, (i) in the event of a merger or consolidation (whether
between two issuers of underlying stocks or between the issuer of an underlying
stock and an issuer of a non-underlying stock), the original underlying stock
will be replaced by the new security; (ii) in the event of a conversion into
another class of security, the original underlying stock will be replaced by the
new security; (iii) in the event of a spin-
S-20
<PAGE> 21
off of a subsidiary, both the subsidiary issue and the original "parent
security" will be included in the Index, unless the subsidiary is an
insignificant percentage of the original security, in which case the CBOE will
consult with the SEC prior to omitting the subsidiary issue from the Index; and
(iv) should a depository receipt program be terminated, for any reason, after an
ADR had already been included in the Index, the CBOE in consultation with the
SEC staff will evaluate the appropriate procedure to be employed to ensure the
continuity of the Index.
If the underlying stock remains in the Index following the occurrence of
any such event, the number of shares of the underlying stock may be adjusted by
the CBOE to the nearest whole share to maintain the component's relative weight
in the Index at the level immediately prior to the corporate action. In all
cases, the divisor will be adjusted by the CBOE, if necessary, to ensure
continuity of the value of the Index.
The Index will be calculated based on real-time prices for all of the
underlying stocks, including those foreign stocks that are traded during CBOE
trading hours. With respect to foreign stock components that trade during CBOE
trading hours, each Index calculation will use the most recent sale price from
the primary stock exchange in the appropriate home market. Bloomberg's composite
New York rates, or comparable rates, quoted at 2:00 p.m. Chicago time the
previous day, will be used to convert any non-U.S. traded stock price from the
respective countries' currencies to U.S. dollars. If there are several quotes,
the first quoted rate in that minute will be used to calculate the Index. In the
event that there is no Bloomberg exchange rate for a country's currency at 2:00
p.m. the previous day, stocks will be valued at the first U.S. dollar cross-rate
quoted before 2:00 p.m. Chicago time the previous day.
The value of the Index will be calculated and disseminated by CBOE every 15
seconds.
THE CHICAGO BOARD OPTIONS EXCHANGE, INCORPORATED
The CBOE trades options on more than 1200 stocks and on the two most
actively traded indices in the world, the S&P 100(Registered) (OEX(Registered))
and the S&P 500(TM)(Registered)(SPX(Registered)), as well as on the S&P Small
Cap 600 (SML), the Dow Jones Industrial Average(TM)(DJX), the Dow Jones
Transportation Average(TM) (DTX), the Dow Jones Utility Average(TM) (DUX), the
NASDAQ 100 Index(Registered) (NDX(Registered)), the Russell 2000(Registered)
Index (RUT), the S&P Barra Index (SGX and SVX) and a number of sector indices.
Options on the CBOE Mexico Index (MEX), the IPC(TM) Index (MXX), the Latin
15(TM) Index (LTX), the Nikkei 300(Registered) Index (NIK) and the CBOE Israel
Index (ISX) comprise the CBOE's foreign index option complex. The CBOE also
offers interest rate options; LEAPS(Registered), which are long-term options on
individual equities and stock indices; and FLEX(Registered) (Flexible
Exchange(Registered)) Options, an alternative to the over-the-counter options
market for institutional investors. The CBOE also trades other securities
including Equity Linked Notes and Warrants related to several other indices.
The CBOE will enter into a calculation agency agreement with the Company,
pursuant to which it will calculate the Index as described under "-- Calculation
of the Index" above. The Warrants are not sponsored, endorsed, sold or promoted
by the CBOE. The CBOE makes no representation or warranty, express or implied,
to the holders of the Warrants or any member of the public regarding the
advisability of investing in securities generally or in the Warrants
particularly or in the ability of the Index to track the performance of any
market segment. The CBOE has no obligation to take the needs of Salomon Smith
Barney or the holders of the Warrants into consideration in calculating the
Index. The CBOE is not responsible for, and has not participated in the
determination of the timing of the sale of the Warrants, prices at which the
Warrants are to be sold initially, or quantities of the Warrants to be issued or
in the determination or calculation of the equation by which the Warrants are to
be converted into cash. The CBOE has no obligation or liability in connection
with the administration or marketing of the Warrants.
THE CBOE DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE
INDEX OR ANY DATA INCLUDED THEREIN. THE CBOE MAKES NO WARRANTY, EXPRESS OR
IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE COMPANY, HOLDERS OF THE WARRANTS,
OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE INDEX
OR ANY DATA INCLUDED THEREIN. THE CBOE MAKES NO EXPRESS OR IMPLIED
S-21
<PAGE> 22
WARRANTIES, AND HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THE INDEX OR ANY DATA INCLUDED
THEREIN. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, IN NO EVENT SHALL THE
CBOE HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT OR CONSEQUENTIAL
DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH
DAMAGES.
DESCRIPTION OF THE WARRANTS
GENERAL
The Warrants will be issued pursuant to a Warrant Agreement (the "Warrant
Agreement"), to be dated as of July 22, 1998, between the Company, Citibank,
N.A., as Warrant Agent (the "Warrant Agent"), and Smith Barney, as Determination
Agent. The following summaries of certain provisions of the Warrants and the
Warrant Agreement do not purport to be complete and reference is made to all the
provisions of the Warrant Agreement (including the form of Global Warrant
Certificate attached as an exhibit thereto). The Warrant Agreement will be
available for inspection by any Warrantholder at the office of the Warrant Agent
(the "Warrant Agent's Office"), which is currently located at 111 Wall Street,
5th Floor, New York, New York 10043, during the Warrant Agent's normal business
hours. See "Description of Warrants" and "Description of Index Warrants" in the
Prospectus.
The aggregate number of Warrants to be issued is set forth on the cover
page of this Prospectus Supplement and is subject to the right of the Company to
"reopen" the issue of Warrants and issue additional Warrants with substantially
identical terms at a later time.
A Warrant will not require or entitle a Warrantholder to receive any of the
underlying stocks comprising the Index from the Company. Upon exercise of a
Warrant, the Company will make only a U.S. dollar cash payment in the amount of
the Cash Settlement Value, if any, of such Warrant. The Company is under no
obligation to, nor will it, sell the underlying stocks to, or purchase the
underlying stocks from, Warrantholders in connection with the exercise of any
Warrants. Warrantholders will not receive any interest on any Cash Settlement
Value.
DETERMINATION OF CASH SETTLEMENT VALUE OF WARRANTS
Subject to the discussion under "-- Market Disruption Events, Extraordinary
Events and Extension Events", each Warrant will entitle the Warrantholder to
receive, upon exercise (including automatic exercise), the Cash Settlement Value
of such Warrant. The "Cash Settlement Value" of a Warrant will equal an amount
in U.S. dollars (rounded down to the nearest cent) calculated in accordance with
the following formula:
<TABLE>
<S> <C> <C>
Spot Index Value - (.8 X Initial Index Value)
------------------------------------------------
the greater of (A) zero and (B) X $10
Initial Index Value
</TABLE>
"Initial Index Value" means the value of the TEN+ Index at the close of
trading on the CBOE on August 4, 1998. Once determined, the Initial Index Value
will remain constant throughout the term of the Warrants. The closing value of
the Index as of July 16, 1998 has been set at 100.00; the Initial Index Value,
which will be determined approximately 18 days later, may be higher, lower or
equal to 100.00. Once it has been determined, the Initial Index Value will be
disseminated by the CBOE and published by the Company in The Wall Street
Journal.
"Spot Index Value" means the value of the TEN+ Index at the close of
trading on the CBOE on the applicable Valuation Date; provided, however, that
the Spot Index Value with respect to the Expiration Date, any Early Extended
Expiration Date (as defined below) or any Extended Expiration Date (as defined
below) means the value of the TEN+ Index at the opening of trading on the CBOE
on the applicable Valuation Date. The Valuation Date may be postponed as a
result of an Extraordinary Event or a Market Disruption Event (see "Description
of the Warrants -- Market Disruption Events, Extraordinary Events and Extension
S-22
<PAGE> 23
Events") or the exercise of Warrants in a number exceeding certain limits on
exercise (see "Description of the Warrants -- Exercise of Warrants -- Maximum
Exercise Amount").
HYPOTHETICAL WARRANT VALUES ON EXERCISE
Set forth below is an illustrative example of the Cash Settlement Values of
a Warrant based on various hypothetical Spot Index Values and a hypothetical
Initial Index Value of 110.00. The closing value of the Index has been set at
100.00 as of July 16, 1998; the Initial Index Value, which will be determined on
August 4, 1998, may be higher, lower or equal to 100.00. The illustrative Cash
Settlement Values in the table do not reflect any "time value" for a Warrant,
which may be reflected in trading value, and are not necessarily indicative of
potential profit or loss, which are also affected by purchase price and
transaction costs.
<TABLE>
<CAPTION>
CASH SETTLEMENT VALUE
(ALSO KNOWN AS "INTRINSIC
HYPOTHETICAL SPOT INDEX VALUE VALUE") OF A WARRANT
----------------------------- --------------------------
<S> <C>
140.00.................................................. $4.72
135.00.................................................. $4.27
130.00.................................................. $3.81
125.00.................................................. $3.36
120.00.................................................. $2.90
115.00.................................................. $2.45
110.00 (Hypothetical Initial Index Value)............... $2.00
100.00.................................................. $1.09
90.00.................................................. $0.18
88.00.................................................. $0.00
80.00.................................................. $0.00
</TABLE>
DTC BOOK-ENTRY PROCEDURES
The Company will issue the Warrants in the form of one or more global
certificates, which will be held by DTC or its nominee. Direct and indirect
participants in DTC (including the depositaries in the Euroclear and Cedel
clearing systems) will record beneficial ownership of the Warrants by individual
investors. Accordingly, except in certain limited circumstances described in the
Prospectus under "Description of Index Warrants -- Book-Entry Procedures and
Settlement for Index Warrants," ownership of the Warrants in certificated form
will not be available to investors. For additional information on DTC and its
procedures, see "Exercise and Settlement of Warrants" below and "Description of
Index Warrants -- Book-Entry Procedures and Settlement for Index Warrants" in
the accompanying Prospectus.
CEDEL AND EUROCLEAR
Warrantholders may hold their Warrants through the accounts maintained by
Cedel Bank, S.A. ("Cedel") or the Euroclear System operated by Morgan Guaranty
Trust's Brussels Office ("Euroclear") in DTC only if they are participants of
such systems, or indirectly through organizations which are participants in such
systems.
Cedel and Euroclear will hold omnibus book-entry positions on behalf of
their participants through customers' securities accounts in Cedel's and
Euroclear's names on the books of their respective depositaries which in turn
will hold such positions in customers' securities accounts in the names of the
nominees of the depositaries on the books of DTC. Citibank, N.A. ("Citibank"),
will act as depositary for Cedel and Morgan Guaranty Trust Company of New York,
New York Office ("Morgan"), will act as depositary for Euroclear (in such
capacities, the "Depositaries"). All securities in Cedel or Euroclear are held
on a fungible basis without attribution of specific certificates to specific
securities clearance accounts.
Exercises of Warrants by persons holding through Cedel or Euroclear
participants will be effected through DTC, in accordance with DTC rules, on
behalf of the relevant European international clearing system
S-23
<PAGE> 24
by its Depositaries; however, such transactions will require delivery of
exercise instructions to the relevant European international clearing system by
the participant in such system in accordance with its rules and procedures and
within its established deadlines (European time). The relevant European
international clearing system will, if the exercise meets its requirements,
deliver instructions to its Depositaries to take action to effect exercise of
the Warrants on its behalf by delivering Warrants through DTC and receiving
payment in accordance with its normal procedures for next-day funds settlement.
Payments with respect to the Warrants held through Cedel or Euroclear will be
credited to the cash accounts of Cedel participants or Euroclear participants in
accordance with the relevant system's rules and procedures, to the extent
received by its Depositaries. See "Exercise and Settlement of the Warrants"
below.
All information herein on Cedel and Euroclear is derived from Cedel or
Euroclear, as the case may be, and reflects the policies of such organizations;
such policies are subject to change without notice.
EXERCISE AND SETTLEMENT OF WARRANTS
The Warrants will be first exercisable on August 5, 1998 and will expire on
the Expiration Date for the Warrants, which is July 17, 2000. Warrants not
exercised (including by reason of any postponed exercise) at or before 3:00
P.M., New York City time, on the earlier of (i) the fourth Business Day
immediately preceding the Expiration Date and (ii) the Delisting Date, if any,
will be automatically exercised as described under "Automatic Exercise" below.
In the case of Warrants held through the facilities of DTC, a Warrantholder
may exercise such Warrants on any Business Day during the period from August 5,
1998 until 3:00 P.M., New York City time, on the earlier of (i) the fourth
Business Day immediately preceding the Expiration Date and (ii) the Delisting
Date, if any, by causing (a) such Warrants to be transferred free to the Warrant
Agent on the records of DTC and (b) a duly completed and executed Exercise
Notice to be delivered on behalf of the Warrantholder by a Participant to the
Warrant Agent. A Form of Exercise Notice for Warrants is included herein as
Appendix B and may also be obtained from the Warrant Agent at the Warrant
Agent's Office.
In the case of Warrants held through the facilities of Cedel or Euroclear,
a Warrantholder may exercise such Warrants on any Business Day during the period
from August 5, 1998 until 3:00 P.M., New York City time, on the earlier of (i)
the fourth Business Day immediately preceding the Expiration Date and (ii) the
Delisting Date, if any, by causing (a) such Warrants to be transferred free to
the Warrant Agent on the records of DTC, by giving appropriate instructions to
the Participant holding such Warrants in either Cedel or Euroclear system, as
the case may be, and (b) a duly completed and executed Exercise Notice to be
delivered on behalf of the Warrantholder by Cedel or Euroclear, as the case may
be, to the Warrant Agent.
Except for Warrants subject to automatic exercise or held through the
facilities of Cedel or Euroclear, and subject to the Limit Option, the "Exercise
Date" for a Warrant will be (i) the Business Day on which the Warrant Agent
receives the Warrant and Exercise Notice in proper form with respect to such
Warrant, if received at or prior to 3:00 P.M., New York City time, on such day,
or (ii) if the Warrant Agent receives such Warrant and Exercise Notice after
3:00 P.M., New York City time, on a Business Day, then the Business Day next
succeeding such Business Day.
In the case of Warrants held through the facilities of Cedel or Euroclear,
except for Warrants subject to automatic exercise, and subject to the Limit
Option, the "Exercise Date" for a Warrant will be (i) the Business Day on which
the Warrant Agent receives the Exercise Notice in proper form with respect to
such Warrant if such Exercise Notice is received at or prior to 3:00 P.M., New
York City time, on such day; provided that the Warrant is received by the
Warrant Agent by 3:00 P.M., New York City time, on the Valuation Date, or (ii)
if the Warrant Agent receives such Exercise Notice after 3:00 P.M., New York
City time, on a Business Day, then the Business Day next succeeding such
Business Day; provided that the Warrant is received by 3:00 P.M., New York City
time, on the Valuation Date relating to exercises of Warrants on such succeeding
Business Day. In the event that a Warrant is received after 3:00 P.M., New York
City time, on the Valuation Date, then the Exercise Date for such Warrant will
be the day on which such Warrant is received or, if such day is not a Business
Day, the next succeeding Business Day. In the case of Warrants held through the
facilities of Cedel or Euroclear, in order to ensure proper exercise on a given
S-24
<PAGE> 25
Business Day, participants in Cedel or Euroclear must submit exercise
instructions to Cedel or Euroclear, as the case may be, by 10:00 A.M.,
Luxembourg time, in the case of Cedel and by 10:00 A.M., Brussels time, in the
case of Euroclear. In addition, in the case of book-entry exercises by means of
Euroclear, (a) participants must also transmit, by facsimile (facsimile number
(201) 262-7521), to the Warrant Agent a copy of the Exercise Notice submitted to
Euroclear by 3:00 P.M., New York City time, on the desired Exercise Date and (b)
Euroclear must confirm by telex to the Warrant Agent by 9:00 A.M., New York City
time, on the Valuation Date that the Warrants will be received by the Warrant
Agent on such date; provided that if such telex communication is received after
9:00 A.M., New York City time, on the Valuation Date, the Company will be
entitled to direct the Warrant Agent to reject the related Exercise Notice or
waive the requirement for timely delivery of such telex communication.
To ensure that an Exercise Notice and the related Warrants will be
delivered to the Warrant Agent before 3:00 P. M., New York City time, on a given
Business Day, a Warrantholder may have to give exercise instructions to his
broker or other intermediary substantially earlier than 3:00 P. M., New York
City time, on such day. Different brokerage firms may have different cut-off
times for accepting and implementing exercise instructions from their customers.
Therefore, Warrantholders should consult with their brokers or other
intermediaries, if applicable, as to applicable cut-off times and other exercise
mechanics. See "Risk Factors Relating to the Warrants -- Risks and Costs
Associated with Conversion and Exercise of Warrants".
Except in the case of Warrants subject to automatic exercise, if on any
Valuation Date the Cash Settlement Value for any Warrants then exercised would
be zero, then the attempted exercise of such Warrants will be void and of no
effect and such Warrants will be transferred back to the Participant (including
the Depositaries) that submitted them free to the Warrant Agent on the records
of DTC, and, in any such case, the Warrants in question will remain outstanding
and exercisable thereafter.
The "Valuation Date" for a Warrant will be the first Business Day following
the Exercise Date, subject to postponement as a result of the exercise of a
number of Warrants exceeding the limits on exercise described below under
"Maximum Exercise Amount" or as a result of an Extraordinary Event or a Market
Disruption Event described below under "Market Disruption Events, Extraordinary
Events and Extension Events". The following is an illustration of the timing of
an Exercise Date and the ensuing Valuation Date, assuming (i) all relevant dates
are Business Days, (ii) the number of exercised Warrants does not exceed the
maximum permissible amount and (iii) no Extraordinary Event or Market Disruption
Event has occurred and is continuing. If the Warrant Agent receives a
Warrantholder's Warrants and Exercise Notice in proper form at or prior to 3:00
P.M., New York City time, on Monday, September 14, 1998, the Exercise Date for
such Warrants will be Monday, September 14, 1998, and the Valuation Date for
such Warrants will be Tuesday, September 15, 1998 (except that in the case of
Warrants held through the facilities of Cedel or Euroclear, the Warrants must be
received by 3:00 P.M., New York City time, on Tuesday, September 15, 1998; if
such Warrants are received after such time, then the Exercise Date for such
Warrants will be the day on which such Warrants are received or, if such day is
not a Business Day, the next succeeding Business Day, and the Valuation Date for
such Warrants will be the first Business Day following such Exercise Date). The
Spot Index Value used to determine the Cash Settlement Value of such Warrants
will be the Spot Index Value on Tuesday, September 15, 1998. If the
Warrantholder elected the Limit Option in connection with the exercise of such
Warrants, the Limit Option Index Value would be the Spot Index Value on Monday,
September 14, 1998. If the Warrant Agent were to receive such Warrantholder's
Warrants and Exercise Notice after 3:00 P.M., New York City time, on Monday,
September 14, 1998 (or in the case of Warrants held through the facilities of
Cedel or Euroclear, if the Warrants are received after 3:00 P.M., New York City
time, on Tuesday, September 15, 1998), then the Exercise Date for such Warrants
would instead be Tuesday, September 15, 1998, the Valuation Date would be
Wednesday, September 16, 1998, and the applicable Limit Option Index Value would
be the Spot Index Value on Tuesday, September 15, 1998.
Following receipt of Warrants and the related Exercise Notice in proper
form, the Warrant Agent will, not later than 5:00 P.M., New York City time, on
the applicable Valuation Date, (i) obtain from the Determination Agent the Spot
Index Value, (ii) determine the Cash Settlement Value of such Warrants and (iii)
advise the Company of the aggregate Cash Settlement Value of the exercised
Warrants. The Company will be required to make available to the Warrant Agent,
no later than 3:00 P.M., New York City time, on the
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third Business Day following the Valuation Date, funds in an amount sufficient
to pay the aggregate Cash Settlement Value of the exercised Warrants. If the
Company has made such funds available by such time, the Warrant Agent will
thereafter be responsible for making funds available to each appropriate
Participant (including Citibank and Morgan, who, in turn, will disburse payments
to Cedel and Euroclear, respectively, who will be responsible for disbursing
such payments to each of their respective participants, who, in turn, will be
responsible for disbursing payments to the Warrantholders they represent), and
such Participant will be responsible for disbursing such payments to the
Warrantholders it represents and to each brokerage firm for which it acts as
agent. Each such brokerage firm will be responsible for disbursing funds to the
Warrantholders that it represents.
"Determination Agent" means Smith Barney or, in lieu thereof, another firm
selected by the Company to perform the functions of the Determination Agent in
connection with the Warrants.
MAXIMUM EXERCISE AMOUNT
All exercises of Warrants (other than automatic exercises) are subject, at
the Company's option, to the limitation that not more than 250,000 Warrants in
total may be exercised on any Exercise Date and not more than 100,000 Warrants
may be exercised by or on behalf of any person or entity, either individually or
in concert with any other person or entity, on any Exercise Date. If any
Business Day would otherwise, under the terms of the Warrant Agreement, be the
Exercise Date in respect of more than 250,000 Warrants, then at the Company's
election 250,000 of such Warrants (selected by the Warrant Agent on a pro rata
basis), shall be deemed exercised on such Exercise Date and the remainder of
such Warrants (the "Remaining Warrants") shall be deemed exercised on the
following Business Day (subject to successive applications of this provision).
Remaining Warrants shall be deemed exercised in the order of their respective
initial Exercise Dates, and Remaining Warrants shall be deemed exercised before
any other Warrants initially exercised after such Remaining Warrants. If any
individual Warrantholder attempts to exercise more than 100,000 Warrants on any
Business Day, then at the Company's election 100,000 of such Warrants shall be
deemed exercised on such Business Day and the remainder shall be deemed
exercised on the following Business Day (subject to successive applications of
this provision). As a result of any postponed exercise as described above,
Warrantholders will receive a Cash Settlement Value with respect to Remaining
Warrants determined as of a date later than the otherwise applicable Valuation
Date. In any such case, as a result of any such postponement and subject to the
Limit Option, the Cash Settlement Value actually received by Warrantholders with
respect to Remaining Warrants may be lower than the otherwise applicable Cash
Settlement Value if the Valuation Date of the Warrants had not been postponed.
MARKET DISRUPTION EVENTS, EXTRAORDINARY EVENTS AND EXTENSION EVENTS
Market Disruption Events. If the Company determines that on a Business Day
that would otherwise be a Valuation Date (an "Applicable Business Day") a Market
Disruption Event has occurred and is continuing, then the Cash Settlement Value
in respect of an exercise of Warrants shall be calculated using as the Valuation
Date the next Business Day following such Applicable Business Day on which there
is no Market Disruption Event or Extraordinary Event (as defined below);
provided that, if no such Business Day shall occur prior to the Expiration Date
or the Delisting Date, if any, then the provisions under "-- Extension Events"
or "Delisting of Warrants" will apply. The Company shall promptly give notice to
Warrantholders, by publication in a newspaper with a national circulation
(currently expected to be The Wall Street Journal), if a Market Disruption Event
shall have occurred.
"Market Disruption Event" means any of the following events, as determined
by the Determination Agent.
(a) The suspension or material limitation of trading in 20% or more of
the underlying stocks which then comprise the Index for more than two hours
of trading or during the one-half hour period preceding the close of
trading on the principal securities exchange on which such stocks are
traded. For purposes of this definition, limitations on trading during
significant market fluctuations imposed pursuant to any rule or regulation
of similar scope to NYSE Rule 80B (or any applicable rule or regulation (A)
enacted or
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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
Determination Agent, or (B) enacted or promulgated by any such securities
exchange, any self regulatory organization or relevant regulatory
authority, as determined by the Determination 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) if futures
contracts related to the Index or options on such futures contracts are
then approved for trading, and are traded on any major U.S. or foreign
exchange, such contracts or options or (B) options contracts related to the
Index which are traded on any major U.S. or foreign exchange; or
(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 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. or foreign exchange.
For purposes of determining whether a Market Disruption Event has occurred:
(i) 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, (ii) a decision to
discontinue trading permanently in the relevant futures or options contract will
not constitute a Market Disruption Event, (iii) 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 Market Disruption Event,
notwithstanding that the duration of such suspension or material limitation is
less than two hours, (iv) 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 and (v) the occurrence
of an Extraordinary Event described in clause (i) of the definition of
Extraordinary Event will not constitute, and will supersede the occurrence of, a
Market Disruption Event. Under certain circumstances, the duties of Smith Barney
as Determination 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 Warrants.
Extraordinary Events. If the Company determines that an Extraordinary
Event has occurred and is continuing on an Applicable Business Day, then the
Cash Settlement Value with respect to an exercise of Warrants shall be
calculated on the basis that the Valuation Date shall be the next Business Day
following an Applicable Business Day on which there is no Extraordinary Event or
Market Disruption Event; provided that, if no such Business Day shall occur
prior to the Expiration Date or the Delisting Date, if any, then the provisions
under "-- Extension Events" or "Delisting of Warrants" will apply. The Company
shall promptly give notice to Warrantholders, by publication in a newspaper with
a national circulation (currently expected to be The Wall Street Journal), if an
Extraordinary Event shall have occurred.
"Extraordinary Event" means any of the following events, as determined by
the Determination Agent:
(a) a suspension, material limitation or absence of trading of all of
the stocks of U.S. issuers comprising the Index;
(b) the enactment, publication, decree or other promulgation of any
statute, regulation, rule or order of any court of any jurisdiction, any
administrative agency or any other governmental authority that would make
it unlawful for the Company to perform any of its obligations under the
Warrant Agreement or the Warrants or that has had or is reasonably expected
to have a material adverse effect on the ability of
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(A) the Company to perform its obligations under the Warrants or to hedge
or modify the hedge of its position with respect to the Warrants or (B) any
affiliate of the Company to hedge or modify the hedge of its position with
respect to any hedging transaction entered into with the Company in
connection with the Company's obligations under the Warrants; or
(c) any outbreak or escalation of hostilities or other national or
international calamity or crisis (including, without limitation, natural
calamities that in the opinion of the Determination Agent may materially
and adversely affect the economy of the United States or the trading of
securities generally on the CBOE, NYSE or NASDAQ, or any other securities
exchange) that has had or is reasonably expected to have a material adverse
effect on the ability of (A) the Company to perform its obligations under
the Warrants or to modify the hedge of its position with respect to the
Warrants or (B) any affiliate of the Company to hedge or modify the hedge
of its position with respect to any hedging transaction entered into with
the Company in connection with the Company's obligations under the
Warrants.
For the purpose of determining whether an Extraordinary Event has occurred:
(i) a limitation on the hours or number of days of trading will not constitute
an Extraordinary Event if it results from an announced change in the regular
business hours of the relevant exchange or market and (ii) 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.
Cancellation of Warrants. If the Company at any time prior to the
Expiration Date or, if applicable, the Extended Expiration Date, determines that
an Extraordinary Event has occurred and is continuing, and if the Extraordinary
Event is expected by the Company to continue, the Company may immediately cancel
the Warrants by notifying the Warrant Agent of such cancellation (the date such
notice is given being the "Cancellation Date"), and each Warrantholder's rights
under the Warrants and the Warrant Agreement shall thereupon cease; provided
that each Warrant shall be automatically exercised using as the Valuation Date
the Cancellation Date, and the holder of each such Warrant will receive, in lieu
of the Cash Settlement Value of such Warrant, the Alternative Settlement Amount,
determined by the Determination Agent. The Company shall promptly give
Warrantholders, by publication in a newspaper with a national circulation
(currently expected to be The Wall Street Journal), of any such cancellation.
Alternative Settlement Amount. The "Alternative Settlement Amount" is
equal to the amount calculated by the Determination Agent, subject to the
provisions set forth below, using the following formula:
Alternative Settlement Amount = Intrinsic Value + [T/2 X A/B]
Intrinsic Value = the Cash Settlement Value of the Warrants determined
as described under "-- Cash Settlement Value," on the applicable Valuation
Date but calculated with a Spot Index Value on the applicable Valuation
Date determined by the Determination Agent which, subject to approval by
the Company (such approval not to be unreasonably withheld), in the
reasonable opinion of the Determination Agent, fairly reflects the Spot
Index Value on the applicable Valuation Date; provided, however, that if a
Cancellation Date falls on (i) the Expiration Date, (ii) the Extended
Expiration Date or (iii) any of the two Business Days immediately preceding
either the Expiration Date or the Extended Expiration Date, then the Spot
Index Value with respect to such date shall be calculated so as to reflect
the value of the Index at the opening of trading on the CBOE on such date.
T = $4.15, the initial offering price per Warrant;
A = the total number of days from, but excluding, the Cancellation
Date or Delisting Date, whichever has given rise to the payment of the
Alternative Settlement Amount for such Warrants, to and including the
Expiration Date; and
B = the total number of days from, but excluding, the date on which
sales of the Warrants were initially confirmed, to and including the
Expiration Date.
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In calculating the Alternative Settlement Amount on the Extended Expiration
Date or on any Cancellation Date or Delisting Date falling between the
Expiration Date and the Extended Expiration Date (inclusive), the Alternative
Settlement Amount shall equal the Intrinsic Value.
For the purposes of determining "Intrinsic Value" in the above formula, in
the event that the Determination Agent and the Company have not, after good
faith consultation with each other and within five days following the first day
upon which such Alternative Settlement Amount may be calculated in accordance
with the above formula, agreed upon a Spot Index Value which fairly reflects the
value of the Index on the Cancellation Date, Delisting Date or Extended
Expiration Date, whichever gives rise to the payment of the Alternative
Settlement Amount, then the Determination Agent shall promptly nominate a third
party, subject to approval by the Company (such approval not to be unreasonably
withheld), to determine such figure and calculate the Alternative Settlement
Amount in accordance with the above formula. Such party shall act as an
independent expert and not as an agent of the Company or the Determination
Agent, and its calculation and determination of the Alternative Settlement
Amount shall, absent manifest error, be final and binding on the Company, the
Warrant Agent, the Determination Agent and the Warrantholders. Any such
calculations will be made available to a Warrantholder for inspection at the
Warrant Agent's Office. Neither the Company, the Determination Agent, the
Warrant Agent nor any third party shall have any responsibility for good faith
errors or omissions in calculating the Alternative Settlement Amount.
Extension Events. If a Market Disruption Event or an Extraordinary Event
is continuing on the Expiration Date (an "Extension Event"), the term of any
outstanding Warrants will be extended for a period of 30 days (the thirtieth day
following the Expiration Date being the "Extended Expiration Date"); provided
that, if the Cash Settlement Value of the Warrants would have been zero if the
Warrants had been exercised, using as the Valuation Date the Measurement Date
(as defined below), then, notwithstanding any other provision of the Warrants,
the term of the Warrants will not be extended, the Cash Settlement Value will be
zero and the Warrants will be deemed to be worthless. Following an Extension
Event, the Warrants will expire on the earlier of: (i) the first Business Day on
which no Market Disruption Event and no Extraordinary Event shall be occurring
(the "Early Extended Expiration Date"), (ii) a Delisting Date falling between
the Expiration Date and the Extended Expiration Date, (iii) a Cancellation Date
falling between the Expiration Date and the Extended Expiration Date and (iv)
the Extended Expiration Date. The Company will give the Warrant Agent prompt
notice by telephone or facsimile transmission and will give prompt notice to the
Warrantholders by publication in a newspaper with a national circulation
(currently expected to be The Wall Street Journal) of the occurrence of an
Extension Event, any Extended Expiration Date and any Delisting Date.
"Measurement Date" means the Business Day occurring most recently prior to
the Expiration Date on which none of the events described in the definition of
Market Disruption Event or Extraordinary Event had occurred or was continuing.
Automatic Exercise; Payment. Any Warrants that expire on the Extended
Expiration Date or the Early Extended Expiration Date will be deemed to be
exercised automatically on the Extended Expiration Date or the Early Extended
Expiration Date, as the case may be, using as the Valuation Date for such
exercise the Extended Expiration Date or Early Extended Expiration Date, and the
holder of each such Warrant will receive the Cash Settlement Value, in the case
of the Early Extended Expiration Date, or the Alternative Settlement Amount in
the case of the Extended Expiration Date. See "Delisting of Warrants".
In the case of Warrants as to which there has been a postponed Valuation
Date resulting from an Extraordinary Event or a Market Disruption Event
(including an Extension Event) or as a result of the exercise of Warrants in a
number exceeding the maximum permissible amounts, the Company will be required
to make available to the Warrant Agent no later than 3:00 P.M., New York City
time, on the third Business Day following the date on which the Cash Settlement
Value or Alternative Settlement Amount, as the case may be, has been calculated
(the "Alternative Funding Date"), New York Clearing House or next day funds in
an amount equal to, and for the payment of, the aggregate Cash Settlement Value
or Alternative Settlement Amount, as applicable, for such Warrants. In the case
of Warrants held through the facilities of DTC, if the Company has made such
funds available by such time as noted above, the Warrant Agent will thereafter
be responsible for making funds available to DTC in an amount sufficient to pay
the Cash
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Settlement Value or Alternative Settlement Amount of the Warrants, if
applicable, prior to the close of business on the Alternative Funding Date. DTC
will be responsible for disbursing such funds to each appropriate Participant
and such Participant will be responsible for disbursing such payments to the
Warrantholders it represents and to each brokerage firm for which it acts as
agent. Each such brokerage firm will be responsible for disbursing funds to the
Warrantholders it represents.
Certain of the Extraordinary Events and Market Disruption Events may be
events that would tend to decrease the level of the Spot Index Value, and
accordingly decrease the Cash Settlement Value for the Warrants following the
occurrence of any such Extraordinary Event or Market Disruption Event. However,
as a result of any postponed exercise as described above, Warrantholders would
not receive such Cash Settlement Value, but would receive instead a Cash
Settlement Value (or, if applicable, an Alternative Settlement Amount)
determined as of a later date. In any such case, any immediate impact of the
related Extraordinary Event or Market Disruption Event on the Spot Index Value
may have been negated by interim market and other developments and, as a result
of any such postponement, the Cash Settlement Value (or Alternative Settlement
Amount) actually received by Warrantholders may be substantially different than
the otherwise applicable Cash Settlement Value if the valuation of the Warrants
had not been postponed.
LIMIT OPTION
Except for Warrants subject to automatic exercise, each Warrantholder, in
connection with any exercise of Warrants, will have the option (the "Limit
Option") to specify that such Warrants are not to be exercised if the Spot Index
Value that would otherwise be used to determine the Cash Settlement Value of
such Warrants has declined by five or more points from the Spot Index Value for
the day specified below (such value, the "Limit Option Index Value"). A
Warrantholder's election of the Limit Option must be specified in the applicable
Exercise Notice delivered to the Warrant Agent, and the Limit Option Index Value
with respect to any such notice will be the Spot Index Value for the relevant
Exercise Date.
To ensure that the Limit Option will have its intended effect of limiting
the risk of any downward movement in the value of the Index between the date on
which a Warrantholder submits an Exercise Notice and the related Valuation Date,
such Exercise Notice and the related Warrants must be received by the Warrant
Agent not later than 3:00 P.M., New York City time, on the Business Day on which
they are submitted. See the illustration under "Exercise and Settlement of
Warrants" above and "Risk Factors Relating to the Warrants -- Risks Due to Delay
or Postponement of Valuation of Warrants".
Following receipt of an Exercise Notice and the related Warrants subject to
the Limit Option, the Warrant Agent will obtain the applicable Limit Option
Index Value from the Determination Agent and will determine whether such
Warrants will not be exercised because of the Limit Option. Warrants that are
not exercised will be treated as not having been tendered for exercise, and such
Warrants will be transferred back to the account at DTC, Cedel or Euroclear, as
the case may be, from which they were transferred to the Warrant Agent and will
remain outstanding. To exercise such Warrants, a Warrantholder will be required
to cause the Warrants and a related Exercise Notice to be submitted again to the
Warrant Agent.
Once elected by a Warrantholder in connection with an exercise of Warrants,
the Limit Option will continue to apply, on the basis of the Limit Option Index
Value as initially determined for such Warrants, even if the Valuation Date for
such Warrants is postponed, except when such Valuation Date is postponed to a
date of automatic exercise of Warrants. Pursuant to the Limit Option, such
Warrants will either (i) be exercised on a delayed basis if the Spot Index Value
on any applicable postponed Valuation Date is not less than the Limit Option
Index Value by five or more points or (ii) not be exercised if, on any
applicable postponed Valuation Date, the Spot Index Value is less than the Limit
Option Index Value by five or more points.
AUTOMATIC EXERCISE
All Warrants not theretofore exercised will be automatically exercised on
the Expiration Date (subject to extension), the Extended Expiration Date, the
Early Extended Expiration Date, a Cancellation Date or a
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Delisting Date, as the case may be. The Exercise Date for such Warrants will be
such Date or, if such Date is not a Business Day, the next succeeding Business
Day.
The Company will be required to make available to the Warrant Agent, no
later than 3:00 P.M., New York City time, on the third Business Day after the
applicable Valuation Date, funds in an amount sufficient to pay the aggregate
Cash Settlement Value (or Alternative Settlement Value, as the case may be) of
the Warrants subject to Automatic Exercise. If the Company has made such funds
available by such time, the Warrant Agent will thereafter be responsible for
making funds available to DTC in an amount sufficient to pay the aggregate Cash
Settlement Value (or Alternative Settlement Value, as the case may be) of the
Warrants. DTC will be responsible for disbursing such funds to each appropriate
Participant (including Citibank and Morgan, who, in turn, will disburse payments
to Cedel and Euroclear, respectively, who will be responsible for disbursing
such payments to each of their respective participants, who, in turn, will be
responsible for disbursing payments to the Warrantholders they represent), and
such Participant will be responsible for disbursing such payments to the
Warrantholders it represents and to each brokerage firm for which it acts as
agent. Each such brokerage firm will be responsible for disbursing funds to the
Warrantholders it represents.
LISTING
The Warrants have been approved for listing on the CBOE under the symbol
"TPW", subject to official notice of issuance. The CBOE expects to cease trading
the Warrants on such Exchange as of the close of business on the Expiration
Date. See "Risk Factors Relating to the Warrants -- Other Considerations".
DELISTING OF WARRANTS
In the event the Warrants are delisted from, or permanently suspended from
trading on (within the meaning of the Exchange Act) the CBOE and not accepted at
the same time for listing on another United States national securities exchange,
Warrants not previously exercised will be deemed automatically exercised on the
Delisting Date, and the Cash Settlement Value or, in the event that the Company
determines that a Market Disruption Event or Extraordinary Event has occurred
and is continuing on the Delisting Date, the Alternative Settlement Amount, as
the case may be, shall be calculated and settled as provided above; provided,
however, that if a Delisting Date falls on (i) the Expiration Date, (ii) the
Extended Expiration Date or (iii) any of the two Business Days immediately
preceding either the Expiration Date or the Extended Expiration Date, then the
Spot Index Value with respect to such date shall be calculated so as to reflect
the value of the Index at the opening of trading on the CBOE on such date. The
Company will notify the Warrant Agent, who will notify the Warrantholders as
soon as practicable of such delisting or trading suspension. However, if the
Company first receives notice of the delisting or suspension on the same day on
which the Warrants are delisted or suspended, such day will be deemed the
Delisting Date. The Company will covenant in the Warrant Agreement that it will
not seek delisting of the Warrants from, or suspension of their trading on, the
CBOE unless the Company has, at the same time, arranged for listing of the
Warrants on another United States national securities exchange.
USE OF PROCEEDS AND HEDGING
The proceeds to be received by the Company from the sale of the Warrants
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 Warrants and may earn additional income as a
result of payments pursuant to such swap or related hedge transactions.
All or a portion of the proceeds to be received by the Company from the
sale of the Warrants may be used by the Company or one or more of its
subsidiaries to purchase or maintain positions in all or certain of the stocks
underlying the Index, or options, futures contracts, forward contracts or swaps,
or options on the
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foregoing, the Index, or other derivative or synthetic instruments relating to
such stocks or Index, as the case may be, and, if applicable, to pay the costs
and expenses of hedging any Index-related risk with respect to the Warrants.
From time to time after the initial offering and prior to the maturity of the
Warrants, depending on market conditions (including the value of the Index
and/or the stocks underlying the Index), in connection with hedging with respect
to the Warrants, 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 underlying stocks, the
Index, options, futures contracts, forward contracts, swaps, or other derivative
or synthetic instruments related to, the underlying stocks or the Index. In
addition, the Company or one or more of its subsidiaries may purchase or
otherwise acquire a long or short position in the Warrants from time to time and
may, in its or their sole discretion, hold, resell, exercise, cancel or retire
such Warrants. 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
such subsidiaries has a long hedge position in, options contracts in, or other
derivative or synthetic instruments related to, the underlying stocks or the
Index, the Company or one or more of such subsidiaries may liquidate all or a
portion of its holdings at or about the time of the maturity of the Warrants
and/or any Valuation Date. 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, forward contracts, options on the foregoing, or other
derivative or synthetic instruments, or on the value of the underlying stocks or
the Index, 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 the Warrants will be used by the Company or its
subsidiaries for general corporate purposes, as described above.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain United States federal income tax
considerations that may be relevant to a holder of a Warrant. This summary is
based on laws, regulations, rulings and decisions now in effect, all of which
are subject to change, possibly with retroactive effect. This summary deals only
with holders that will hold Warrants as capital assets, and does not address tax
considerations applicable to investors that may be subject to special tax rules,
such as banks, tax-exempt entities, insurance companies, regulated investment
companies, common trust funds or dealers in securities, currencies or options,
persons that will hold Warrants as part of an integrated investment (including a
"straddle" or "conversion transaction") comprised of a Warrant and one or more
other positions or persons that have a "functional currency" other than the U.S.
dollar. The discussion herein 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 Warrants, including the application to their
particular situation of the United States federal income tax considerations
discussed below, as well as the application of state, local, foreign or other
tax laws.
As used herein, the term "US 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 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).
US HOLDERS
The Warrants will be treated as "equity options" and thus generally will
not be treated as "section 1256 contracts" which must be "marked-to-market"
(i.e., treated as sold at fair market value) for federal income
S-32
<PAGE> 33
tax purposes on the last business day of each taxable year. Accordingly, upon
the sale or exercise (including automatic exercise) of a Warrant, a US Holder
generally will recognize gain or loss equal to the difference between the amount
realized, if any, and the US Holder's tax basis in the Warrant. A US Holder of a
Warrant that expires will recognize loss equal to the tax basis of the Warrant.
Such gain or loss generally will be capital gain or loss, and will be long-term
capital gain or loss if at the time of sale or exercise, the Warrant has been
held by the US Holder for more than one year. Long-term capital gain realized by
an individual US Holder is generally subject to a maximum tax rate of 28% in
respect of property held for more than one year and to a maximum rate of 20% in
respect of property held for more than 18 months. Legislation recently passed by
Congress and awaiting the President's signature would, if enacted in its current
form, apply a maximum tax rate of 20% on long-term capital gain realized by an
individual US Holder in respect of property held for more than one year.
NON-US HOLDERS
A holder of Warrants that is not a US Holder (a "non-US Holder") will not
be subject to US federal income tax or withholding tax on any gain realized upon
a sale or other disposition of a Warrant, unless the gain is effectively
connected with the beneficial owner's trade or business in the United States or,
in the case of a non-US Holder that is an individual, the holder is present in
the United States for 183 days or more in the taxable year of the sale, exercise
or other disposition and certain other conditions are met.
The fair market value of a Warrant may be includible in the estate of an
individual non-US Holder for United States federal estate tax purposes, unless
an applicable estate tax treaty provides otherwise.
S-33
<PAGE> 34
UNDERWRITING
Subject to the terms and conditions set forth in an Underwriting Agreement
(the "Underwriting Agreement") between the Company and Smith Barney, as sole
Underwriter (the "Underwriter"), the Company has agreed to sell to the
Underwriter, and the Underwriter has agreed to purchase from the Company,
1,100,000 Warrants:
The Warrants are offered subject to receipt and acceptance by the
Underwriter, to prior sale and to the Underwriter's 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 Warrants will be made at the office of Smith
Barney, 388 Greenwich Street, New York, New York, or through the facilities of
the Depositaries, on or about July 22, 1998.
The Company has been advised that the Underwriter proposes to offer the
Warrants to the public initially at the public offering price set forth on the
cover page of this Prospectus Supplement and to certain dealers at a price that
represents a concession not in excess of $0.20 per Warrant, and that the
Underwriter may allow, and each such dealer may reallow, to other dealers a
concession not exceeding $0.05 per Warrant. 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 been advised by the Underwriter that the Underwriter may
make a market in the Warrants, subject to applicable laws and regulations.
However, the Underwriter is 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 Warrants will develop.
The Underwriting Agreement provides that the Company will indemnify the
Underwriter against certain liabilities, including liabilities under the
Securities Act of 1933, as amended, or to contribute to payments the Underwriter
may be required to make in respect thereof.
The Warrants may be offered to investors outside the United States. The
Underwriter has 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 Securities Dealers, Inc.
regarding the offering by an affiliate of the securities of its parent.
In connection with this offering, the Underwriter and selling group members
and their respective affiliates may engage in transactions that stabilize,
maintain or otherwise affect the market price of the Warrants. Such transactions
may include stabilization transactions effected in accordance with Rule 104 of
Regulation M under the Exchange Act, pursuant to which such persons may bid for
or purchase Warrants for the purposes of stabilizing their market price. The
Underwriter also may create a short position for its accounts by selling more
Warrants in connection with this offering than it is committed to purchase from
the Company, and in such case may purchase Warrants in the open market following
completion of this offering to cover all or a portion of such short position.
Any of the transactions described in this paragraph may result in the
maintenance of the price of the Warrants at a level above that which might
otherwise prevail in the open market. None of the transactions described in this
paragraph are 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 Warrants and may, at its option, hold, resell or
retire such Warrants. 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 Warrants 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.
S-34
<PAGE> 35
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 Warrants 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 Warrants 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 Warrants by a Plan that is subject to the
fiduciary responsibility provisions of ERISA or the prohibited transaction
provisions of 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.
The person making the decision on behalf of any such plan on behalf of itself
and the plan shall be deemed by its purchasing and holding of the Warrants to
represent that such purchase and holding of the Warrants is not a prohibited
transaction under Section 406 of ERISA or Section 4975 of the Code for which no
exemption is available. In this regard, such plans may wish to review 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 WARRANTS SHOULD CONSULT
WITH ITS COUNSEL.
LEGAL MATTERS
Certain legal matters relating to the Warrants 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 Warrants 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-35
<PAGE> 36
APPENDIX A
INDEX OF TERMS
<TABLE>
<CAPTION>
TERM PAGE
---- -----
<S> <C>
ADR......................................................... Cover
Alternative Funding Date.................................... S-30
Alternative Settlement Amount............................... S-28
AMEX........................................................ S-18
Applicable Business Day..................................... S-26
Business Day................................................ S-4
Cancellation Date........................................... S-28
Cash Settlement Value....................................... Cover
CBOE........................................................ Cover
Cedel....................................................... S-23
Citibank.................................................... S-24
Committee................................................... S-18
Company..................................................... Cover
Delisting Date.............................................. S-5
Depositaries................................................ S-24
Determination Agent......................................... S-26
DTC......................................................... S-3
Early Extended Expiration Date.............................. S-29
Euroclear................................................... S-23
Exchange Act................................................ S-8
Exercise Date............................................... S-24
Exercise Notice............................................. S-5
Expiration Date............................................. S-2
Extended Expiration Date.................................... S-29
Extension Event............................................. S-29
Extraordinary Event......................................... S-28
Foreign Issuer.............................................. S-13
Index....................................................... S-3
Initial Index Value......................................... S-4
Intrinsic Value............................................. S-28
Limit Option................................................ S-30
Limit Option Index Value.................................... S-30
Market Disruption Event..................................... S-27
Measurement Date............................................ S-29
Morgan...................................................... S-24
NASDAQ...................................................... S-18
non-US Holder............................................... S-33
NYSE........................................................ S-18
Participant................................................. S-5
Portfolio Securities........................................ S-7
Remaining Warrants.......................................... S-26
Salomon Smith Barney........................................ Cover
Salomon Smith Barney Subsidiaries........................... S-34
SEC......................................................... S-8
</TABLE>
A-1
<PAGE> 37
<TABLE>
<CAPTION>
TERM PAGE
---- -----
<S> <C>
Smith Barney................................................ S-7
Spot Index Value............................................ S-4
TEN+ Index.................................................. S-3
Trading Day................................................. S-4
Travelers Group............................................. S-8
Trust....................................................... S-7
Underlying Shares........................................... S-13
Underwriter................................................. S-34
Underwriting Agreement...................................... S-34
United States............................................... S-33
US Holder................................................... S-33
Valuation Date.............................................. S-25
Warrant Agent............................................... S-22
Warrant Agent's Office...................................... S-22
Warrant Agreement........................................... S-22
Warrantholder............................................... S-5
Warrant..................................................... Cover
</TABLE>
A-2
<PAGE> 38
APPENDIX B
FORM OF EXERCISE NOTICE
For Warrants Represented by the Global Warrant Certificate
CUSIP No.: 79549B651
Citibank, N.A.
c/o Citicorp Data Distribution Inc.
404 Sette Drive
Paramus, New Jersey 07652
Telephone No.: (201) 262-5445
Facsimile No.: (201) 262-7521
Attention:
1. We refer to the Warrant Agreement dated as of July 22, 1998 (the
"Warrant Agreement"), among Salomon Smith Barney Holdings Inc. (the "Company"),
Citibank, N.A., as Warrant Agent (the "Warrant Agent"), and Smith Barney Inc.,
as Determination Agent (the "Determination Agent"). On behalf of certain
beneficial owners, each of whose Warrants have been, or will be, transferred to
the Warrant Agent in accordance with the provisions of the Representations
Letter relating to the Warrants, we hereby irrevocably exercise
Warrants (the "Tendered Warrants"). We hereby acknowledge that the Warrants
being exercised and this Exercise Notice must be received by you by 3:00 P.M.,
New York City time, on a Business Day in order for the Valuation Date for the
Tendered Warrants to be the Business Day following such Business Day and that,
if the Warrants being exercised and this Exercise Notice are received by you
after 3:00 P.M., New York City time, on a Business Day (or, in the case of
Warrants held through Cedel or Euroclear, if the Warrants are not received by
3:00 p.m., New York City time, on the first Business Day following such Business
Day) the Valuation Date of the Tendered Warrants shall be the Business Day next
succeeding such Business Day, in each case subject to certain provisions of the
Warrant Agreement.
2. If you determine that this Exercise Notice has not been duly completed
or is not in proper form, this Exercise Notice will be void and of no effect and
will be deemed not to have been delivered.
3. We hereby direct you to make payment to us of amounts payable to our
clients as a result of the exercise of the Warrants hereunder as follows:
By cashier's check or an official bank check;
By wire transfer to the following U.S. Dollar
bank account in the United States:
(Minimum payments of $100,000 only)
Bank:
--------------------------------------------------------
Account No.:
------------------------------------------------------
ABA Routing No.:
------------------------------------------------
Reference:
---------------------------------------------------------
4. The Tendered Warrants covered hereby [ARE/ARE NOT] subject to the Limit
Option(1).
5. Each client on whose behalf we are exercising Warrants pursuant to this
Exercise Notice has certified to us that it is not exercising in excess of
100,000 Warrants on behalf of any beneficial owner or in concert with any other
beneficial owner on the date of this Exercise Notice.
FOR PARTICIPANTS ONLY
6. We hereby certify that we are a Participant of The Depository Trust
Company (the "Depository") with the present right to use and receive its
services.
- ---------------
(1) Separate Notices of Exercise shall be submitted with respect to Warrants
subject to the Limit Option and Warrants not subject to the Limit Option.
B-1
<PAGE> 39
Capitalized terms used but not defined herein have the meanings assigned
thereto in the Warrant Agreement.
Dated: , 19
NAME OF DEPOSITORY PARTICIPANT
Participant Number
NAME OF EUROCLEAR PARTICIPANT
Participant Number
NAME OF CEDEL PARTICIPANT
Participant Number
By
------------------------------------
Authorized Signature
Address:
Telephone: ( )
B-2
<PAGE> 40
- ------------------------------------------------------
- ------------------------------------------------------
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 SUPPLEMENT 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-3
Incorporation of Certain Documents by
Reference............................. S-8
Risk Factors Relating to the Warrants... S-8
Description of the Index................ S-18
Description of the Warrants............. S-22
Use of Proceeds and Hedging............. S-31
Certain United States Federal Income Tax
Considerations........................ S-32
Underwriting............................ S-34
ERISA Matters........................... S-35
Legal Matters........................... S-35
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.
1,100,000 CALL WARRANTS
ON THE
1998 TEN+(SM) INDEX
EXPIRING ON JULY 17, 2000
------------
PROSPECTUS SUPPLEMENT
JULY 17, 1998
(INCLUDING PROSPECTUS
DATED DECEMBER 1, 1997)
------------
SALOMON SMITH BARNEY
- ------------------------------------------------------
- ------------------------------------------------------
