<PAGE> 1
Filed Pursuant to Rule 424(b)(2)
Registration nos. 333-71667,
333-71667-01
[Background of cover page: Salomon Smith Barney trading floor]
PROSPECTUS
TARGETS
TRUST II
-------------
5,700,000 TARGETED GROWTH WITH RESPECT TO THE COMMON STOCK OF
ENHANCED TERMS SECURITIES LUCENT TECHNOLOGIES INC.
(TARGETS(R)) DUE ON MAY 15, 2001
$12.7875 PER TARGETS
GUARANTEED BY
SALOMON SMITH BARNEY HOLDINGS INC.
- - Preferred securities of a trust paying:
1. Quarterly distributions in the amount of $0.1917544 (except $0.0661404 on
May 15, 1999), and
2. A maturity payment based on the market price of the common stock of Lucent
- - We will apply to list the TARGETS on the Chicago Board Options Exchange under
the symbol "TLU."
INVESTING IN THE TARGETS INVOLVES A NUMBER OF RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 8.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the TARGETS or determined that this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
<TABLE>
<CAPTION>
Per TARGETS TOTAL
- ----------------------------------------------------------------------------
<S> <C> <C>
Public Offering Price $12.7875 $72,888,750
- ----------------------------------------------------------------------------
Underwriting Discount to be paid by
Salomon Smith Barney Holdings $0.4476 $2,551,320
- ----------------------------------------------------------------------------
Proceeds to TARGETS Trust II before expenses $12.7875 $72,888,750
- ----------------------------------------------------------------------------
</TABLE>
SALOMON SMITH BARNEY
--------------------
A member of citigroup [graphic]
April 8, 1999
<PAGE> 2
TARGETS (Targeted Growth Enhanced Terms Securities)
SUMMARY
This summary highlights selected information from this prospectus to help
you understand the TARGETS with respect to the common stock of Lucent
Technologies Inc. You should carefully read the entire prospectus to fully
understand the terms of the TARGETS as well as the principal tax and other
considerations that are important to you in making a decision about whether to
invest in the TARGETS. You should, in particular, carefully review the section
entitled "Risk Factors", which highlights a number of risks, to determine
whether an investment in the TARGETS 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.
GENERAL
TARGETS are preferred securities issued by a trust that offer a potential
growth and income investment opportunity. TARGETS provide the growth potential
of a particular stock up to an appreciation cap price. Although the growth
potential of an investment in the TARGETS is capped, TARGETS investors receive
quarterly distributions with a yield greater than the underlying stock's
current dividend yield. TARGETS have a term of approximately 2 years.
SELECTED PURCHASE CONSIDERATIONS
(*) Growth Potential--TARGETS allow you to participate in approximately the
first 30% of appreciation in the price of the stock on which they are
based. At maturity, you will receive for each TARGETS an amount equal to
the price of the number of shares of stock on which each TARGETS is based,
up to the appreciation cap.
(*) Current Income--TARGETS pay quarterly distributions with a yield set at a
rate that is significantly higher than the dividend yield currently paid by
the company on whose stock the TARGETS are based.
(*) Tax Advantages--For most investors, a relatively large portion of the
TARGETS' quarterly distributions will be considered a tax-free return of
principal. In addition, the TARGETS generally will be subject to capital
asset treatment upon sale or at maturity. These tax advantages of the
TARGETS have the potential effect of producing a higher after-tax return
than would be produced by a more conventional income-generating security.
(*) Exchange Listing--Although the TARGETS are expected to be "buy and hold"
investments, they are listed on a major exchange.
SELECTED RISK CONSIDERATIONS
An investment in the TARGETS involves significant risks. These risks are
explained in more detail in the "Risk Factors" section of this prospectus.
Some are summarized here.
(*) Your Investment in the TARGETS Will Result in a Loss if the Price of the
Common Stock Declines--Since the maturity payment on the TARGETS is linked
to the price of the underlying stock, if the price of the underlying stock
falls, the maturity payment could be less than your initial investment,
even if the price of the underlying stock at some point over the life of
the TARGETS exceeds the price of the underlying stock at the time of your
initial investment.
(*) The Appreciation of Your Investment in the TARGETS Will Be Capped-- The
opportunity for equity appreciation afforded by an investment in the
TARGETS may be significantly less than the opportunity for equity
appreciation afforded by a direct investment in the underlying stock due to
the appreciation cap.
(*) You Have No Rights Against Lucent Even Though the Maturity Payment on the
TARGETS Is Based on the Price of Lucent's Stock--The market price of the
TARGETS at any time will be affected primarily by changes in the price of
the underlying stock. The yield on the TARGETS is set at a rate that is
higher than the current dividend yield on the underlying stock, but may not
remain higher through the term of the TARGETS if Lucent increases its
dividends. Lucent is not involved in this offering and has no obligations
relating to the TARGETS.
(*) You May Not Be Able to Sell Your TARGETS if an Active Trading Market for
the TARGETS Does Not Develop--TARGETS will be listed on a major exchange,
but there can be no guarantee of liquidity in the secondary market.
Although Salomon Smith Barney Inc. intends to make a market in the TARGETS,
it is not obligated to do so.
(*) The Price at Which You Will Be Able to Sell Your TARGETS Prior to Maturity
May Be Substantially Less Than the Amount You Originally Invest--Due to
changes in the price of and the dividend yield on the underlying stock,
interest rates, other economic conditions and Salomon Smith Barney
Holdings' perceived creditworthiness, the TARGETS may trade at prices below
their initial issue price and you could receive substantially less than
the amount of your original investment if you sell your TARGETS prior to
maturity.
<PAGE> 3
TARGETS TRUST II
TARGETS Trust II is a recently formed Delaware business trust. Salomon
Smith Barney Holdings will own all of the common securities of Trust II. The
common securities will comprise at least 3% of Trust II's capital.
Trust II will not engage in any activities except:
- issuing 5,700,000 TARGETS and 176,289 common securities,
- investing 88.15% of the proceeds of the offering (approximately
$66,238,595) in a forward contract of Salomon Smith Barney Holdings
relating to the common stock of Lucent,
- investing 11.85% of the proceeds of the offering (approximately
$8,904,451) in stripped self-amortizing U.S. treasury securities, and
- activities incidental to the above.
Trust II will not issue any securities except the common securities and the
TARGETS.
Trust II will be managed by trustees elected by Salomon Smith Barney
Holdings, as the holder of the common securities. The holders of the TARGETS
have no right to elect or remove trustees. Salomon Smith Barney Holdings will
pay all costs, expenses, debts and liabilities of Trust II, including fees and
expenses related to the offering of the TARGETS, but not including payments
under the TARGETS.
The address and telephone number of Trust II are:
TARGETS Trust II
c/o Salomon Smith Barney Holdings Inc.
388 Greenwich Street
New York, NY 10013
(212) 816-6000
THE TARGETS
The TARGETS are preferred undivided interests in Trust II. The TARGETS
mature on May 15, 2001, but will be subject to acceleration to an accelerated
maturity date upon the occurrence of one of the acceleration events described
below. If an acceleration event occurs or Salomon Smith Barney Holdings defaults
on its guarantee, holders of the TARGETS will have a preference over holders of
the common securities for payments.
The TARGETS are designed to provide you with a higher yield than the
current dividend yield paid on the common stock of Lucent while also providing
the opportunity for holders to share in any appreciation of the common stock up
to an appreciation cap set at a price per share of $83.1187. The appreciation
cap allows you to participate in approximately the first 30% of appreciation in
the price of the common stock of Lucent.
QUARTERLY DISTRIBUTIONS
You will receive cash distributions of $0.1917544 per quarter on each
TARGETS (except that the quarterly distribution payable on May 15, 1999 will be
$0.0661404 per TARGETS), payable on each February 15, May 15, August 15 and
November 15, beginning May 15, 1999.
Trust II will make payments out of payments received on the treasury
securities.
The ability of Trust II to make quarterly distributions on the TARGETS is
entirely dependent on receipt by Trust II of payments under the treasury
securities. You should refer to "Description of the TARGETS -- Quarterly
Distributions".
PAYMENT AT MATURITY
At maturity, you will receive for each TARGETS the maturity payment and the
final quarterly distribution.
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<PAGE> 4
Maturity Payment
The maturity payment per TARGETS will equal the product of (A) the current
market price of the common stock as of the maturity date times (B) the exchange
rate.
The exchange rate will be (X) if the current market price of the common
stock as of the maturity date is less than or equal to the appreciation cap,
0.2, and (Y) if the current market price of the common stock as of the maturity
date is greater than the appreciation cap, the following fraction:
appreciation cap x 0.2
-------------------------------------------------------------------------
current market price of the common stock as of the maturity date
The exchange rate and the appreciation cap are subject to adjustment upon
the occurrence of certain events involving Lucent and its capital structure, as
described in the section "Description of the TARGETS -- Dilution Adjustments" in
this prospectus.
The current market price will be the average daily closing sale price or,
if no closing sale price is reported, the last reported sale price of the common
stock for the 10 trading days immediately prior to but not including the date
one business day before the maturity date.
The amount payable to holders of the TARGETS at maturity is dependent upon
the current market price of the common stock at maturity. If the current market
price on the maturity date is less than $63.9375, the maturity payment on each
TARGETS will be less than the amount originally invested.
In addition, the TARGETS provide less opportunity for equity appreciation
than a direct investment in the common stock because the maturity payment on
each TARGETS will be limited by the appreciation cap to approximately 130% of
the amount originally invested.
The maturity payment with respect to each TARGETS will be paid by Trust II
out of the funds received by Trust II from Salomon Smith Barney Holdings under
the forward contract. Trust II's ability to make the maturity payments is
entirely dependent upon Trust II receiving payment under the forward contract
from Salomon Smith Barney Holdings. You should refer to the section "Description
of the TARGETS -- Maturity Payment" in this prospectus.
Maturity Payment -- Examples
Here are three examples of hypothetical maturity payment calculations:
Example 1: The current market price of the common stock is less than the
price of the common stock when the TARGETS are issued:
<TABLE>
<S> <C>
Market price of common stock upon issuance of TARGETS....... $63.9375
Appreciation cap............................................ $83.1187
Hypothetical current market price........................... $50.0000
</TABLE>
Exchange rate = 0.2, since the current market price is less than the
appreciation cap
Maturity payment = 0.2 x $50.00 = $10.00
Example 2: The current market price of the common stock is less than the
appreciation cap and greater than the price of the common stock
when the TARGETS are issued:
<TABLE>
<S> <C>
Market price of common stock upon issuance of TARGETS....... $63.9375
Appreciation cap............................................ $83.1187
Hypothetical current market price........................... $70.0000
</TABLE>
Exchange rate = 0.2, since the current market price is less than the
appreciation cap
Maturity payment = 0.2 x $70.00 = $14.00
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<PAGE> 5
Example 3: The current market price of the common stock is greater than the
appreciation cap:
<TABLE>
<S> <C>
Market price of common stock upon issuance of TARGETS....... $ 63.9375
Appreciation cap............................................ $ 83.1187
Hypothetical current market price........................... $100.0000
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Exchange rate = 0.2 x $83.1187 = 0.1662, since the current market price is greater than
--------------- the appreciation cap
$100.00
Maturity payment = 0.1662 x $100.00 = $16.62
</TABLE>
ACCELERATION OF MATURITY
If one of the acceleration events described below occurs, the treasury
securities will be sold and Trust II will be liquidated. You will receive for
each TARGETS the accelerated maturity payment and a pro rata portion of the
proceeds of the sale of the treasury securities.
The accelerated maturity payment per TARGETS will be calculated in the same
manner as the maturity payment and as though the date on which the acceleration
event occurred were the maturity date.
You will receive payment before holders of the common securities if an
acceleration event occurs or Salomon Smith Barney Holdings defaults on any of
its obligations under its guarantee.
Any of the following will constitute an acceleration event:
- the occurrence of certain adverse tax consequences to Trust II,
- the classification of Trust II as an "investment company" under the
Investment Company Act, or
- the initiation of bankruptcy proceedings regarding Salomon Smith Barney
Holdings.
TARGETS PAYMENTS GUARANTEE
Salomon Smith Barney Holdings has guaranteed that if a payment on the
forward contract or the treasury securities is made to Trust II but, for any
reason, Trust II does not make the corresponding payment to you, then Salomon
Smith Barney Holdings will make the payment directly to you. You should refer to
the sections "Description of the Guarantee" and "Risk Factors -- Limited
Enforcement Rights" in this prospectus.
VOTING RIGHTS
You will have limited voting rights with respect to Trust II and will not
be entitled to vote to appoint, remove or replace, or increase or decrease the
number of, the trustees. These voting rights will be held exclusively by Salomon
Smith Barney Holdings, as the holder of the common securities. You will,
however, have the right to direct The Chase Manhattan Bank, as trustee of Trust
II and as holder of the forward contract and the treasury securities, to
exercise its rights as trustee and to direct the time, method and place of any
proceeding for any remedy available to the trustee.
You will have no voting rights and no ownership interest in any common
stock of Lucent.
HISTORICAL PERFORMANCE OF THE COMMON STOCK
We have provided a table showing the high and low sales prices for the
common stock of Lucent and the cash dividends per share of common stock for each
quarter since the second quarter of 1996. You can find this table in the section
"Historical Data on the Common Stock" in this prospectus. We have provided this
historical information to help you evaluate the behavior of the common stock in
recent years. However, past performance is not necessarily indicative of how the
common stock will perform in the future. You should refer to the section "Risk
Factors -- Issuer of the Common Stock Has No Obligations Relating to the
TARGETS" in this prospectus.
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<PAGE> 6
The TARGETS are obligations of Trust II and, to the extent of the
guarantee, of Salomon Smith Barney Holdings. Even though the maturity payment
will reflect the market price of the common stock of Lucent at maturity, Lucent
has no obligations under the TARGETS or Salomon Smith Barney Holdings'
guarantee.
THE FORWARD CONTRACT
The forward contract will be issued under an indenture between Salomon
Smith Barney Holdings and The Chase Manhattan Bank, as trustee. Salomon Smith
Barney Holdings conducts other business with The Chase Manhattan Bank.
Trust II will purchase the forward contract from Salomon Smith Barney
Holdings on the date the TARGETS are issued. Under the forward contract, Salomon
Smith Barney Holdings will be required to pay to Trust II the total maturity
payments, or the total accelerated maturity payments. The forward contract is a
prepaid "cash-settled" forward contract under which Salomon Smith Barney
Holdings will settle its obligations in cash rather than in securities. The
proceeds from the sale of the forward contract will be used by Salomon Smith
Barney Holdings for general corporate purposes. You should refer to the sections
in this prospectus "Use of Proceeds and Hedging Activities", "Description of the
Forward Contract" and "Risk Factors -- Purchases and Sales by Affiliates of
Salomon Smith Barney Holdings".
U.S. FEDERAL INCOME TAXES
If you are a U.S. individual or taxable entity, you generally will be
required to pay taxes on only a relatively small portion of each quarterly cash
distribution you receive from Trust II, which will be ordinary income. The
remaining portion of each quarterly cash distribution that you receive from
Trust II will be treated as a tax-free return of your investment in the TARGETS
and will reduce your tax basis in them. If you hold your TARGETS until they
mature or if you sell your TARGETS, you will have a capital gain or loss equal
to the difference between your tax basis in the TARGETS and the cash you
receive. You should refer to the section "United States Federal Income Tax
Considerations" in this prospectus.
THE ROLE OF SALOMON SMITH BARNEY'S SUBSIDIARY, SALOMON SMITH BARNEY INC.
Salomon Smith Barney Holdings' subsidiary, Salomon Smith Barney Inc., is
the underwriter for the offering and sale of the TARGETS. After the initial
offering, Salomon Smith Barney Inc. and/or other broker-dealer affiliates of
Salomon Smith Barney Holdings intend to buy and sell TARGETS to create a
secondary market for holders of the TARGETS, and may engage in other activities
described in "Underwriting". However, neither Salomon Smith Barney Inc. nor any
of these affiliates will be obligated to engage in any market-making activities,
or continue them once it has started.
SALOMON SMITH BARNEY HOLDINGS
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. Salomon Smith
Barney Holdings is a subsidiary of Citigroup Inc. (formerly Travelers Group
Inc.), a diversified financial services holding company. On October 8, 1998,
Travelers Group and Citicorp completed a merger, pursuant to which Citicorp was
merged into a subsidiary of Travelers Group and Travelers Group changed its name
to Citigroup Inc.
Salomon Smith Barney Holdings ratios of earnings to fixed charges and
preferred stock dividends since 1993 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges and preferred stock
dividends........................................... 1.11 1.17 1.37 1.20 0.98
</TABLE>
For the year ended December 31, 1994, earnings as defined were inadequate
to cover fixed charges. The amount by which fixed charges exceeded earnings as
defined for the year was $173 million.
6
<PAGE> 7
ERISA
It is our view that employee benefit plans subject to ERISA and individual
retirement accounts, Keogh plans and other similar plans can, generally,
purchase TARGETS. However, each plan and account should consider whether the
purchase of TARGETS is prudent and consistent with the documents governing the
plan or account. The fiduciary rules governing plans and accounts are complex
and individual considerations may apply to a particular plan or account.
Accordingly, any fiduciary of any plan or account should consult with its legal
advisers to determine whether the purchase of TARGETS is permissible under the
fiduciary rules. You should refer to the section "ERISA Considerations" in this
prospectus.
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<PAGE> 8
RISK FACTORS
You should carefully consider the following risk factors in addition to the
other information contained in this prospectus before investing in the TARGETS.
YOUR INVESTMENT IN THE TARGETS WILL RESULT IN A LOSS IF THE PRICE OF THE COMMON
STOCK DECLINES
The amount of cash that you receive at maturity will depend on the current
market price of the common stock at the time of maturity. The amount of the
maturity payments may be less than the amount you paid for your TARGETS, except
to the extent of any quarterly distributions. For example, if at maturity the
current market price of the common stock is less than $63.9375 per share, the
maturity payment for each TARGETS will be less than the initial offering price
of each TARGETS, in which case your investment in the TARGETS will result in a
loss, again, except to the extent of any quarterly distributions. If Lucent
becomes insolvent or bankrupt, an investment in the TARGETS could result in a
total loss of the amount invested, again, except to the extent of any quarterly
distributions.
THE APPRECIATION OF YOUR INVESTMENT IN THE TARGETS WILL BE CAPPED
As a result of the limitation provided by the appreciation cap, you will
only receive at maturity an amount representing a maximum of approximately the
first 30% of any increase in the value of the common stock. If the current
market price of the common stock exceeds the appreciation cap, your return on
the TARGETS will therefore be less than your return on a similar security that
was directly linked to the common stock but was not subject to an appreciation
cap.
YOU HAVE NO RIGHTS AGAINST LUCENT EVEN THOUGH THE MATURITY PAYMENT ON THE
TARGETS IS BASED ON THE PRICE OF LUCENT'S STOCK
The historical common stock price is not an indicator of the future
performance of the common stock during the term of the TARGETS. Changes in the
price of the common stock will affect the trading price of the TARGETS, but it
is impossible to predict whether the price of the common stock will rise or
fall.
The yield on the TARGETS is higher than the current dividend yield on the
common stock. However, it may not remain higher through the term of the TARGETS
if Lucent increases its dividends. In addition, you will not receive dividends
or other distributions paid on the common stock.
Lucent is not in any way involved with this offering and has no obligations
relating to the TARGETS or holders of the TARGETS. In addition, you will have no
voting rights with respect to the common stock of Lucent.
Lucent is currently subject to SEC reporting requirements, and distributes
reports, proxy statements and other information to its stockholders. In the
event that Lucent ceases to be subject to these reporting requirements, pricing
information for the TARGETS may be more difficult to obtain and the value,
trading price and liquidity of the common stock and the TARGETS may be adversely
affected.
THE PRICE AT WHICH YOU WILL BE ABLE TO SELL YOUR TARGETS PRIOR TO MATURITY MAY
BE SUBSTANTIALLY LESS THAN THE AMOUNT YOU ORIGINALLY INVEST
We believe that the trading value of the TARGETS will depend on the price
of the common stock and on a number of other factors. Some of these factors are
interrelated in complex ways. As a result, the effect of any one factor may be
offset or magnified by the effect of another factor. The price at which you will
be able to sell the TARGETS prior to maturity may be substantially less than the
amount you originally invest if the value of the common stock at that time is
less than the price of the common stock when the TARGETS are purchased. The
following paragraphs describe what we expect to be the impact on the market
value of the TARGETS of a change in a specific factor, assuming all other
conditions remain constant.
Common Stock Price. We expect that the market value of the TARGETS will
depend substantially on the amount, if any, by which the current common stock
price changes from the price of the common stock
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<PAGE> 9
when the TARGETS are issued. If you choose to sell your TARGETS when the current
common stock price exceeds the common stock price at the time the TARGETS were
issued, you may receive substantially less than the amount that would be payable
at maturity based on that current common stock price because of expectations
that the common stock will continue to fluctuate until the maturity payment is
determined. If you choose to sell your TARGETS when the current common stock
price is below the common stock price at the time the TARGETS were issued, you
can expect to receive less than the amount you originally invested, except to
the extent of any quarterly distributions.
Trading prices of the common stock will be influenced by Lucent's results
of operations and by complex and interrelated political, economic, financial and
other factors that can affect the capital markets generally, Lucent's market
segment and the stock exchange on which the common stock is traded. Salomon
Smith Barney Holdings' hedging activities in the common stock of its obligations
under the forward contract, and the issuance of securities similar to the
TARGETS and other trading activities by Salomon Smith Barney Holdings, its
affiliates and other market participants, can affect the price of the common
stock.
Interest Rates. Because the TARGETS pay quarterly distributions, we expect
that the trading value of the TARGETS will be affected by changes in interest
rates. In general, if U.S. interest rates increase, the trading value of the
TARGETS may decrease. If U.S. interest rates decrease, the trading value of the
TARGETS may increase. Interest rates may also affect the U.S. economy and, in
turn, the price of the common stock, which, for the reasons discussed above,
would affect the value of the TARGETS. Rising U.S. interest rates may result in
a lower common stock price and, thus, a lower value of the TARGETS. Falling U.S.
interest rates may result in a higher common stock price and, thus, a higher
value of the TARGETS.
Dividend Yields. If the dividend yield on the common stock increases, we
expect that the value of the TARGETS may decrease, since the TARGETS do not
incorporate the value of such payments. Conversely, if the dividend yield on the
common stock decreases, the value of the TARGETS may increase.
Salomon Smith Barney Holdings Credit Ratings, Financial Condition and
Results. Actual or anticipated changes in Salomon Smith Barney credit ratings,
financial condition or results may affect the market value of the TARGETS.
Economic Conditions and Earnings Performance of Lucent. General economic
conditions and the earnings results of Lucent and real or anticipated changes in
such conditions or results may affect the market value of the TARGETS.
The impact of one of the factors specified above, such as an increase in
interest rates, may offset some or all of any change in the trading value of the
TARGETS attributable to another factor, such as an increase in the price of the
common stock.
In general, assuming all relevant factors are held constant, we expect that
the effect on the trading value of the TARGETS of a given change in most of the
factors listed above will be less if it occurs later in the term of the TARGETS
than if it occurs earlier in the term of the TARGETS, except that we expect that
the effect on the trading value of the TARGETS of a given increase in the price
of the common stock will be greater if it occurs later in the term of the
TARGETS than if it occurs earlier in the term of the TARGETS.
BECAUSE THE MATURITY OF THE TARGETS CAN BE ACCELERATED, THE TRADING PRICE OF THE
TARGETS MAY BE LESS THAN YOU WOULD OTHERWISE EXPECT
If an acceleration event occurs, the maturity of the TARGETS will be
accelerated and you will receive with respect to each TARGETS the accelerated
maturity payment and a pro rata portion of the proceeds of the sale of the
treasury securities. Because the amount that would be payable on the accelerated
maturity date is uncertain, since it would depend on when an acceleration event
occurs, the trading price of the TARGETS may be less than what you would
otherwise expect based on the price of the common stock and the level of
interest rates at a particular time.
9
<PAGE> 10
YOU WILL HAVE LIMITED VOTING RIGHTS WITH RESPECT TO TRUST II AND THE TRUSTEES
You will have limited voting rights with respect to Trust II and will not
be entitled to vote to appoint, remove or replace, or increase or decrease the
number of, the trustees. These voting rights will be held exclusively by Salomon
Smith Barney Holdings, as the holder of the common securities of Trust II. You
should refer to the section "Description of the TARGETS -- Voting Rights" in
this prospectus.
THE MATURITY PAYMENT ON THE TARGETS MAY BE REDUCED IF THE COMMON STOCK IS
DILUTED BECAUSE THE MATURITY PAYMENT WILL NOT BE ADJUSTED FOR ALL EVENTS THAT
DILUTE THE COMMON STOCK
The maturity payment and accelerated maturity payment are subject to
adjustment for a number of events arising from stock splits and combinations,
stock dividends, a number of other actions of Lucent that modify its capital
structure and a number of other transactions involving Lucent, as well as for a
liquidation, dissolution or winding up of Lucent. You should refer to the
section "Description of the TARGETS -- Dilution Adjustments". The maturity
payment and accelerated maturity payment will not be adjusted for other events
that may adversely affect the price of the common stock, such as offerings of
common stock for cash or in connection with acquisitions. Because of the
relationship of the maturity payment and accelerated maturity payment to the
price of the common stock, such other events may reduce the maturity payment on
the TARGETS.
IF THE INTERNAL REVENUE SERVICE ASSERTS THAT OUR TAX CHARACTERIZATION OF THE
TARGETS IS INCORRECT, YOU MAY BE REQUIRED TO PAY TAXES ON INCOME BEFORE YOU
ACTUALLY RECEIVE IT OR AT A HIGHER RATE THAN YOU WOULD OTHERWISE EXPECT
No statutory, judicial or administrative authority directly addresses the
characterization of the TARGETS or instruments similar to the TARGETS for U.S.
federal income tax purposes. As a result, significant aspects of the U.S.
federal income tax consequences of an investment in the TARGETS are not certain.
There is no ruling from the Internal Revenue Service with respect to the TARGETS
and the Internal Revenue Service may not agree with the conclusions expressed
under the section "United States Federal Income Tax Considerations" in this
prospectus.
YOU MAY NOT BE ABLE TO SELL YOUR TARGETS IF AN ACTIVE TRADING MARKET FOR THE
TARGETS DOES NOT DEVELOP
We will apply to list the TARGETS on the Chicago Board Options Exchange.
However, there may not be a secondary market in the TARGETS and, if there is a
secondary market, it may not be liquid. If the secondary market for the TARGETS
is limited, there may be few buyers should you choose to sell your TARGETS prior
to maturity. This may affect the price you receive.
In addition, any market that develops for the TARGETS may influence and is
likely to be influenced by the market for the common stock. For example, the
price of the common stock could be affected by (i) sales of common stock by
investors who view the TARGETS as a more attractive means of equity
participation in Lucent and (ii) hedging or arbitrage trading activity that may
develop involving the TARGETS and the common stock.
BECAUSE PURCHASES AND SALES BY AFFILIATES OF SALOMON SMITH BARNEY HOLDINGS MAY
REDUCE THE PRICE OF THE COMMON STOCK, YOUR MATURITY PAYMENT OR THE PRICE YOU
RECEIVE IF YOU SELL YOUR TARGETS MAY BE REDUCED
Salomon Smith Barney Holdings' affiliates, including Salomon Smith Barney
Inc., may from time to time buy or sell the common stock or derivative
instruments relating to the common stock for their own accounts in connection
with their normal business practices or in connection with hedging Salomon Smith
Barney Holdings' obligations under the forward contract. These transactions
could affect the price of the common stock. You should refer to the section "Use
of Proceeds and Hedging Activities" in this prospectus.
10
<PAGE> 11
Salomon Smith Barney Inc. or an affiliate may enter into a swap agreement
with one of Salomon Smith Barney Holdings' other affiliates in connection with
the sale of the TARGETS and may earn additional income as a result of payments
pursuant to the swap or related hedge transactions.
THE PAYMENTS YOU RECEIVE ON THE TARGETS WILL LIKELY BE DELAYED OR REDUCED IN THE
EVENT OF A BANKRUPTCY OF SALOMON SMITH BARNEY HOLDINGS
Although the TARGETS are securities of Trust II, the ability of Trust II to
make payments under the TARGETS depends upon its receipt from Salomon Smith
Barney Holdings under the forward contract of the total maturity payments or
total accelerated maturity payments. The ability of Salomon Smith Barney
Holdings to meet its obligations under the forward contract and, in turn, the
ability of Trust II to meet its obligations under the TARGETS, therefore depends
on the solvency and creditworthiness of Salomon Smith Barney Holdings. In the
event of a bankruptcy of Salomon Smith Barney Holdings, any recovery by the
holders of TARGETS will likely be substantially delayed and may be less than
each holder's pro rata portion of the forward contract.
11
<PAGE> 12
AVAILABLE INFORMATION
Salomon Smith Barney Holdings files annual, quarterly and special reports,
proxy statements and other information (File No. 1-4346) with the Securities and
Exchange Commission. You may read and copy any document Salomon Smith Barney
Holdings files at the SEC's public reference rooms in Washington, D.C., New
York, New York and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for
further information on the public reference rooms. Salomon Smith Barney
Holdings' SEC filings are also available to the public from the SEC's web site
at http://www.sec.gov.
Separate financial statements of Trust II have not been included in this
prospectus. Salomon Smith Barney Holdings does not believe that these financial
statements would be material to you because (i) Salomon Smith Barney Holdings,
an SEC reporting company, owns all the voting securities of Trust II, (ii) Trust
II has no independent operations, (iii) Salomon Smith Barney Holdings is the
obligor under the forward contract, and (iv) Salomon Smith Barney Holdings has
fully and unconditionally guaranteed Trust II's obligations under the TARGETS to
the extent that Trust II has funds available to meet its obligations.
In its future filings under the Securities Exchange Act of 1934, a footnote
to Salomon Smith Barney Holdings' annual financial statements will state that
Trust II is consolidated with Salomon Smith Barney Holdings, that the sole
assets of Trust II are the forward contract and the treasury securities, and
that the guarantee when taken together with the forward contract, the related
indenture, the declaration of trust of Trust II and Salomon Smith Barney
Holdings' obligations to pay all fees and expenses of Trust II constitutes a
full and unconditional guarantee by Salomon Smith Barney Holdings of Trust II's
obligations under the TARGETS.
Salomon Smith Barney Holdings and Trust II have filed with the SEC a
registration statement (No. 333-71667) which contains additional information not
included in this prospectus. A copy of the registration statement can be
obtained from the SEC as described above or from Salomon Smith Barney Holdings.
The SEC allows Salomon Smith Barney Holdings to "incorporate by reference"
the information it files, which means that Salomon Smith Barney Holdings can
disclose important information to you by referring you to those documents. The
information incorporated by reference is considered to be part of this
prospectus, and later information filed with the SEC will update and supersede
this information. We incorporate by reference the documents filed by Salomon
Smith Barney Holdings listed below and any future filings made by Salomon Smith
Barney Holdings with the SEC under Section 13(a), 13(c), 14, or 15(d) of the
Securities Exchange Act until the offering is completed:
(a) Annual Report on Form 10-K for the year ended December 31, 1998, and
(b) Current Reports on Form 8-K filed on January 25, 1999 and February
25, 1999.
You may request a copy of these filings, at no cost, by writing or
telephoning Salomon Smith Barney Holdings at the following address:
Treasurer
Salomon Smith Barney Holdings Inc.
388 Greenwich Street
New York, NY 10013
212-816-6000
You should rely only on the information incorporated by reference or
provided in this prospectus. We have authorized no one to provide you with
different information. We are not making an offer of these securities in any
state where the offer is not permitted. You should not assume that the
information in this prospectus is accurate as of any date other than the date on
the front of the document.
12
<PAGE> 13
SALOMON SMITH BARNEY HOLDINGS
Salomon Smith Barney Holdings operates through its subsidiaries in two
business segments: (i) Investment Services and (ii) Asset Management. Salomon
Smith Barney Holdings provides investment banking, securities and commodities
trading, capital raising, asset management, advisory, research and brokerage
services to its customers, other financial services and executes proprietary
trading strategies on its own behalf. As used in this section, unless the
context otherwise requires, Salomon Smith Barney Holdings refers to Salomon
Smith Barney Holdings Inc. and its consolidated subsidiaries.
Citigroup Inc., Salomon Smith Barney Holdings' parent, is a diversified
holding company whose businesses provide a broad range of financial services to
consumer and corporate customers around the world. Citigroup Inc.'s activities
are conducted through Global Consumer, Global Corporate and Investment Bank,
Asset Management, and Investment Activities.
Salomon Smith Barney Holdings is a global, full-service investment banking
and securities brokerage firm with more than 514 offices in 26 countries
worldwide. Salomon Smith Barney Holdings provides a full range of financial
advisory, research and capital raising services to corporations, governments and
individuals. The firm's 10,800 Financial Consultants, located in approximately
450 offices across the United States, service over 5.7 million client accounts,
representing over $770 billion in assets.
Salomon Smith Barney Holdings' global investment banking services encompass
a full range of capital market activities, including the underwriting and
distribution of debt and equity securities for United States and foreign
corporations and for state, local and other governmental and government
sponsored authorities. Salomon Smith Barney Holdings frequently acts as an
underwriter or private placement agent in corporate and public securities
offerings and provides alternative financing options. It also provides financial
advice to investment banking clients on a wide variety of transactions including
mergers and acquisitions, divestitures, leveraged buyouts, financial
restructurings and a variety of cross-border transactions.
The Private Client Division provides investment advice and financial
planning and brokerage services for almost six million client accounts,
primarily through the network of Salomon Smith Barney Financial Consultants.
The Asset Management segment is comprised of two primary asset management
business platforms: Salomon Brothers Asset Management and the Smith Barney Asset
Management division of Salomon Smith Barney Inc. These companies offer a broad
range of asset management products and services from global investment centers,
including mutual funds, closed-end funds, managed accounts and unit investment
trusts.
The principal offices of Salomon Smith Barney Holdings are located at 388
Greenwich Street, New York, New York 10013, telephone number (212) 816-6000.
Salomon Smith Barney Holdings was incorporated in Delaware in 1960.
13
<PAGE> 14
USE OF PROCEEDS AND HEDGING ACTIVITIES
Of the total proceeds to be received by Trust II from the sale of the
TARGETS and the common securities (together, the "Trust Securities"), 88.15%
(approximately $66,238,595) will be used by Trust II to purchase the Forward
Contract from Salomon Smith Barney Holdings and 11.85% (approximately
$8,904,451) will be used by Trust II to purchase the Treasury Securities. A
portion of the net proceeds to be received by Salomon Smith Barney Holdings from
the sale of the Forward Contract will be used for general corporate purposes,
which may include capital contributions to subsidiaries of Salomon Smith Barney
Holdings and/or the reduction or refinancing of borrowings of Salomon Smith
Barney Holdings or its subsidiaries. In order to fund its investment brokerage
business, Salomon Smith Barney Holdings expects to incur additional indebtedness
in the future. To the extent that TARGETS being purchased for resale by the
underwriters are not sold, the aggregate proceeds to Salomon Smith Barney
Holdings and its subsidiaries would be reduced. Salomon Smith Barney Holdings or
an affiliate may enter into a swap agreement with one of Salomon Smith Barney
Holdings' affiliates in connection with the sale of the TARGETS and may earn
additional income as a result of payments pursuant to such swap or related hedge
transactions.
The remainder of the net proceeds to be received by Salomon Smith Barney
Holdings from the sale of the Forward Contract will be used, in part, by Salomon
Smith Barney Holdings or one or more of its subsidiaries for hedging activities
related to Salomon Smith Barney Holdings' obligations under the Forward
Contract. On or prior to the closing date of the TARGETS offering, Salomon Smith
Barney Holdings, directly or through its subsidiaries, will hedge its
anticipated exposure under the Forward Contract by the purchase or sale of
common stock of Lucent ("Common Stock") or options, futures contracts, forward
contracts or swaps or options on the foregoing, or other derivative or synthetic
instruments related to, the Common Stock. From time to time after the initial
sale of the TARGETS and prior to the Maturity Date or Accelerated Maturity Date,
depending on market conditions, including the price of the Common Stock, Salomon
Smith Barney Holdings expects that it or its subsidiaries will increase or
decrease their initial hedge positions through various transactions and may
purchase or sell Common Stock or options, swaps, futures contracts, forward
contracts or other derivative or synthetic instruments related to the Common
Stock. In addition, Salomon Smith Barney Holdings and its subsidiaries may
purchase or sell TARGETS from time to time. Salomon Smith Barney Holdings or its
subsidiaries may also take positions in other types of appropriate financial
instruments that may become available in the future. To the extent that Salomon
Smith Barney Holdings or its subsidiaries have a long or short hedge position in
the Common Stock or options, swaps, futures contracts, forward contracts or
other derivative or synthetic instruments related to the Common Stock, Salomon
Smith Barney Holdings or one or more of its subsidiaries may liquidate all or a
portion of their holdings close to maturity of the Forward Contract and the
TARGETS. Depending on, among other things, future market conditions, the
aggregate amount and composition of such positions are likely to vary over time.
Profits or losses from any such position cannot be ascertained until such
position is closed out and any offsetting position or positions are taken into
account. Although Salomon Smith Barney Holdings has no reason to believe that
such hedging activity will have a material effect on the price of TARGETS, such
options, swaps, futures contracts, forward contracts or other derivative or
synthetic instruments or on the value of the Common Stock, there can be no
assurance that the hedging activities of Salomon Smith Barney Holdings and its
subsidiaries will not affect such prices or value.
14
<PAGE> 15
CAPITALIZATION
The following table sets forth the consolidated capitalization of Salomon
Smith Barney Holdings at December 31, 1998, as adjusted to give effect to the
issuance of the TARGETS, and the application of the proceeds from the issuance
of the TARGETS to the repayment of short-term borrowings, as if the issuance of
the TARGETS had occurred on December 31, 1998.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1998
--------------------------
OUTSTANDING AS ADJUSTED
----------- -----------
(DOLLARS IN MILLIONS)
(UNAUDITED)
<S> <C> <C>
Short-term borrowings....................................... $15,495 $15,422
Notes payable............................................... 10 10
Long-term debt.............................................. 20,141 20,214
------- -------
Total debt........................................ $35,646 $35,646
======= =======
Salomon Smith Barney -- Obligated Mandatorily Redeemable
Securities of Subsidiary Trust holding solely Subordinated
Debt Securities of Salomon Smith Barney(1)................ 345 345
Salomon Smith Barney -- Obligated Mandatorily Redeemable
Securities of Subsidiary Trust holding solely subordinated
deferrable interest debt securities of Salomon Smith
Barney(2)................................................. 400 400
Stockholder's equity:
Common Stock(3) and additional paid-in capital............ 1,589 1,589
Retained earnings......................................... 7,159 7,159
Cumulative translation adjustment......................... 20 20
------- -------
Total stockholder's equity........................ 8,768 8,768
------- -------
Total capitalization........................................ $45,159 $45,159
======= =======
</TABLE>
- ---------------
(1) The sole asset of SI Financing Trust I is $355,700,000 aggregate principal
amount of 9.25% Subordinated Debt Securities issued by Salomon Smith Barney
due June 30, 2026.
(2) The sole asset of SSBH Capital I is $412,372,000 aggregate principal amount
of 7.200% junior subordinated deferrable interest debt securities issued by
Salomon Smith Barney due January 28, 2038.
(3) Par value $.01 per share; 1,000 shares authorized; 1,000 shares issued and
outstanding.
ISSUER OF THE COMMON STOCK
According to publicly available documents, Lucent is engaged in the
business of designing, developing and manufacturing communications systems,
software and products. Lucent is currently subject to the informational
requirements of the Securities Exchange Act. Accordingly, Lucent files reports
(including its Annual Report on Form 10-K for the fiscal year ended September
30, 1998 and its Quarterly Report on Form 10-Q for the fiscal quarter ended
December 31, 1998), proxy statements and other information with the SEC. Copies
of Lucent's registration statements, reports, proxy statements and other
information may be inspected and copied at offices of the SEC at the addresses
listed above under "Available Information".
Lucent is not affiliated with Trust II, will not receive any of the
proceeds from the sale of the TARGETS and will have no obligations with respect
to the TARGETS, the Treasury Securities or the Forward Contract. This prospectus
relates only to the TARGETS offered hereby and does not relate to Lucent or the
Common Stock.
15
<PAGE> 16
HISTORICAL DATA ON THE COMMON STOCK
The Common Stock is traded on the New York Stock Exchange under the symbol
"LU". The following table sets forth, for each of the quarterly periods
indicated, the high and low sales price for the Common Stock, as reported on the
New York Stock Exchange, and the cash dividends per share of Common Stock.
<TABLE>
<CAPTION>
DIVIDEND
DECLARED
HIGH LOW PER SHARE
------ ------ ---------
<S> <C> <C> <C>
1996
Quarter
Second (from April 4, 1996)............................... $ 9 25/32 $ 7 21/32 $ --
Third..................................................... 11 15/32 8 15/32 0.0188
Fourth.................................................... 13 1/8 10 3/4 0.0188
1997
Quarter
First..................................................... 14 29/32 11 5/16 0.0188
Second.................................................... 18 9/32 12 9/16 0.0188
Third..................................................... 22 11/64 18 23/64 0.0188
Fourth.................................................... 22 1/4 18 15/64 0.0188
1998
Quarter
First..................................................... 31 31/32 18 11/16 0.0188
Second.................................................... 41 19/32 33 1/32 0.0200
Third..................................................... 51 1/8 34 5/8 0.0200
Fourth.................................................... 56 1/32 28 1/2 0.0200
1999
Quarter
First..................................................... 58 19/32 48 0.0200
Second (through April 8, 1999)............................ 64 5/8 54 --
</TABLE>
- ---------------
The closing price of the Common Stock on April 8, 1999 was $62 15/16.
According to Lucent's Quarterly Report on Form 10-Q for the fiscal quarter
ended December 31, 1998, as of January 31, 1999, there were 1,321,650,166 shares
of Common Stock outstanding. Lucent split its Common Stock 2-for-1 on April 1,
1999.
Holders of TARGETS will not be entitled to any rights with respect to the
Common Stock (including, without limitation, voting rights or rights to receive
dividends or other distributions in respect thereof).
16
<PAGE> 17
TARGETS TRUST II
TARGETS Trust II is a statutory business trust formed under Delaware law
pursuant to a declaration of trust executed by Salomon Smith Barney Holdings, as
sponsor, and the trustees of TARGETS Trust II (as described below), and the
filing of a certificate of trust with the Secretary of State of the State of
Delaware. The declaration will be amended and restated in its entirety (as so
amended and restated, the "Declaration")* substantially in the form filed as an
exhibit to the Registration Statement of which this prospectus forms a part. The
Declaration will be qualified as an indenture under the Trust Indenture Act of
1939. Upon issuance of the TARGETS, the purchasers thereof will own all the
TARGETS. See "Description of the TARGETS -- Book-Entry Only Issuance". Salomon
Smith Barney Holdings will directly or indirectly acquire all of the common
securities in an aggregate amount equal to 3% or more of the total capital of
Trust II (the "Common Securities"). Trust II will use all the proceeds derived
from the issuance of the TARGETS and the Common Securities to purchase the
Forward Contract and Treasury Securities and, accordingly, the assets of Trust
II will consist solely of the Forward Contract and Treasury Securities. Of the
total proceeds from the sale of the Trust Securities, approximately $66,238,595
will be invested by Trust II in the Forward Contract and approximately
$8,904,451 will be invested by Trust II in the Treasury Securities. Trust II
exists for the exclusive purposes of
- issuing the Trust Securities representing undivided beneficial interests
in the assets of Trust II,
- investing the gross proceeds of the Trust Securities in the Forward
Contract and the Treasury Securities, and
- engaging only in activities incidental to the above.
Trust II's business and affairs are conducted by its trustees, each
appointed by Salomon Smith Barney Holdings as holder of the Common Securities.
Pursuant to the Declaration, the number of trustees of the Trust will be four:
The Chase Manhattan Bank, a New York banking corporation that is unaffiliated
with Salomon Smith Barney, as the institutional trustee, Chase Manhattan Bank
Delaware, a Delaware state banking corporation with its principal place of
business in the State of Delaware, as the Delaware trustee, and two individual
trustees (the "Regular Trustees") who will be persons who are employees or
officers of, or who are affiliated with Salomon Smith Barney Holdings. Initially
the Regular Trustees will be Michael J. Day and Charles W. Scharf, each of whom
is an officer of Salomon Smith Barney Holdings. The institutional trustee will
act as the sole indenture trustee under the Declaration for purposes of
compliance with the Trust Indenture Act until removed or replaced by the holder
of the Common Securities. The Chase Manhattan Bank will also act as indenture
trustee under the Guarantee. See "Description of the Forward Contract" and
"Description of the Guarantee".
The institutional trustee will hold title to the Forward Contract for the
benefit of the holders of the Trust Securities and, in its capacity as the
holder, the institutional trustee will have the power to exercise all rights,
powers and privileges under the Indenture pursuant to which the Forward Contract
is issued. In addition, the institutional trustee will maintain exclusive
control of a segregated non-interest bearing bank account to hold all payments
made in respect of the Forward Contract and the Treasury Securities for the
benefit of the holders of the Trust Securities. The institutional trustee will
make payments of distributions and payments on liquidation and otherwise to the
holders of the Trust Securities out of funds from the segregated bank account.
The Guarantee trustee will hold the Guarantee for the benefit of the holders of
the TARGETS. Salomon Smith Barney Holdings, as direct or indirect holder of all
the Common Securities, will have the right, subject to certain restrictions
contained in the Declaration, to appoint, remove or replace any trustees and to
increase or decrease the number of trustees. Salomon Smith Barney Holdings will
pay all fees and expenses related to Trust II and the offering of the Trust
Securities. See "Description of the TARGETS -- Miscellaneous".
- ---------------
* Please refer to the "Index of Terms" attached as Appendix A for a listing of
certain technical terms and the pages on which they are defined in this
prospectus.
17
<PAGE> 18
The rights of the holders of the TARGETS, including economic rights, rights
to information and voting rights, are set forth in the Declaration, the Delaware
Business Trust Act and the Trust Indenture Act. See "Description of the
TARGETS".
The location of the principal executive office of Trust II is c/o Salomon
Smith Barney Holdings Inc., 388 Greenwich Street, New York, New York 10013 and
its telephone number is (212) 816-6000.
DESCRIPTION OF THE TARGETS
The TARGETS will be issued pursuant to the terms of the Declaration. The
Declaration will be qualified as an indenture under the Trust Indenture Act. The
institutional trustee, The Chase Manhattan Bank, will act as the institutional
trustee for the TARGETS under the Declaration for purposes of compliance with
the provisions of the Trust Indenture Act. The terms of the TARGETS will include
those stated in the Declaration and those made part of the Declaration by the
Trust Indenture Act. Pursuant to the Declaration, every holder of TARGETS will
be deemed to have expressly assented and agreed to the terms of, and will be
bound by, the Declaration. The following summary of the material terms and
provisions of the TARGETS does not purport to be complete and is subject to, and
qualified in its entirety by reference to, the Declaration and the Guarantee
(forms of which are filed as exhibits to the Registration Statement of which
this prospectus is a part), the Delaware Business Trust Act and the Trust
Indenture Act.
GENERAL
The Declaration authorizes the Regular Trustees to issue, on behalf of
Trust II, the Trust Securities, which represent undivided beneficial interests
in the assets of Trust II. All of the Common Securities will be owned, directly
or indirectly, by Salomon Smith Barney Holdings. The Common Securities rank pari
passu with, and payments will be made thereon on a pro rata basis with, the
TARGETS, except that upon the occurrence of an Acceleration Event, the rights of
the holders of the Common Securities to receive payments will be subordinated to
the rights of the holders of the TARGETS. The Declaration does not permit the
issuance by Trust II of any securities other than the Trust Securities or the
incurrence of any indebtedness by Trust II. Pursuant to the Declaration, the
institutional trustee will hold title to the Forward Contract and the Treasury
Securities for the benefit of the holders of the Trust Securities. The payment
of distributions out of money held by Trust II and payments upon maturity of the
TARGETS out of money held by Trust II are guaranteed by Salomon Smith Barney
Holdings to the extent described under "Description of the Guarantee". The
Guarantee will be held by The Chase Manhattan Bank, the Guarantee trustee, for
the benefit of the holders of the TARGETS. The Guarantee does not cover payment
of distributions when Trust II does not have sufficient available funds to pay
such distributions. In such event, the remedies of a holder of the TARGETS are
to
- vote to direct the institutional trustee to enforce the institutional
trustee's rights under the Forward Contract and Treasury Securities,
- if the institutional trustee fails to enforce its rights against Salomon
Smith Barney Holdings, initiate a proceeding against Salomon Smith Barney
Holdings to enforce the institutional trustee's rights under the Forward
Contract or
- if the failure by Trust II to pay distributions is attributable to the
failure of Salomon Smith Barney Holdings to pay amounts in respect of the
Forward Contract, institute a proceeding directly against Salomon Smith Barney
Holdings for enforcement of payment to such holder of the amounts owed on such
holder's pro rata interest in the Forward Contract.
The aggregate number of TARGETS to be issued will be 5,700,000, as
described in "Underwriting". The TARGETS will be issued in fully registered
form. TARGETS will not be issued in bearer form. See "-- Book-Entry Only
Issuance".
18
<PAGE> 19
MATURITY PAYMENT
The TARGETS will mature on May 15, 2001, subject to acceleration to the
Accelerated Maturity Date upon an Acceleration Event. See "-- Acceleration of
Maturity Date; Enforcement of Rights". On the maturity date, holders of the
TARGETS will be entitled to receive, to the extent Trust II has assets
available, the Maturity Payment with respect to each TARGETS. On the maturity
date, holders of TARGETS will also receive a final Quarterly Distribution with
respect to each TARGETS.
The "Maturity Payment" with respect to each TARGETS will be an amount equal
to the product of (A) the Current Market Price of the Common Stock as of the
maturity date multiplied by (B) the Exchange Rate as of the maturity date.
The "Current Market Price" will be the average daily closing sale price or,
if no closing sale price is reported, the last reported sale price of the Common
Stock as reported on the New York Stock Exchange for the 10 Trading Days
immediately prior to but not including the date one business day before the
Maturity Date or the Accelerated Maturity Date, as the case may be, or, if the
Common Stock is not traded on the New York Stock Exchange on any such date, as
reported in the composite transactions for the principal United States
securities exchange on which the Common Stock is so listed, or if the Common
Stock is not so listed on a United States national or regional securities
exchange, the last quoted bid price for the Common Stock in the over-the-counter
market as reported by the National Quotation Bureau or similar organization.
If the Current Market Price of the Common Stock as of the maturity date is
less than or equal to $83.1187 (the "Appreciation Cap"), then the "Exchange
Rate" will be 0.2, and if the Current Market Price of the Common Stock as of the
maturity date is greater than the Appreciation Cap, then the "Exchange Rate"
will be a fraction, rounded upward or downward to the nearest 1/10,000th or, if
there is not a nearest 1/10,000th, to the next lower 1/10,000th, the numerator
of which is the Appreciation Cap times 0.2 and the denominator of which is the
Current Market Price of the Common Stock as of the maturity date. The Exchange
Rate and the Appreciation Cap are subject to certain dilution adjustments as
described below. See "-- Dilution Adjustments".
ACCELERATION OF MATURITY DATE; ENFORCEMENT OF RIGHTS
If at any time an Acceleration Event occurs, the Regular Trustees will give
written instructions to the institutional trustee to sell the Treasury
Securities, dissolve Trust II and, after satisfaction of creditors of Trust II,
cause to be distributed, as soon as is practicable following the occurrence of
such Acceleration Event, to the holders of the TARGETS in liquidation of such
holders' interests in Trust II, the Accelerated Maturity Payment with respect to
each TARGETS and a pro rata portion of the Treasury Proceeds.
The "Accelerated Maturity Payment" with respect to each TARGETS will be
paid out of amounts received by Trust II from Salomon Smith Barney Holdings in
respect of the Forward Contract and will be equal to the product of (A) the
Current Market Price of the Common Stock as of the Accelerated Maturity Date
multiplied by (B) the Exchange Rate as of the Accelerated Maturity Date. The
"Accelerated Maturity Date" will be the date of the occurrence of the event or
events constituting such Acceleration Event.
The "Treasury Proceeds" will be the amount received by Trust II as proceeds
from the sale of the Treasury Securities upon the occurrence of an Acceleration
Event. The Regular Trustees will send the institutional trustee written notice
and instructions to liquidate the Treasury Securities on an Accelerated Maturity
Date. Upon receiving such notice, the institutional trustee will solicit at
least three bids and sell and transfer the Treasury Securities to the highest of
the three bidders.
There can be no assurance as to the amount of either any Accelerated
Maturity Payment or the Treasury Proceeds which, in either case, may be
distributed to holders of the TARGETS upon a dissolution and liquidation of
Trust II. Accordingly, there can be no assurance as to the amount that a holder
of TARGETS may receive on the Accelerated Maturity Date.
"Acceleration Event" means (1) a Tax Event, (2) an Investment Company Event
or (3) a Bankruptcy Event.
19
<PAGE> 20
"Tax Event" means that Salomon Smith Barney Holdings will have requested
and received and will have delivered to the Regular Trustees an opinion of
nationally recognized independent tax counsel experienced in such matters to the
effect that there has been
- an amendment to, change in or announced proposed change in the laws, or
any regulations thereunder, of the United States or any political
subdivision or taxing authority thereof or therein,
- a judicial decision interpreting, applying, or clarifying such laws or
regulations,
- an administrative pronouncement or action that represents an official
position, including a clarification of an official position, of the
governmental authority or regulatory body making such administrative
pronouncement or taking such action, or
- a threatened challenge asserted in connection with an audit of Salomon
Smith Barney Holdings or any of its subsidiaries or Trust II, or a
threatened challenge asserted in writing against any other taxpayer that
has raised capital through the issuance of securities that are
substantially similar to the Forward Contract or the TARGETS,
which amendment or change is adopted or which proposed change, decision or
pronouncement is announced or which action, clarification or challenge occurs on
or after the date of this prospectus , and that there is more than an
insubstantial risk that (a) Trust II is, or will be, subject to United States
federal income tax with respect to income accrued or received on the Forward
Contract or the Treasury Securities, or (b) Trust II is, or will be, subject to
more than a de minimis amount of other taxes, duties or other governmental
charges.
"Investment Company Event" means that Salomon Smith Barney Holdings will
have requested and received and will have delivered to the Regular Trustees an
opinion of nationally recognized independent legal counsel experienced in such
matters to the effect that as a result of the occurrence on or after the date
hereof of a change in law or regulation or a change in interpretation or
application of law or regulation by any legislative body, court, governmental
agency or regulatory authority, the Trust is or will be considered an
"investment company" which is required to be registered under the Investment
Company Act of 1940.
"Bankruptcy Event" means either of the following shall have occurred: (1)
the entry of a decree or order
- of relief in respect of Salomon Smith Barney Holdings by a court having
jurisdiction in the premises in an involuntary case under the federal
bankruptcy laws, as now or hereafter constituted, or any other applicable
federal or state bankruptcy, insolvency or other similar law,
- appointing a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or other similar official) of Salomon Smith Barney Holdings
or of any substantial part of its property, or
- ordering the winding up or liquidation of its affairs, and, in each case,
the continuance of any such decree or order unstayed and in effect for a
period of 90 consecutive days; or
(2) the commencement by Salomon Smith Barney Holdings of a voluntary case
under the federal bankruptcy laws, as now or hereafter constituted, or any other
applicable federal or state bankruptcy, insolvency or other similar law, or the
consent by it to the entry of an order for relief in an involuntary case under
any such law or to the appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator or other similar official of Salomon Smith
Barney Holdings or of any substantial part of its property, or the making by it
of an assignment for the benefit of its creditors, or the admission by it in
writing of its inability to pay its debts generally as they become due, or the
taking of corporate action by Salomon Smith Barney Holdings in furtherance of
any action.
"Pro rata" means, with respect to any payment, distribution, or treatment,
proportionately to each holder of Trust Securities according to the aggregate
beneficial interests in the assets of Trust II represented by the Trust
Securities held by the relevant holder in relation to the aggregate beneficial
interests in the assets of Trust II represented by all Trust Securities
outstanding unless, in relation to a payment, an Acceleration Event has occurred
and is continuing, in which case any funds available to make such payment will
be paid first to each holder of the TARGETS proportionately according to the
aggregate beneficial interests in the assets of Trust II represented by the
TARGETS held by the relevant holder relative to the aggregate beneficial
20
<PAGE> 21
interests in the assets of Trust II represented by all TARGETS outstanding, and
then only after satisfaction of all amounts owed to the holders of the TARGETS,
to each holder of Common Securities proportionately according to the aggregate
beneficial interests in the assets of Trust II represented by the Common
Securities held by the relevant holder relative to the aggregate beneficial
interests in the assets of Trust II represented by all Common Securities
outstanding.
On the date fixed for any payment of the Accelerated Maturity Payment or
the Treasury Proceeds, the TARGETS and the Common Securities will no longer be
deemed to be outstanding and each TARGETS and Common Security will be deemed to
represent the right to receive an Accelerated Maturity Payment and a pro rata
portion of the Treasury Proceeds. If the Accelerated Maturity Payments can be
paid only in part because Trust II has insufficient assets available to pay in
full such amounts, then the amounts payable directly by Trust II in respect of
the TARGETS will be paid on a pro rata basis. In addition, in the case of a
default by Salomon Smith Barney Holdings on its obligations under the Guarantee,
the holders of the TARGETS will have a preference over the holders of the Common
Securities with respect to amounts owed on the Trust Securities.
Subject to the requirements of the institutional trustee obtaining a tax
opinion in certain circumstances set forth in the last sentence of this
paragraph, the holders of a majority of the TARGETS have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the institutional trustee, or direct the exercise of any trust or power
conferred upon the institutional trustee under the Declaration, including the
right to direct the institutional trustee, as holder of the Forward Contract and
the Treasury Securities, to
- direct the time, method and place of conducting any proceeding for any
remedy available to the Indenture trustee, or exercising any trust or
power conferred on the Indenture trustee with respect to the Forward
Contract,
- direct the time, method and place of conducting any proceeding for any
remedy available to the institutional trustee or exercise any trust or
power conferred on the institutional trustee with respect to the Treasury
Securities,
- waive the consequences of any Acceleration Event under the Indenture that
are waivable under the Indenture,
- exercise any right to rescind or annul a declaration that any Accelerated
Maturity Payment shall be due and payable or
- consent to any amendment, modification or termination of the Indenture or
the Forward Contract,
where such consent shall be required, provided, however, that, where a consent
or action under the Indenture would require the consent or act of holders of a
majority of the beneficial interests in the Forward Contract, only the holders
of at least a super majority of the TARGETS may direct the institutional trustee
to give such consent or take such action. The institutional trustee shall notify
all holders of TARGETS of any notice of default received from the Indenture
trustee with respect to the Forward Contract. Except with respect to directing
the time, method and place of conducting a proceeding for a remedy available to
the institutional trustee, the institutional trustee, as holder of the Forward
Contract and the Treasury Securities, shall not take any of the actions
described above unless the institutional trustee has obtained an opinion of a
nationally recognized independent tax counsel experienced in such matters to the
effect that as a result of such action, Trust II will not fail to be classified
as a grantor trust for United States federal income tax purposes.
If the institutional trustee fails to enforce its rights under the Forward
Contract, any holder of TARGETS may directly institute a legal proceeding
against Salomon Smith Barney Holdings to enforce the institutional trustee's
rights under the Forward Contract, without first instituting a legal proceeding
against the institutional trustee or any other person or entity. If Salomon
Smith Barney Holdings fails to pay amounts owed on the Forward Contract on the
date such amounts are otherwise payable, then a holder of TARGETS may also
directly institute a direct action in respect of the amounts owed on such
holder's pro rata interest in the Forward Contract on or after the due date
specified in the Forward Contract, without first directing the
21
<PAGE> 22
institutional trustee to enforce the terms of the Forward Contract or
instituting a legal proceeding directly against Salomon Smith Barney Holdings to
enforce the institutional trustee's rights under the Forward Contract. Except as
provided in the preceding sentence, the holders of TARGETS will not be able to
exercise directly any other remedy available to the holder of the Forward
Contract. In connection with such direct action, Salomon Smith Barney Holdings
will be subrogated to the rights of such holder of TARGETS under the Declaration
to the extent of any payment made by Salomon Smith Barney Holdings to such
holder of TARGETS in such direct action.
A waiver of an Acceleration Event under the Indenture by the institutional
trustee at the direction of the holders of the TARGETS will constitute a waiver
of the corresponding Acceleration Event under the Declaration.
Any required approval or direction of holders of TARGETS may be given at a
separate meeting of holders of TARGETS convened for such purpose, at a meeting
of holders of Trust Securities or pursuant to written consent. The Regular
Trustees will cause a notice of any meeting at which holders of TARGETS are
entitled to vote, or of any matter upon which action by written consent of such
holders is to be taken, to be mailed to each holder of record of TARGETS. Each
such notice will include a statement setting forth the date of such meeting or
the date by which such action is to be taken, a description of any resolution
proposed for adoption at such meeting on which such holders are entitled to vote
or of such matter upon which written consent is sought and instructions for the
delivery of proxies or consents. No vote or consent of the holders of TARGETS
will be required for the Trust to cancel TARGETS in accordance with the
Declaration. It is anticipated that the only holder of TARGETS issued in
book-entry form will be Cede & Co., as nominee of DTC, and each beneficial owner
of TARGETS will be permitted to exercise the rights of holders of TARGETS only
indirectly through DTC and its participants.
Notwithstanding that holders of TARGETS are entitled to vote or consent
under any of the circumstances described above, any of the TARGETS that are
owned at such time by Salomon Smith Barney Holdings or any entity directly or
indirectly controlling or controlled by, or under direct or indirect common
control with, Salomon Smith Barney Holdings, will not be entitled to vote or
consent and will, for purposes of such vote or consent, be treated as if they
were not outstanding.
QUARTERLY DISTRIBUTIONS
Holders of TARGETS will be entitled to receive "Quarterly Distributions" at
the rate per TARGETS of $0.1917544 per quarter (except that the quarterly
distribution payable on May 15, 1999 will be $0.0661404 per TARGETS), payable on
each February 15, May 15, August 15 and November 15, commencing May 15, 1999.
The Quarterly Distributions will be paid by Trust II out of payments under the
Treasury Securities.
The Treasury Securities and the Forward Contract will be the sole assets of
Trust II and will be held by the Institutional Trustee on behalf of Trust II.
The ability of Trust II to make Quarterly Distributions on the TARGETS is
therefore entirely dependent on receipt by Trust II of payments with respect to
the Treasury Securities.
Assuming Quarterly Distributions on the TARGETS with a yield of 6.00% per
annum, set forth below is an example of how the cash flows on the TARGETS would
be comprised. Trust II will invest 11.85% of the proceeds of the offering in the
Treasury Securities. The annual cash flows provided by the Treasury Securities
are set forth below:
<TABLE>
<S> <C>
Offering Size:....................................... $72,888,750
Annual Cash Flow:.................................... 6.00%
Payment Frequency:................................... Quarterly
Settlement Date:..................................... April 14, 1999
Maturity Date:....................................... May 15, 2001
</TABLE>
22
<PAGE> 23
<TABLE>
<CAPTION>
TREASURY
SECURITY TREASURY
MATURITY UNIT PURCHASE PURCHASE SECURITY EQUIVALENT
DATE COST AMOUNT COST CASH FLOW COUPON
- -------- ----- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
05/15/99 99.54% 377.00 $ 375,262 $ 377,000 6.00%
08/15/99 98.43 1,093.00 1,075,873 1,093,000 6.00
11/15/99 97.34 1,093.00 1,063,915 1,093,000 6.00
02/15/00 96.15 1,093.00 1,050,941 1,093,000 6.00
05/15/00 95.07 1,093.00 1,039,137 1,093,000 6.00
08/15/00 93.83 1,093.00 1,025,573 1,093,000 6.00
11/15/00 92.72 1,093.00 1,013,462 1,093,000 6.00
02/15/01 91.58 1,093.00 1,001,002 1,093,000 6.00
05/15/01 90.48 1,093.00 988,990 1,093,000 6.00
---------- ----------
$8,634,156 $9,121,000
========== ==========
</TABLE>
A portion of each Quarterly Distribution should represent a return to the
holder of a TARGETS of that holder's initial investment in the TARGETS for tax
purposes. The following table sets forth information regarding the distributions
to be received on the Treasury Securities to be acquired by Trust II with a
portion of the proceeds received by Trust II from the sale of the Trust
Securities, the portion of each year's distributions that should constitute a
return of capital for U.S. federal income tax purposes and the amount of
original issue discount that should accrue on such Treasury Securities with
respect to a holder who acquires its Trust Securities at the issue price from
the underwriters pursuant to the original offering. See "United States Federal
Income Tax Considerations".
<TABLE>
<CAPTION>
ANNUAL GROSS ANNUAL INCLUSION OF
ANNUAL GROSS DISTRIBUTIONS FROM ANNUAL RETURN OF ORIGINAL ISSUE
DISTRIBUTIONS FROM TREASURY SECURITIES CAPITAL PER DISCOUNT IN INCOME
YEAR TREASURY SECURITIES PER TARGETS TARGETS PER TARGETS
- ---- ------------------- ------------------- ---------------- -------------------
<S> <C> <C> <C> <C>
1999 $2,563,000.00 $0.449649123 $0.404335527 $0.045313596
2000 4,372,000.00 0.767017544 0.731457774 0.035559770
2001 2,186,000.00 0.383508772 0.378970883 0.004537889
</TABLE>
DILUTION ADJUSTMENTS
The Exchange Rate and the Appreciation Cap will be subject to adjustment
from time to time in certain situations. Any such adjustments could have an
impact on the Maturity Payments or Accelerated Maturity Payments to be paid by
Salomon Smith Barney Holdings to Trust II upon maturity of the Forward Contract
and, therefore, on the Maturity Payments or Accelerated Maturity Payments to be
paid by Trust II to the holders of TARGETS.
If Lucent, after the closing date of the offering contemplated hereby,
(1) pays a stock dividend or makes a distribution with respect to the
Common Stock in shares of such stock,
(2) subdivides or splits the outstanding shares of the Common Stock into a
greater number of shares,
(3) combines the outstanding shares of the Common Stock into a smaller
number of shares, or
(4) issues by reclassification of shares of the Common Stock any shares of
other common stock of Lucent,
then, in each such case, the Exchange Rate will be multiplied by a dilution
adjustment equal to the number of shares of Common Stock, or in the case of a
reclassification referred to in (4) above, the number of shares of other common
stock of Lucent issued pursuant thereto, or the fraction thereof, that a holder
who held one share of Common Stock immediately prior to such event would be
entitled solely by reason of such event to hold immediately after such event.
The Appreciation Cap will also be adjusted in such case in the manner described
below.
23
<PAGE> 24
If Lucent, after the closing date, issues, or declares a record date in
respect of an issuance of, rights or warrants to all holders of Common Stock
entitling them to subscribe for or purchase shares of Common Stock at a price
per share less than the Then-Current Market Price of the Common Stock other than
rights to purchase Common Stock pursuant to a plan for the reinvestment of
dividends or interest, then, in each such case, the Exchange Rate will be
multiplied by a dilution adjustment equal to a fraction, the numerator of which
will be the number of shares of Common Stock outstanding immediately prior to
the time the adjustment is effected by reason of the issuance of such rights or
warrants, plus the number of additional shares of Common Stock offered for
subscription or purchase pursuant to such rights or warrants, and the
denominator of which will be the number of shares of Common Stock outstanding
immediately prior to the time the adjustment is effected, plus the number of
additional shares of Common Stock which the aggregate offering price of the
total number of shares of Common Stock so offered for subscription or purchase
pursuant to such rights or warrants would purchase at the Then-Current Market
Price of the Common Stock, which will be determined by multiplying the total
number of shares so offered for subscription or purchase by the exercise price
of such rights or warrants and dividing the product so obtained by such
Then-Current Market Price. To the extent that, after the expiration of such
rights or warrants, the shares of Common Stock offered thereby have not been
delivered, the Exchange Rate will be further adjusted to equal the Exchange Rate
which would have been in effect had such adjustment for the issuance of such
rights or warrants been made upon the basis of delivery of only the number of
shares of Common Stock actually delivered. The Appreciation Cap will also be
adjusted in the manner described below.
If Lucent, after the closing date, declares or pays a dividend or makes a
distribution to all holders of Common Stock, in either case, of evidences of its
indebtedness or other non-cash assets, excluding any dividends or distributions
referred to above, or issues to all holders of Common Stock rights or warrants
to subscribe for or purchase any of its securities other than rights or warrants
referred to above, then, in each such case, the Exchange Rate will be multiplied
by a dilution adjustment equal to a fraction, the numerator of which will be the
Then-Current Market Price of the Common Stock, and the denominator of which will
be such Then-Current Market Price less the fair market value (as determined by a
nationally recognized independent investment banking firm retained for this
purpose by Salomon Smith Barney, whose determination will be final) as of the
time the adjustment is effected of the portion of the assets, evidences of
indebtedness, rights or warrants so distributed or issued applicable to one
share of Common Stock. The Appreciation Cap will also be adjusted in the manner
described below. Notwithstanding the foregoing, in the event that, with respect
to any dividend or distribution to which this paragraph would otherwise apply,
the denominator in the fraction referred to in the above formula is less than
$1.00 or is a negative number, then Salomon Smith Barney Holdings may, at its
option, elect to have the adjustment provided by this paragraph not be made and
in lieu of such adjustment, on the maturity date, the holders of the TARGETS
will be entitled to receive an additional amount of cash equal to the product of
the number of TARGETS held by such holder multiplied by the fair market value of
such indebtedness, assets, rights or warrants (determined, as of the date such
dividend or distribution is made, by a nationally recognized independent
investment banking firm retained for this purpose by Salomon Smith Barney
Holdings, whose determination will be final) so distributed or issued applicable
to one share of Common Stock.
If, after the closing date, Lucent declares a record date in respect of a
distribution of cash, other than any permitted dividends described below, any
cash distributed in consideration of fractional shares of Common Stock and any
cash distributed in a Reorganization Event, by dividend or otherwise, to all
holders of the Common Stock, or makes an excess purchase payment, then the
Exchange Rate will be multiplied by a dilution adjustment equal to a fraction,
the numerator of which will be the Then-Current Market Price of the Common Stock
on such record date, and the denominator of which will be such Then-Current
Market Price less the amount of such distribution applicable to one share of
Common Stock which would not be a permitted dividend, or, in the case of an
excess purchase payment, less the aggregate amount of such excess purchase
payment for which adjustment is being made at such time divided by the number of
shares of Common Stock outstanding on such record date.
For purposes of these adjustments, a permitted dividend is any quarterly
cash dividend in respect of the Common Stock, other than a quarterly cash
dividend that exceeds the immediately preceding quarterly cash
24
<PAGE> 25
dividend, and then only to the extent that the per share amount of such dividend
results in an annualized dividend yield on the Common Stock in excess of 10%. An
excess purchase payment is the excess, if any, of (x) the cash and the value (as
determined by a nationally recognized independent investment banking firm
retained for this purpose by Salomon Smith Barney Holdings, whose determination
will be final) of all other consideration paid by Lucent with respect to one
share of Common Stock acquired in a tender offer or exchange offer by Lucent,
over (y) the Then-Current Market Price of the Common Stock. The Appreciation Cap
will also be adjusted in the manner described in the following paragraph.
Notwithstanding the foregoing, in the event that, with respect to any dividend
or distribution or excess purchase payment to which this paragraph would
otherwise apply, the denominator in the fraction referred to in the formula in
the preceding paragraph is less than $1.00 or is a negative number, then Salomon
Smith Barney Holdings may, at its option, elect to have the adjustment provided
by this paragraph not be made and in lieu of such adjustment, on the maturity
date, the holders of the TARGETS will be entitled to receive an additional
amount of cash equal to the product of the number of TARGETS held by such holder
multiplied by the sum of the amount of cash plus the fair market value of such
other consideration (determined, as of the date such dividend or distribution is
made, by a nationally recognized independent investment banking firm retained
for this purpose by Salomon Smith Barney, whose determination will be final) so
distributed or applied to the acquisition of the Common Stock in such a tender
offer or exchange offer applicable to one share of Common Stock.
If any adjustment is made to the Exchange Rate pursuant to the preceding
five paragraphs, an adjustment will also be made to the Appreciation Cap. The
required adjustment will be made by dividing the Appreciation Cap by the
relevant dilution adjustment. If, during any Calculation Period used in
calculating the Current Market Price, the Then-Current Market Price or the
Transaction Value, there occurs any event requiring an adjustment to be effected
as described herein, then the Closing Price for each Trading Day in such
Calculation Period occurring prior to the day on which such adjustment is
effected will be adjusted by being divided by the relevant dilution adjustment.
Each dilution adjustment shall be effected as follows:
- in the case of any dividend, distribution or issuance, at the opening of
business on the business day next following the record date for determination of
holders of Common Stock entitled to receive such dividend, distribution or
issuance or, if the announcement of any such dividend, distribution, or issuance
is after such record date, at the time such dividend, distribution or issuance
shall be announced by Lucent;
- in the case of any subdivision, split, combination or reclassification,
on the effective date of such transaction;
- in the case of any excess purchase payment for which Lucent announces, at
or prior to the time it commences the relevant share repurchase, the repurchase
price per share for shares proposed to be repurchased, on the date of such
announcement; and
- in the case of any other excess purchase payment on the date that the
holders of the repurchased shares become entitled to payment in respect thereof.
All dilution adjustments will be rounded upward or downward to the nearest
1/10,000th or, if there is not a nearest 1/10,000th, to the next lower
1/10,000th. No adjustment in the Exchange Rate will be required unless such
adjustment would require an increase or decrease of at least one percent
therein, provided, however, that any adjustments which by reason of this
sentence are not required to be made will be carried forward and taken into
account in any subsequent adjustment. If any announcement or declaration of a
record date in respect of a dividend, distribution, issuance or repurchase
requiring an adjustment as described herein is subsequently canceled by Lucent,
or such dividend, distribution, issuance or repurchase fails to receive
requisite approvals or fails to occur for any other reason, then, upon such
cancellation, failure of approval or failure to occur, the Exchange Rate will be
further adjusted to the Exchange Rate which would then have been in effect had
adjustment for such event not been made. If a Reorganization Event occurs after
the occurrence of one or more events requiring an adjustment as described
herein, the dilution adjustments previously applied to the Exchange Rate in
respect of such events will not be rescinded but will be applied to the new
Exchange Rate provided for below.
25
<PAGE> 26
"Then-Current Market Price" of the Common Stock, for the purpose of
applying any dilution adjustment, means the average closing price per share of
Common Stock for the Calculation Period of 10 Trading Days immediately prior to
the time such adjustment is effected or, in the case of an adjustment effected
at the opening of business on the business day next following a record date,
immediately prior to the earlier of the time such adjustment is effected and the
related ex-date, provided that if no closing price for the Common Stock is
determined for one or more, but not all, of such Trading Days, such Trading Day
will be disregarded in the calculation of the Then-Current Market Price, but no
additional trading days will be added to the Calculation Period. If no closing
price for the Common Stock may be determined for any of such Trading Days, the
Then-Current Market Price will be the closing price for the Common Stock for the
most recent Trading Day prior to such 10 Trading Days for which a closing price
for the Common Stock may be determined. The "ex-date" with respect to any
dividend, distribution or issuance is the first date on which the shares of the
Common Stock trade regular way on their principal market without the right to
receive such dividend, distribution or issuance.
"Trading Day" means a day on which the Common Stock (A) is not suspended
from trading on any national or regional securities exchange, securities market
or association or over-the-counter market at the close of business and (B) has
traded at least once on the national or regional securities exchange or
association or over-the-counter market that is the primary market for the
trading of such security. "Calculation Period" means any period of Trading Days
for which an average security price must be determined pursuant to the
Indenture. The closing price of the Common Stock or any marketable security on
any Trading Day in the Calculation Period will be the daily closing sale price
or, if no closing sale price is reported, the last reported sale price of such
security as reported on the New York Stock Exchange on any such day in the
Calculation Period or, if such security is not traded on the New York Stock
Exchange on any such date, as reported in the composite transactions for the
principal United States securities exchange on which if such security is so
listed, or if such security is not so listed on a United States national or
regional securities exchange, the last quoted bid price in the over-the-counter
market as reported by the National Quotation Bureau or similar organization.
In the event of any of the following "Reorganization Events":
- any consolidation or merger of Lucent, or any surviving entity or
subsequent surviving entity of Lucent, with or into another entity, other
than a merger or consolidation in which Lucent is the continuing
corporation and in which the Common Stock outstanding immediately prior
to the merger or consolidation is not exchanged for cash, securities or
other property of Lucent or another issuer,
- any sale, transfer, lease or conveyance to another corporation of the
property of Lucent or any successor as an entirety or substantially as an
entirety,
- any statutory exchange of securities of Lucent or any Lucent successor
with another issuer, other than in connection with a merger or
acquisition, or
- any liquidation, dissolution or winding up of Lucent or any Lucent
successor,
the Exchange Rate will be adjusted so that, on the Maturity Date or Accelerated
Maturity Date, each holder of the TARGETS will receive cash in an amount equal
to the product of the number of TARGETS held by such holder multiplied by (1) if
the Transaction Value is less than or equal to the Appreciation Cap, 0.2 times
the Transaction Value, and (2) if the Transaction Value is greater than the
Appreciation Cap, 0.2 times the Appreciation Cap.
"Transaction Value" means the sum of:
(1) for any cash received in a Reorganization Event, the amount of cash
received per share of Common Stock;
(2) for any property other than cash or marketable securities received in a
Reorganization Event, an amount equal to the market value on the date
the Reorganization Event is consummated of such property received per
share of Common Stock (as determined by a nationally recognized
indepen-
26
<PAGE> 27
dent investment banking firm retained for this purpose by Salomon Smith
Barney Holdings, whose determination will be final); and
(3) for any marketable securities received in a Reorganization Event, an
amount equal to the average closing price per share of such marketable
securities for the Calculation Period of 10 Trading Days immediately
prior to the maturity date or Accelerated Maturity Date multiplied by
the number of such marketable securities received for each share of
Common Stock, provided that if no closing price for such marketable
securities may be determined for one or more, but not all, of such
Trading Days such Trading Day shall be disregarded in the calculation
of such average closing price, but no additional Trading Days shall be
added to the Calculation Period.
If no closing price for the marketable securities can be determined for all such
Trading Days, the calculation in the preceding clause (3) will be based on the
most recently available closing price for the marketable securities prior to
such 10 Trading Days.
Marketable securities are any perpetual equity securities or debt
securities with a stated maturity after the maturity date, in each case that are
listed on a U.S. national securities exchange or reported by the Nasdaq Stock
Market, Inc. The number of shares of any equity securities constituting
marketable securities included in the calculation of Transaction Value pursuant
to clause (3) above will be subject to adjustment if any event that would, had
it occurred with respect to the Common Stock or Lucent, have required an
adjustment as described above occurs with respect to such marketable securities
or the issuer thereof between the time of the Reorganization Event and the
maturity date or Accelerated Maturity Date. Adjustment for such subsequent
events shall be as nearly equivalent as practicable to the adjustments described
above.
Salomon Smith Barney Holdings will be responsible for the effectuation and
calculation of any adjustment described herein and will furnish the Indenture
trustee with notice of any such adjustment.
PAYMENT PROCEDURES
Distributions on the TARGETS will be payable to the holders thereof as they
appear on the books and records of Trust II at the close of business on the
relevant record dates. While the TARGETS remain in book-entry only form, the
relevant record dates for distributions of any Maturity Payments or Accelerated
Maturity Payments with respect to the TARGETS will be one business day prior to
the date such Maturity Payments or Accelerated Maturity Payments, as the case
may be, are received by Trust II with respect to the Forward Contract. While the
TARGETS remain in book-entry only form, the relevant record date for
distribution of the Treasury Proceeds to holders of TARGETS will be one business
day prior to the date such Treasury Proceeds are received by Trust II upon
liquidation of the Treasury Securities. While the TARGETS remain in book-entry
only form, the relevant record dates for any Quarterly Distributions will be one
business day prior to the relevant payment dates, which payment dates will
correspond to the dates on which payments are received by Trust II in respect
of, and in accordance with the terms of, the Treasury Securities. The relevant
record dates for the Common Securities will be the same record dates as for the
TARGETS. If the TARGETS will not continue to remain in book-entry only form, the
relevant record dates will conform to the rules of any securities exchange on
which they are listed and, if none, will be 15 days before the relevant payment
dates, which payment dates will correspond to the dates on which payments are
made in respect of, and in accordance with the terms of, the Treasury Securities
and the Forward Contract. Distributions payable on any TARGETS that are not
punctually paid on any payment date, as a result of either Salomon Smith Barney
Holdings having failed to make a payment under the Forward Contract or the U.S.
Government having failed to make a payment in respect of the Treasury
Securities, will cease to be payable to the person in whose name such TARGETS
are registered on the relevant record date, and such defaulted distribution will
instead be payable to the person in whose name such TARGETS are registered on a
special record date which shall be the date on which the amount of the defaulted
distributions are actually received by Trust II. If any date on which
distributions are payable on the TARGETS is not a business day, then payment of
the distribution payable on such date will be made on the next succeeding day
that is a business day (and without any interest or other payment in respect of
any such delay) except that, if such business day is in the next succeeding
calendar year, such payment will be made on the immediately preceding business
day, in each case
27
<PAGE> 28
with the same force and effect as if made on such date. A business day is any
day other than a Saturday, Sunday or a day on which banking institutions in The
City of New York are authorized or required by law to close.
Payments in respect of the TARGETS represented by global certificates (as
defined below under "Book-Entry Only Issuance") will be made to DTC, which will
credit the relevant accounts at DTC on the scheduled payment dates or, in the
case of TARGETS in the form of certificated securities, if any, such payments
shall be made by check mailed to the address of the holder entitled thereto as
such address shall appear on the register.
VOTING RIGHTS
Except as described in this prospectus under "Description of the
TARGETS -- Acceleration of Maturity Date; Enforcement of Rights" and
"Description of the Guarantee -- Modification of the Guarantee; Assignment", and
except as provided under the Delaware Business Trust Act, the Trust Indenture
Act and as otherwise required by law and the Declaration, the holders of the
TARGETS will have no voting rights.
In the event the consent of the institutional trustee, as the holder of the
Forward Contract, is required under the Indenture with respect to any amendment,
modification or termination of the Indenture, the institutional trustee shall
request the written direction of the holders of the Trust Securities with
respect to such amendment, modification or termination and shall vote with
respect to such amendment, modification or termination as directed by a majority
of the Trust Securities voting together as a single class, provided, however,
that where any amendment, modification or termination under the Indenture would
require the consent of a super majority, the institutional trustee may only give
such consent at the direction of the holders of at least the proportionate
number of the Trust Securities represented by the relevant super majority of the
aggregate beneficial interests in the Forward Contract. The institutional
trustee will be under no obligation to take any such action in accordance with
the directions of the holders of the Trust Securities unless the institutional
trustee has obtained an opinion of a nationally recognized independent tax
counsel experienced in such matters to the effect that for United States federal
income tax purposes Trust II will not be classified as other than a grantor
trust.
The procedures by which holders of TARGETS may exercise their voting rights
are described below. See "-- Book-Entry Only Issuance".
Holders of the TARGETS will have no rights to appoint or remove the
trustees, who may be appointed, removed or replaced solely by Salomon Smith
Barney Holdings as the indirect or direct holder of all of the Common
Securities.
MODIFICATION OF THE DECLARATION
The Declaration may be modified and amended if approved by the Regular
Trustees (and in certain circumstances the institutional trustee and the
Delaware trustee), provided that, if any proposed amendment to the Declaration
provides for, or the Regular Trustees otherwise propose to effect,
(a) any action that would adversely affect the powers, preferences or
special rights of the Trust Securities, whether by way of amendment to
the Declaration or otherwise, or
(b) the dissolution, winding-up or termination of Trust II other than
pursuant to the terms of the Declaration,
then the holders of the Trust Securities, voting together as a single class,
will be entitled to vote on such amendment or proposal and such amendment or
proposal will not be effective except with the approval of the holders of at
least a majority of the Trust Securities affected thereby, provided that if any
amendment or proposal referred to in (a) above would adversely affect only the
TARGETS or the Common Securities, then only holders of the affected class will
be entitled to vote on such amendment or proposal and such amendment or proposal
will not be effective except with the approval of a majority of such class of
Trust Securities.
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Notwithstanding the foregoing, no amendment or modification may be made to
the Declaration if such amendment or modification would
- cause Trust II to fail to be classified as a grantor trust for United
States federal income tax purposes,
- reduce or otherwise adversely affect the powers of the institutional
trustee in contravention of the Trust Indenture Act or
- cause Trust II to be deemed an "investment company" which is required to
be registered under the Investment Company Act.
MERGER, CONSOLIDATION OR AMALGAMATION OF TARGETS TRUST II
Trust II may not consolidate, amalgamate, merge with or into, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to, any corporation or other entity, except as
described below. Trust II may, with the consent of the Regular Trustees or, if
there are more than two, a majority of the Regular Trustees and without the
consent of the holders of the Trust Securities, the Delaware trustee or the
institutional trustee consolidate, amalgamate, merge with or into, or be
replaced by a trust organized as such under the laws of any state, provided that
- such successor entity either (A) expressly assumes all of the obligations
of Trust II under the Trust Securities or (B) substitutes for the TARGETS
other successor securities having substantially the same terms as the
Trust Securities, so long as the successor securities rank the same as
the Trust Securities with respect to distributions and payments upon
liquidation, maturity and otherwise,
- Salomon Smith Barney Holdings expressly acknowledges a trustee of such
successor entity possessing the same powers and duties as the
institutional trustee in its capacity as the holder of the Forward
Contract and the Treasury Securities,
- successor securities to the TARGETS are listed, or any successor
securities to the TARGETS will be listed upon notification of issuance,
on any national securities exchange or with any organization on which the
TARGETS are then listed or quoted,
- such merger, consolidation, amalgamation or replacement does not cause
the TARGETS, including any successor securities, to be downgraded by any
nationally recognized statistical rating organization,
- such merger, consolidation, amalgamation or replacement does not
adversely affect the rights, preferences and privileges of the holders of
the Trust Securities, including any successor securities, in any material
respect, other than with respect to any dilution of the holder's interest
in the new entity,
- such successor entity has a purpose identical to that of Trust II,
- prior to such merger, consolidation, amalgamation or replacement, Trust
II has received an opinion of a nationally recognized independent counsel
to Trust II experienced in such matters to the effect that:
(A) such merger, consolidation, amalgamation or replacement will not
adversely affect the rights, preferences and privileges of the
holders of the Trust Securities, including any successor securities,
in any material respect, other than with respect to any dilution of
the holders' interest in the new entity,
(B) following such merger, consolidation, amalgamation or replacement,
neither Trust II nor such successor entity will be required to
register as an investment company under the Investment Company Act
and
(C) following such merger, consolidation, amalgamation or replacement,
Trust II or the successor entity will continue to be classified as a
grantor trust for U.S. federal income tax purposes, and
- Salomon Smith Barney Holdings guarantees the obligations of such
successor entity under the successor securities at least to the extent
provided by the Guarantee.
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Notwithstanding the foregoing, Trust II will not, without the consent of holders
of all of the Trust Securities, consolidate, amalgamate, merge with or into, or
be replaced by any other entity or permit any other entity to consolidate,
amalgamate, merge with or into, or replace it, if in the opinion of a nationally
recognized independent tax counsel experienced in such matters such
consolidation, amalgamation, merger or replacement would cause Trust II or the
successor entity to be classified as other than a grantor trust for United
States federal income tax purposes. In addition, so long as any TARGETS are
outstanding and are not held entirely by Salomon Smith Barney Holdings, Trust II
may not voluntarily liquidate, dissolve, wind-up or terminate except as
described above under "-- Acceleration of Maturity Date; Enforcement of Rights".
BOOK-ENTRY ONLY ISSUANCE
The Depository Trust Company will act as securities depositary for the
TARGETS. The TARGETS will be issued only as fully-registered securities
registered in the name of Cede & Co. (DTC's nominee). One or more
fully-registered global TARGETS certificates, representing the total aggregate
number of TARGETS, will be issued and will be deposited with DTC.
The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of securities in definitive form. Such laws
may impair the ability to transfer beneficial interests in the global TARGETS as
represented by a global certificate.
DTC has advised Salomon Smith Barney Holdings as follows: DTC is a
limited-purpose trust company organized under the New York Banking Law, a
"banking organization" within the meaning of the New York Banking Law, a member
of the Federal Reserve System, a "clearing corporation" within the meaning of
the New York Uniform Commercial Code and a "clearing agency" registered pursuant
to the provisions of Section 17A of the Exchange Act. DTC holds securities that
its participants deposit with DTC. DTC also facilitates the settlement among
participants of securities transactions, such as transfers and pledges, in
deposited securities through electronic computerized book-entry changes in
participants' accounts, thereby eliminating the need for physical movement of
securities certificates. Direct participants in DTC include securities brokers
and dealers, banks, trust companies, clearing corporations and certain other
organizations. DTC is owned by a number of its Direct participants and by the
New York Stock Exchange, the American Stock Exchange, Inc., and the National
Association of Securities Dealers, Inc. Access to the DTC system is also
available to others, such as securities brokers and dealers, banks and trust
companies that clear through or maintain a custodial relationship with a direct
participant, either directly or indirectly. The rules applicable to DTC and its
participants are on file with the SEC.
Purchases of TARGETS within the DTC system must be made by or through
direct participants, which will receive a credit for the TARGETS on DTC's
records. The ownership interest of each beneficial owner actually purchasing
TARGETS is in turn to be recorded on the direct participants' and indirect
participants' records. Beneficial owners will not receive written confirmation
from DTC of their purchases, but beneficial owners are expected to receive
written confirmations providing details of the transactions, as well as periodic
statements of their holdings, from the direct or indirect participants through
which the beneficial owners purchased TARGETS. Transfers of ownership interests
in the TARGETS are to be accomplished by entries made on the books of
participants and indirect participants acting on behalf of beneficial owners.
Beneficial owners will not receive certificates representing their ownership
interests in TARGETS, except in the event that use of the book-entry system for
the TARGETS is discontinued.
To facilitate subsequent transfers, all the TARGETS deposited by
participants with DTC are registered in the name of DTC's nominee, Cede & Co.
The deposit of TARGETS with DTC and their registration in the name of Cede & Co.
effect no change in beneficial ownership, and DTC has no knowledge of the actual
beneficial owners of the TARGETS. DTC's records reflect only the identity of the
direct participants to whose accounts such TARGETS are credited, which may or
may not be the beneficial owners. The participants will remain responsible for
keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to direct
participants and indirect participants to beneficial owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements
that may be in effect from time to time.
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Although voting with respect to the TARGETS is limited, in those cases
where a vote is required, neither DTC nor Cede & Co. will itself consent or vote
with respect to TARGETS. Under its usual procedures, DTC would mail an Omnibus
Proxy to Trust II as soon as possible after the record date. The Omnibus Proxy
assigns Cede & Co. consenting or voting rights for those direct participants to
whose accounts the TARGETS are credited on the record date (identified in a
listing attached to the Omnibus Proxy). Salomon Smith Barney Holdings and Trust
II believe that the arrangements among DTC, direct and indirect participants,
and beneficial owners will enable the beneficial owners to exercise rights
equivalent in substance to the rights that can be directly exercised by a holder
of a beneficial interest in Trust II.
Payments on the TARGETS will be made to DTC. DTC's practice is to credit
direct participants' accounts on the relevant payment date in accordance with
their respective holdings shown on DTC's records unless DTC has reason to
believe that it will not receive payments on such payment date. Payments by
participants to beneficial owners will be governed by standing instructions and
customary practices, as is the case with securities held for the account of
customers in bearer form or registered in "street name," and such payments will
be the responsibility of such participant and not of DTC, the Trust or Salomon
Smith Barney Holdings, subject to any statutory or regulatory requirements to
the contrary that may be in effect from time to time. Payment of distributions
to DTC is the responsibility of Trust II, disbursement of such payments to
direct participants is the responsibility of DTC, and disbursement of such
payments to the beneficial owners is the responsibility of direct and indirect
participants.
Except as provided in the next paragraph, a beneficial owner in a global
TARGETS will not be entitled to receive physical delivery of TARGETS.
Accordingly, each beneficial owner must rely on the procedures of DTC to
exercise any rights under the TARGETS.
DTC may discontinue providing its services as securities depositary with
respect to the TARGETS at any time by giving reasonable notice to Trust II.
Under such circumstances, in the event that a successor securities depositary is
not obtained, TARGETS certificates are required to be printed and delivered.
Additionally, the Regular Trustees, with the consent of Salomon Smith Barney
Holdings, may decide to discontinue use of the system of book-entry transfers
through DTC or any successor depositary with respect to the TARGETS. In that
event, certificates for the TARGETS will be printed and delivered.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that Salomon Smith Barney Holdings and the Trust
believe to be reliable, but neither Salomon Smith Barney Holdings nor Trust II
takes responsibility for the accuracy thereof.
INFORMATION CONCERNING THE INSTITUTIONAL TRUSTEE
The institutional trustee, prior to the occurrence of a default with
respect to the Trust Securities, and after the curing of all defaults that may
have occurred, undertakes to perform only such duties as are specifically set
forth in the Declaration and, after such a default of which the institutional
trustee has actual knowledge, will exercise such of the rights and powers vested
in it by the Declaration, and use the same degree of care and skill in the
exercise of such rights and powers as a prudent individual would exercise in the
conduct of his or her own affairs. Subject to such provisions, the institutional
trustee is under no obligation to exercise any of the rights or powers vested in
it by the Declaration at the request of any holder of TARGETS, unless offered
reasonable security and indemnity by such holder against the costs, expenses and
liabilities which might be incurred thereby. Notwithstanding the foregoing, the
holders of TARGETS will not be required to offer such indemnity in the event
such holders, by exercising their voting rights, direct the institutional
trustee to take any action following an Acceleration Event.
PAYING AGENT
In the event that the TARGETS do not remain in book-entry only form, the
institutional trustee will act as paying agent for the TARGETS and may designate
an additional or substitute paying agent at any time. In addition, registration
of transfers of TARGETS will be effected without charge by or on behalf of Trust
II, but upon payment, with the giving of such indemnity as Trust II or Salomon
Smith Barney Holdings may require, in respect of any tax or other government
charges which may be imposed in relation to it.
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GOVERNING LAW
The Declaration and the TARGETS will be governed by, and construed in
accordance with, the internal laws of the State of Delaware.
MISCELLANEOUS
The Regular Trustees are authorized and directed to operate Trust II in
such a way so that Trust II will not be required to register as an "investment
company" under the Investment Company Act or be characterized as other than a
grantor trust for United States federal income tax purposes. In this connection,
Salomon Smith Barney Holdings and the Regular Trustees are authorized to take
any action, not inconsistent with applicable law, the Declaration or the amended
and restated certificate of incorporation of Salomon Smith Barney Holdings, that
each of Salomon Smith Barney Holdings and the Regular Trustees in their
discretion to be necessary or desirable to achieve such end as long as such
action does not adversely affect the interests of the holders of the TARGETS or
vary the terms thereof.
Holders of the TARGETS have no preemptive rights.
DESCRIPTION OF THE FORWARD CONTRACT
Salomon Smith Barney Holdings Inc. is also by this prospectus offering its
related forward contract with respect to the Common Stock (the "Forward
Contract"). The terms of the Forward Contract will be set forth in an Indenture
(the "Indenture") between Salomon Smith Barney Holdings and The Chase Manhattan
Bank. The Indenture will be qualified under the Trust Indenture Act. The
Indenture trustee will act as trustee for the Forward Contract under the
Indenture for purposes of compliance with the provisions of the Trust Indenture
Act. The terms of the Forward Contract will include those stated in the
Indenture and those made part of the Indenture by the Trust Indenture Act.
Subject to certain anti-dilution adjustments, the Forward Contract relates
to an aggregate of 1,140,000 shares of Common Stock. Pursuant to the terms of
the Forward Contract, Salomon Smith Barney Holdings will pay an amount equal to
the aggregate Maturity Payments or the aggregate Accelerated Maturity Payments,
as the case may be, to Trust II at maturity of the Forward Contract as described
above. The Forward Contract provides, among other things, for a payment by
Salomon Smith Barney Holdings to Trust II of an amount determined by reference
to the Current Market Price as of the maturity date or Accelerated Maturity
Date, as the case may be. See "Description of the TARGETS".
Trust II will use the distributions it receives with respect to the
Treasury Securities to pay the Quarterly Distributions to the holders of the
TARGETS. See "Description of TARGETS -- Quarterly Distributions".
The Forward Contract is a contract in the form of an Indenture between the
Company and a trustee for the benefit of the holder of the interests in the
Forward Contract. The Forward Contract is a prepaid "cash-settled" forward
contract, whereby the obligor settles its obligation in cash rather than in
securities. The Indenture will provide that Salomon Smith Barney Holdings will
pay all fees and expenses related to
- the offering of the Trust Securities and the Forward Contract,
- the organization, maintenance and dissolution of Trust II,
- the retention of the trustees, and
- the enforcement by the institutional trustee of the rights of the holders
of the TARGETS.
DESCRIPTION OF THE GUARANTEE
Set forth below is a summary of information concerning the guarantee that
will be executed and delivered by Salomon Smith Barney Holdings for the benefit
of the holders of TARGETS (the "Guarantee"). The Guarantee will be qualified as
an indenture under the Trust Indenture Act. The Chase Manhattan Bank will act as
indenture trustee under the Guarantee. The terms of the Guarantee will be those
set forth in the Guarantee and those made part of the Guarantee by the Trust
Indenture Act. The summary does not purport
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to be complete and is subject in all respects to the provisions of, and is
qualified in its entirety by reference to, the form of Guarantee, which is filed
as an exhibit to the Registration Statement of which this prospectus forms a
part, and the Trust Indenture Act. The Guarantee will be held by the Guarantee
Trustee for the benefit of the holders of the TARGETS.
GENERAL
Pursuant to and to the extent set forth in the Guarantee, Salomon Smith
Barney Holdings will irrevocably and unconditionally agree to pay in full to the
holders of the TARGETS, except to the extent paid by Trust II, as and when due,
regardless of any defense, right of set off or counterclaim which Trust II may
have or assert, the following payments, without duplication:
- any Maturity Payment that is required to be made in respect of the
TARGETS, to the extent Trust II has funds available,
- any Accelerated Maturity Payment that is required to be made in respect
of the TARGETS, to the extent Trust II has funds available,
- any Treasury Proceeds that are required to be distributed in respect of
the TARGETS, to the extent that Trust II has funds available,
- any Quarterly Distributions that are required to be made in respect of
the TARGETS, to the extent Trust II has funds available, and
- any other remaining assets of Trust II upon liquidation of Trust II.
Salomon Smith Barney Holdings' obligation to make a Guarantee payment may
be satisfied by direct payment of the required amounts by Salomon Smith Barney
Holdings to the holders of TARGETS or by causing Trust II to pay such amounts to
such holders.
The Guarantee will be a guarantee with respect to the TARGETS from the time
of issuance of the TARGETS but will not apply to any payment of Quarterly
Distributions, Maturity Payments, Accelerated Maturity Payments, Treasury
Proceeds or to payments upon the dissolution, winding-up or termination of Trust
II, except to the extent Trust II shall have funds available. If Salomon Smith
Barney Holdings does not pay the aggregate Maturity Payments or the aggregate
Accelerated Maturity Payments to Trust II upon maturity of the Forward Contract,
including maturity as a result of acceleration or otherwise, Trust II will not
pay any Maturity Payment or Accelerated Maturity Payment to holders of the
TARGETS and will not have funds available to make such payments. If either the
U.S. federal government, as the issuer of the Treasury Securities, does not make
periodic payments to Trust II with respect to the Treasury Securities then Trust
II will not pay the full amount of the Quarterly Distributions to holders of the
TARGETS and will not have funds available to make such payments. See
"Description of the TARGETS" and "Description of the Forward Contract". The
Guarantee, when taken together with Salomon Smith Barney Holdings' obligations
under the Forward Contract, the Indenture and the Declaration, including its
obligations to pay costs, expenses, debts and liabilities of Trust II, other
than with respect to Trust Securities, will provide a full and unconditional
guarantee by Salomon Smith Barney Holdings of Trust II's obligations under the
TARGETS.
MODIFICATIONS OF THE GUARANTEE; ASSIGNMENT
Except with respect to any changes that do not adversely affect the rights
of holders of TARGETS, in which case no vote will be required, the Guarantee may
be amended only with the prior approval of the holders of a majority of the
outstanding TARGETS. All guarantees and agreements contained in the Guarantee
shall bind the successors, assignees, receivers, trustees and representatives of
Salomon Smith Barney and shall inure to the benefit of the holders of the
TARGETS then outstanding.
GUARANTEE ENFORCEMENT EVENTS
An enforcement event under the Guarantee will occur upon the failure of
Salomon Smith Barney Holdings to perform any of its payment or other obligations
thereunder. The holders of a majority of the
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TARGETS have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Guarantee trustee in respect of the
Guarantee or to direct the exercise of any trust or power conferred upon the
Guarantee trustee under the Guarantee. If the Guarantee trustee fails to enforce
the Guarantee trustee's rights under the Guarantee any holder of TARGETS may
directly institute a legal proceeding against Salomon Smith Barney Holdings to
enforce the Guarantee trustee's rights under the Guarantee, without first
instituting a legal proceeding against Trust II, the Guarantee trustee or any
other person or entity. A holder of TARGETS may also directly institute a legal
proceeding against Salomon Smith Barney Holdings to enforce such holder's right
to receive payment under the Guarantee without first directing the Guarantee
trustee to enforce the terms of the Guarantee or instituting a legal proceeding
against Trust II or any other person or entity.
Salomon Smith Barney Holdings will be required to provide annually to the
Guarantee trustee a statement as to the performance by Salomon Smith Barney
Holdings of certain of its obligations under the Guarantee and as to any default
in such performance.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee trustee, prior to the occurrence of a default with respect to
the Guarantee and after the curing of all defaults that may have occurred,
undertakes to perform only such duties as are specifically set forth in the
Guarantee and, after any default with respect to the Guarantee that has not been
cured or waived of which the Guarantee trustee has actual knowledge, shall
exercise its rights and powers under the Guarantee, and use the same degree of
care and skill in the exercise of such rights and powers as a prudent individual
would exercise in the conduct of his or her own affairs. Subject to such
provision, the Guarantee trustee is under no obligation to exercise any of the
powers vested in it by the Guarantee at the request of any holder of TARGETS
unless it is offered reasonable indemnity against the costs, expenses and
liabilities that might be incurred thereby.
TERMINATION OF THE GUARANTEE
The Guarantee will terminate as to the TARGETS upon full payment to the
holders of the TARGETS of
- the Maturity Payments,
- the Accelerated Maturity Payments and the Treasury Proceeds, or
- the amounts payable in accordance with the Declaration upon liquidation
of Trust II.
The Guarantee will continue to be effective or will be reinstated, as the case
may be, if at any time any holder of TARGETS must restore payment of any sum
paid under such TARGETS or such Guarantee.
STATUS OF THE GUARANTEE
The Guarantee will constitute a guarantee of payment and not of collection.
The guaranteed party may institute a legal proceeding directly against the
Guarantor to enforce its rights under the Guarantee without first instituting a
legal proceeding against any other person or entity.
GOVERNING LAW
The Guarantee will be governed by, and construed in accordance with, the
internal laws of the State of New York.
DESCRIPTION OF THE TREASURY SECURITIES
The "Treasury Securities" will consist of a portfolio of stripped
self-amortizing securities issued by the U.S. Treasury and maturing on a
quarterly basis through the maturity date. The Treasury Securities will bear
quarterly payments corresponding to the payment dates of the Quarterly
Distributions payable on the TARGETS. Upon acceleration of maturity to an
Accelerated Maturity Date, any Treasury Securities then
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held by the institutional trustee on behalf of Trust II will be sold and the
Treasury Proceeds will be distributed to holders of the Trust Securities. See
"Description of the TARGETS -- Acceleration of Maturity".
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain U.S. federal income tax consequences
of the purchase, ownership and disposition of TARGETS. Unless otherwise
specifically indicated herein, this summary only addresses a holder of TARGETS
that is an individual who is a citizen or resident of the United States, a U.S.
domestic corporation, or any other person that is subject to U.S. federal income
taxation on a net income basis in respect of its investment in TARGETS (a "U.S.
Holder"). The discussion below is based on the advice of Cleary, Gottlieb, Steen
& Hamilton.
The summary is based on U.S. federal income tax laws, regulations, rulings
and decisions now in effect, all of which are subject to change, possibly on a
retroactive basis. Except to the extent discussed below in "-- Tax Consequences
to Non-U.S. Holders" and "-- Backup Withholding and Information Reporting," the
summary deals only with U.S. Holders that will hold TARGETS as capital assets
and that purchased TARGETS in the initial offering. The summary does not address
tax considerations that may be relevant to a particular holder in light of such
holder's individual circumstances or that are applicable to holders subject to
special tax rules, such as banks, tax-exempt entities, insurance companies,
dealers in securities or currencies, traders in securities electing to mark to
market, persons that will hold the TARGETS as a position in a "straddle" for tax
purposes or as part of a "synthetic security" or a "conversion transaction" or
other integrated investment comprised of TARGETS and one or more other
investments, or persons that have a functional currency other than the U.S.
dollar. It does not include any description of the tax laws of any state, local
or foreign government that may be applicable to the TARGETS or to the holders
thereof. Prospective purchasers of TARGETS should consult their tax advisors in
determining the tax consequences to them of purchasing, owning or disposing of
TARGETS, including the application to their particular situation of the U.S.
federal income tax considerations discussed below, as well as the application of
state, local, foreign income or other tax laws.
There are no regulations, published rulings or judicial decisions
addressing the characterization for U.S. federal income tax purposes of TARGETS
or instruments with terms substantially similar to TARGETS. Pursuant to the
Declaration, every holder of TARGETS and Trust II agree to treat TARGETS for
U.S. federal income tax purposes as a beneficial interest in a trust that holds
the Treasury Securities and the Forward Contract. In addition, pursuant to the
Forward Contract and the Declaration, every holder of TARGETS, Trust II and
Salomon Smith Barney agree to characterize for U.S. federal income tax purposes,
in the absence of an administrative determination or judicial ruling to the
contrary, (1) the Forward Contract as a cash-settled forward purchase contract
and (2) an amount equal to the purchase price of the TARGETS less the purchase
price of the Treasury Securities as a cash deposit to be applied on the maturity
date or Accelerated Maturity Date in full satisfaction of the holder's payment
obligation under the Forward Contract. Trust II intends to report holders'
income to the Internal Revenue Service in accordance with this agreed treatment.
Under this agreed approach, the tax consequences of holding a TARGETS
should be as described below. Prospective investors in the TARGETS should be
aware, however, that no ruling is being requested from the Internal Revenue
Service with respect to the TARGETS and the Internal Revenue Service might take
a different view as to the proper characterization of the TARGETS or of the
Forward Contract and of the U.S. federal income tax consequences to a holder
thereof.
TAX STATUS OF TRUST II
The Trust will be treated as a grantor trust owned solely by the present
and future holders of Trust Securities for U.S. federal income tax purposes, and
accordingly, income received by the Trust will be treated as income of the
holders of the TARGETS in the manner set forth below.
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TAX CONSEQUENCES TO U.S. HOLDERS
Tax Basis in the Treasury Securities and the Forward Contract. Each U.S.
Holder should be considered the owner of its pro rata portion of the Treasury
Securities and the Forward Contract in Trust II. The cost to the U.S. Holder of
its TARGETS should be allocated among the holder's pro rata portion of the
Treasury Securities and the Forward Contract, in proportion to the fair market
values thereof on the date on which the holder acquires its TARGETS, in order to
determine the holder's tax basis in such assets. It is currently anticipated
that 11.85% and 88.15% of the net proceeds of the offering will be used by Trust
II to purchase the Treasury Securities and the Forward Contract, respectively.
Recognition of Original Issue Discount on the Treasury Securities. The
Treasury Securities in Trust II will consist of stripped, self-amortizing U.S.
Treasury securities. A U.S. Holder should be required to treat its pro rata
portion of each Treasury Security in Trust II as a bond that was originally
issued on the date the holder purchased its TARGETS and at an original issue
discount equal to the excess of the holder's pro rata portion of the amounts
payable on such Treasury Security over the holder's tax basis therein, as
discussed above. The amount of such excess, however, should constitute only a
portion of the total amounts payable with respect to the Treasury Securities
held by Trust II and, accordingly, a substantial portion of the quarterly cash
distributions from Trust II to holders should be treated as a tax-free return of
the holder's investment in the Treasury Securities and should reduce the
holder's tax basis in its pro rata portion of the Treasury Securities. A U.S.
Holder, whether using the cash or accrual method of tax accounting, should be
required to include original issue discount, other than original issue discount
on short-term Treasury Securities as described below, in gross income for U.S.
federal income tax purposes as it accrues, in accordance with a constant yield
method, prior to the receipt of cash attributable to such income. A U.S.
Holder's tax basis in a Treasury Security held by Trust II should be increased
by the amount of any original issue discount included in gross income by the
holder with respect to such Treasury Security and reduced to the extent that any
payment received on maturity, sale or other disposition of the TARGETS
represents a repayment of accrued original issue discount.
With respect to any short-term Treasury Security (a Treasury Security with
a maturity of one year or less from the date it is purchased) held by the Trust,
U.S. Holders using the cash method of tax accounting should generally be
required to include interest payments on such Treasury Securities in gross
income as such payments are received. In addition, such cash method U.S. Holders
may be denied a deduction for any related interest expense until such payments
are received. U.S. Holders using the accrual method of tax accounting should be
required to include original issue discount on any short-term Treasury Security
held by Trust II in gross income as such original issue discount accrues. Unless
a U.S. Holder elects to accrue the original issue discount on a short-term
Treasury Security according to a constant yield method based on daily
compounding, such original issue discount should be accrued on a straight-line
basis.
Treatment of the Forward Contract. Each U.S. Holder should be treated as
having entered into a pro rata portion of the Forward Contract and, at the
maturity date or Accelerated Maturity Date, as having received a pro rata
portion of the Maturity Payment or Accelerated Maturity Payment, as the case may
be, received by Trust II. A U.S. Holder should not recognize income, gain or
loss upon entry into the Forward Contract and should not be required to include
in gross income additional amounts over the term of the Forward Contract. See,
however, "-- Possible Alternative Characterizations" below.
Sale or Other Disposition of the TARGETS. Upon a sale or other disposition
of all or some of a U.S. Holder's TARGETS, such holder should be treated as
having sold its pro rata portions of the Treasury Securities and the Forward
Contract underlying the TARGETS. The selling U.S. Holder should recognize
capital gain or loss equal to the difference between the amount realized from
such sale or other disposition and the holder's aggregate tax bases in its pro
rata portions of the Treasury Securities and the Forward Contract, except to the
extent of any accrued interest with respect to the holder's pro rata portion of
the Treasury Securities includible in gross income as ordinary income, as
described above. Any such gain or loss will be long-term capital gain or loss if
the U.S. Holder's holding period for the TARGETS is more than one year. The
distinction between capital gain or loss and ordinary income or loss is
important for purposes of the limitations on a holder's ability to offset
capital losses against ordinary income. In addition, long-term capital gains
recognized by an individual U.S. Holder generally are subject to a maximum rate
of 20 percent.
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<PAGE> 37
Distributions of Cash at the Maturity Date or Accelerated Maturity
Date. On the receipt of cash by Trust II with respect to the Forward Contract
on the maturity date or Accelerated Maturity Date, a U.S. Holder should realize
capital gain or loss equal to the difference between the holder's pro rata
portion of the amount of cash received by Trust II and the holder's tax basis in
its pro rata portion of the Forward Contract at that time. Under certain
circumstances, on or following the Accelerated Maturity Date, Trust II may sell
all or a portion of the Treasury Securities and distribute the Treasury Proceeds
to holders. Upon such a sale by Trust II, a U.S. Holder should realize capital
gain or loss equal to the difference between the amount of cash received by the
holder, except to the extent of any accrued interest with respect to the
holder's pro rata portion of the Treasury Securities includible in gross income
as ordinary income, and the holder's tax basis in its pro rata portion of the
Treasury Securities sold by Trust II. Any such capital gain or loss described in
this paragraph will be long-term capital gain or loss if the U.S. Holder's
holding period for the TARGETS is more than one year and will be subject to the
same maximum U.S. federal income tax rates for individuals discussed above under
"-- Sale or Other Disposition of the TARGETS".
Possible Alternative Characterizations. The Internal Revenue Service may
contend that TARGETS should be characterized for U.S. federal income tax
purposes in a manner different than the approach described above. For example,
the Internal Revenue Service might assert that the Forward Contract should be
treated as a contingent debt obligation of Salomon Smith Barney Holdings that is
subject to Treasury regulations governing contingent payment debt instruments.
If the Internal Revenue Service were to prevail in making such an assertion,
original issue discount would accrue with respect to the Forward Contract at a
"comparable yield" for Salomon Smith Barney Holdings under the Forward Contract,
determined at the time the Forward Contract is entered into. A U.S. Holder's pro
rata portion of original issue discount with respect to the Forward Contract and
the Treasury Securities might exceed the aggregate amount of the Quarterly
Distributions received by the holder. In addition, under this treatment, a U.S.
Holder would be required to treat any gain realized on the sale or other
disposition of the TARGETS as ordinary income to the extent that such gain is
allocable to the holder's pro rata portion of the Forward Contract. Any loss
realized on such sale or other disposition that is allocable to the U.S.
Holder's pro rata portion of the Forward Contract would be treated as an
ordinary loss to the extent of the holder's original issue discount inclusions
with respect to the Forward Contract and as capital loss to the extent of loss
in excess of such inclusions. It is also possible that the Internal Revenue
Service could take the view that a U.S. Holder should include in gross income
the amount of cash actually received each year in respect of the TARGETS or that
the TARGETS as a whole constitute a contingent payment debt instrument subject
to the rules described above.
Proposed Legislation on Constructive Ownership. A bill introduced in 1998
by a member of the House of Representatives (H.R. 3170) would have treated some
or all of the net long-term capital gain arising from "constructive ownership"
transactions involving certain derivative financial instruments as short-term
capital gain, and would have imposed an interest charge on such short-term
capital gain. The proposed legislation would have been effective with respect to
gain recognized after the date the legislation was enacted into law, without
regard to when the constructive ownership transaction was entered into. In its
proposed form, the legislation would not have applied to the TARGETS transaction
and, even if the legislation in its proposed form were extended to cover the
TARGETS transaction, would have had no material effect on the TARGETS
transaction. It is not possible to predict whether legislation addressing
constructive ownership transactions will be enacted, or what form any such
legislation might take, including with respect to effective dates.
TAX CONSEQUENCES TO NON-U.S. HOLDERS
In the case of a holder of TARGETS that is a non-resident alien individual
or foreign corporation (a "Non-U.S. Holder"): (1) Quarterly Distributions made
with respect to the TARGETS should not be subject to U.S. withholding tax,
provided that such holder complies with applicable certification requirements,
including in general the furnishing of an Internal Revenue Service Form W-8 or a
substitute form; and (2) any capital gain realized upon the sale or other
disposition of the TARGETS should not be subject to U.S. federal income tax
unless (A) such gain is effectively connected with a U.S. trade or business of
such holder or (B) in the case of an individual, such individual is present in
the United States for 183 days or more in the
37
<PAGE> 38
taxable year of the sale or other disposition or the gain is not attributable to
a fixed place of business maintained by such individual in the United States.
Recently issued Treasury regulations may change the certification
procedures relating to withholding on certain amounts paid to Non-U.S. Holders
after December 31, 1999. Prospective investors should consult their tax advisors
regarding the effect, if any, of such new Treasury regulations on an investment
in the TARGETS.
A Non-U.S. Holder that is subject to U.S. federal income taxation on a net
income basis with respect to its investment in the TARGETS should see the
discussion in "-- Tax Consequences to U.S. Holders".
BACKUP WITHHOLDING AND INFORMATION REPORTING
A holder of TARGETS, including a Non-U.S. Holder, may be subject to
information reporting and to backup withholding tax at a rate of 31 percent of
certain amounts paid to the holder unless such holder (a) is a corporation or
comes within certain other exempt categories and, when required, provides proof
of such exemption or (b) provides a correct taxpayer identification number,
certifies as to no loss of exemption from backup withholding tax and otherwise
complies with applicable requirements of the backup withholding rules. Backup
withholding is not an additional tax and any amounts withheld may be credited
against the holder's U.S. federal income tax liability, provided that the
required information is furnished to the Internal Revenue Service.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended, imposes
certain requirements on "employee benefit plans", as defined in Section 3(3) of
ERISA, subject to ERISA, including entities such as collective investment funds
and separate accounts whose underlying assets include the assets of such plans
(collectively, "ERISA Plans") and on those persons who are fiduciaries with
respect to ERISA Plans. Section 406 of ERISA and Section 4975 of the Internal
Revenue Code of 1986 prohibit certain transactions involving the assets of an
ERISA Plan or a plan, such as a Keogh plan or an individual retirement account,
that are not subject to ERISA but which are subject to Section 4975 of the
Internal Revenue Code (together with ERISA Plans, "Plans") and certain persons,
referred to as "parties in interest" under ERISA or "disqualified persons" under
the Internal Revenue Code, having certain relationships to such Plans, unless a
statutory or administrative exception or exemption is applicable to the
transaction.
The U.S. Department of Labor has promulgated a regulation, 29 C.F.R.
Section 2510.3-101, describing what constitutes the assets of a Plan with
respect to the Plan's investment in an entity for purposes of certain provisions
of ERISA, including the fiduciary responsibility provisions of Title I of ERISA
and Section 4975 of the Internal Revenue Code. Under this regulation, if a Plan
invests in a beneficial interest in a trust or a profits interest in a
partnership, the Plan's assets include both the equity interest and an undivided
interest in each of the entity's underlying assets, unless the interest is a
"publicly-offered security" or certain other conditions are satisfied. It is
anticipated that the TARGETS should constitute "publicly-offered securities"
within the meaning of the regulation, and that, consequently, transactions
engaged in by the Trust, including the Forward Contract, should not be subject
to the provisions of ERISA or Section 4975 of the Internal Revenue Code.
Any Plan fiduciary which proposes to cause a Plan to purchase the TARGETS
should consult with its counsel regarding the applicability of the fiduciary
responsibility and prohibited transaction provisions of ERISA and Section 4975
of the Internal Revenue Code to such an investment, and to confirm that such
investment will not constitute or result in a prohibited transaction or any
other violation of an applicable requirement of ERISA or the Internal Revenue
Code for which an exemption is not available. Governmental plans and certain
church plans not subject to the fiduciary responsibility provisions of ERISA or
the provisions of Section 4975 of the Internal Revenue Code but subject to state
or other federal laws that are substantially similar to the foregoing provisions
of ERISA and the Internal Revenue Code should also consult with their counsel
before purchasing any TARGETS.
38
<PAGE> 39
UNDERWRITING
Subject to the terms and conditions stated in the underwriting agreement
dated April 8, 1999, Salomon Smith Barney Inc., as underwriter, has agreed to
purchase from Trust II, and Trust II has agreed to sell to Salomon Smith Barney
Inc., as underwriter, 5,700,000 TARGETS.
The underwriting agreement provides that the obligation of Salomon Smith
Barney Inc. to purchase the TARGETS included in this offering is subject to
approval of certain legal matters by counsel and to certain other conditions.
Salomon Smith Barney Inc. is obligated to purchase all of the TARGETS if it
purchases any TARGETS.
Salomon Smith Barney Inc. proposes to offer some of the TARGETS directly to
the public at the public offering price set forth on the cover page of this
prospectus and some of the TARGETS to certain dealers at the public offering
price less a concession not in excess of $0.38 per TARGETS. Salomon Smith Barney
Inc. may allow, and such dealers may reallow, a concession not in excess of
$0.38 per TARGETS on sales to certain other brokers and dealers. After the
initial offering of the TARGETS to the public, the public offering price and
such concessions may be changed by Salomon Smith Barney Inc.
Trust II and Salomon Smith Barney Holdings have agreed that, for the period
beginning on the date of the underwriting agreement and continuing to and
including the closing date for the purchase of the TARGETS, they will not offer,
sell, contract to sell, or otherwise dispose of, any securities, including any
backup undertakings of such securities, of Salomon Smith Barney Holdings or of
Trust II, in each case that are substantially similar to the TARGETS, or any
securities convertible into or exchangeable for the TARGETS or such
substantially similar securities of either Trust II or Salomon Smith Barney
Holdings, without the prior written consent of Salomon Smith Barney Inc.
The underwriting agreement provides that Trust II and Salomon Smith Barney
Holdings will indemnify Salomon Smith Barney Inc. against certain liabilities,
including liabilities under the Securities Act of 1933 and will make certain
contributions in respect thereof, or will contribute to payments that Salomon
Smith Barney Inc. may be required to make in respect of any of those liabilities
and will reimburse Salomon Smith Barney Inc. for certain legal and other
expenses.
Prior to this offering, there has been no public market for the TARGETS.
Consequently, the initial public offering price for the TARGETS was determined
by negotiations among Salomon Smith Barney Holdings, Trust II and Salomon Smith
Barney Inc. There can be no assurance, however, that the prices at which the
TARGETS will sell in the public market after this offering will not be lower
than the price at which they are sold by Salomon Smith Barney Inc. or that an
active trading market in the TARGETS will develop and continue after this
offering.
Salomon Smith Barney Holdings and Trust II have applied to list the TARGETS
on the Chicago Board Options Exchange under the symbol "TLU".
In view of the fact that the proceeds of the sale of the TARGETS will
ultimately be used by Trust II to purchase the Forward Contract, the
underwriting agreement provides that Salomon Smith Barney Holdings will pay as
compensation to Salomon Smith Barney Inc. $0.4476 per TARGETS for the accounts
of Salomon Smith Barney Inc.
In connection with the offering, Salomon Smith Barney Inc. may engage in
stabilizing transactions. Stabilizing transactions consist of certain bids or
purchases of TARGETS made for the purpose of preventing or retarding a decline
in the market price of the TARGETS while the offering is in progress. These
activities may cause the price of the TARGETS to be higher than the price that
otherwise would exist in the open market in the absence of such transactions.
These transactions may be effected in the over-the-counter market or otherwise
and, if commenced, may be discontinued at any time.
The offer and sale of the TARGETS will comply with the requirements of Rule
2810 of the Conduct Rules of the National Association of Securities Dealers,
Inc. regarding direct participation programs.
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<PAGE> 40
This prospectus may be used by Salomon Smith Barney Holdings, Salomon Smith
Barney Inc. or other affiliates of Salomon Smith Barney Holdings in connection
with offers and sales of the TARGETS (subject to obtaining any necessary
approval of the New York Stock Exchange for any such offers and sales) in
market-making transactions at negotiated prices related to prevailing market
prices at the time of sale. Any such entity may act as principal or agent in
such transactions. No such entity is obligated to make a market in the TARGETS
and any such entity may discontinue any market-making at any time without
notice, at its sole discretion. There can be no assurance of the liquidity or
existence of a secondary market for any TARGETS.
LEGAL MATTERS
The validity of the TARGETS, the Forward Contract, the Guarantee and
certain matters relating thereto will be passed upon for Salomon Smith Barney
Holdings and Trust II by Joan Guggenheimer, Esq. Ms. Guggenheimer, General
Counsel of Salomon Smith Barney Holdings, beneficially owns or has rights to
acquire under Citigroup employee benefit plans, an aggregate of less than one
percent of the common stock of Citigroup. Certain legal matters will be passed
upon for the underwriters by Cleary, Gottlieb, Steen and Hamilton, New York, New
York. Cleary, Gottlieb, Steen & Hamilton has also acted as special tax counsel
to Salomon Smith Barney Holdings in connection with the TARGETS. Cleary,
Gottlieb, Steen and Hamilton has from time to time acted as counsel for Salomon
Smith Barney Holdings and certain of its affiliates and may do so in the future.
EXPERTS
The consolidated financial statements of Salomon Smith Barney Holdings and
its subsidiaries for the fiscal years ended December 31, 1998 and 1997 and for
each of the three years in the period ended December 31, 1998, have been audited
by PricewaterhouseCoopers LLP, independent certified public accountants, as set
forth in their report thereon, included therein and incorporated herein by
reference, which report states that PricewaterhouseCoopers LLP did not audit the
consolidated financial statements of Salomon Inc as of December 31, 1996, and
for each of the years in the three-year period ended December 31, 1996, and that
their opinion with respect to any amounts contained in such consolidated
financial statements of Salomon Inc is based on the report of Arthur Andersen
LLP. Such financial statements are incorporated by reference herein in reliance
upon such report given upon the authority of said firm as experts in accounting
and auditing.
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<PAGE> 41
APPENDIX A
INDEX OF TERMS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Accelerated Maturity Date................................... 19
Accelerated Maturity Payment................................ 19
Acceleration Event.......................................... 19
Appreciation Cap............................................ 19
Bankruptcy Event............................................ 20
Calculation Period.......................................... 26
Common Securities........................................... 17
Common Stock................................................ 14
Current Market Price........................................ 19
Declaration................................................. 17
ERISA Plans................................................. 38
Exchange Rate............................................... 19
Forward Contract............................................ 32
Guarantee................................................... 32
Indenture................................................... 32
Investment Company Event.................................... 20
Maturity Payment............................................ 19
Non-U.S. Holder............................................. 37
Plans....................................................... 38
Pro rata.................................................... 20
Quarterly Distributions..................................... 22
Regular Trustees............................................ 17
Reorganization Event........................................ 26
Tax Event................................................... 20
Then-Current Market Price................................... 26
Trading Day................................................. 26
Transaction Value........................................... 26
Treasury Proceeds........................................... 19
Treasury Securities......................................... 34
Trust Securities............................................ 14
U.S. Holder................................................. 35
</TABLE>
A-1
<PAGE> 42
You should rely only on the information contained or incorporated by
reference in this 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 contained or incorporated by reference in this prospectus is
accurate as of any date other than the date on the cover of this prospectus.
TABLE OF CONTENTS
Page
Summary 2
Risk Factors 8
Available Information 12
Salomon Smith Barney Holdings 13
Use of Proceeds and Hedging Activities 14
Capitalization 15
Issuer of the Common Stock 15
Historical Data on the Common Stock 16
TARGETS Trust II 17
Description of the TARGETS 18
Description of the Forward Contract 32
Description of the Guarantee 32
Description of the Treasury Securities 34
United States Federal Income Tax
Considerations 35
ERISA Considerations 38
Underwriting 39
Legal Matters 40
Experts 40
Index of Terms A-1
TARGETS TRUST II
5,700,000 TARGETED GROWTH
ENHANCED TERMS SECURITIES
(TARGETS(R))
WITH RESPECT TO
THE COMMON STOCK OF
LUCENT TECHNOLOGIES INC.
DUE ON
MAY 15, 2001
GUARANTEED BY
SALOMON SMITH BARNEY
HOLDINGS INC.
PROSPECTUS
April 8, 1999
SALOMON SMITH BARNEY
