<PAGE>
Filed Pursuant to Rule 424(b)(2)
Registration Nos. 333-50197
and 333-76339
PROSPECTUS SUPPLEMENT
(To prospectus dated March 23, 1999)
14,400,000 PREFERRED SECURITIES
LEHMAN BROTHERS HOLDINGS CAPITAL TRUST II
7.875% PREFERRED SECURITIES, SERIES J
(Liquidation amount $25 per preferred security)
fully and unconditionally guaranteed, to the extent set forth herein, by
LEHMAN BROTHERS HOLDINGS INC.
<TABLE>
<S> <C>
MATURITY DATE June 30, 2048
DISTRIBUTIONS Quarterly, beginning June 30,
PAYABLE 1999. May be postponed for up
to five years, but not past
the maturity date.
SUBORDINATION The preferred securities are
effectively subordinated to
all senior indebtedness of
Lehman Brothers Holdings and
all existing and future
liabilities of its
subsidiaries.
LISTING Applications have been filed
with the New York Stock
Exchange and the Luxembourg
Stock Exchange for listing of
the preferred securities.
ISSUER The trust that is issuing the
preferred securities will have
no assets other than
subordinated debentures issued
by Lehman Brothers Holdings.
These debentures will have
essentially the same terms as
the preferred securities.
Therefore, the trust can only
make payments on the preferred
securities if Lehman Brothers
Holdings first makes payments
on the subordinated
debentures.
</TABLE>
INVESTING IN THE PREFERRED SECURITIES INVOLVES RISKS. RISK FACTORS BEGIN ON PAGE
S-10.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined that
this prospectus supplement or the accompanying prospectus is truthful or
complete. Any representation to the contrary is a criminal offense.
------------------------
<TABLE>
<CAPTION>
PER PREFERRED SECURITY TOTAL
------------------------- ---------------
<S> <C> <C>
Public offering price.......................................................... $25 $360,000,000
Underwriting commissions to be paid by Lehman Brothers Holdings................ (1) (1)
Proceeds to the trust.......................................................... $25 $360,000,000
</TABLE>
(1) Underwriting commissions of $0.7875 per preferred security (a total of
$11,340,000, or $12,505,500 if the over-allotment option, described below,
is exercised in full) will be paid by Lehman Brothers Holdings; except that
for sales of preferred securities to certain institutions the underwriting
commission will be $0.50 per preferred security.
Lehman Brothers Holdings and the trust have granted the underwriters a 30-day
option to purchase up to 1,480,000 additional preferred securities on the same
terms and conditions as set forth above solely to cover over-allotments, if any.
The preferred securities are expected to be ready for delivery in book-entry
form only through The Depository Trust Company on or about April 20, 1999.
Lehman Brothers Inc., a wholly-owned subsidiary of Lehman Brothers Holdings,
makes a market in Lehman Brothers Holdings' securities. It may act as principal
or agent in, and this prospectus may be used in connection with, such
transactions. Any such sales will be made at varying prices related to
prevailing market prices at the time of sale.
------------------------
LEHMAN BROTHERS
BEAR, STEARNS & CO. INC.
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
MORGAN STANLEY DEAN WITTER
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
SALOMON SMITH BARNEY
April 15, 1999
<PAGE>
The Luxembourg Stock Exchange takes no responsibility for the contents of this
document, makes no representation as to its accuracy or completeness and
expressly disclaims any liability whatsoever for any loss however arising from
or in reliance upon the whole or any part of the contents of this prospectus
supplement and the attached prospectus.
Lehman Brothers Holdings has taken all reasonable care to insure that the
information contained in this prospectus and the attached prospectus supplement
in relation to Lehman Brothers Holdings and the preferred securities is true and
accurate in all material respects and that in relation to Lehman Brothers
Holdings and the preferred securities, there are no material facts the omission
of which would make misleading any statment herein, whether of fact or opinion.
Lehman Brothers Holdings accepts responsibility for the information contained in
this prospectus supplement and the attached prospectus.
DOCUMENTS INCORPORATED BY REFERENCE
Lehman Brothers Holdings files annual, quarterly and current reports, proxy
statements and other information with the Securities and Exchange Commission.
The SEC allows Lehman Brothers Holdings to "incorporate by reference" the
information it files with the SEC, which means that it 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. The
information incorporated by reference includes Lehman Brothers Holdings' (1)
Annual Report on Form 10-K for the fiscal year ended November 30, 1998, (2)
Quarterly Report on Form 10-Q for the quarterly period ended February 28, 1999
and (3) Current Reports on Form 8-K filed with the SEC on January 7, 1999,
January 27, 1999 and March 19, 1999. For a further description of the documents
incorporated by reference See "Available Information" in the attached
prospectus.
This prospectus supplement and the attached prosectus, together with copies of
the documents incorporated by reference herein, will be available free of charge
at the office of Kredietbank S.A., Luxembourgeoise, 43, Boulevard Royal, L-2955
Luxembourg.
Lehman Brothers Holdings undertakes to provide you, without charge, a copy of
any and all of the documents incorporated by reference in the attached
prospectus (other than exhibits to such documents unless such exhibits are
specifically incorporated by reference into such prospectus). Written or oral
requests for such copies should be directed to the Controller's Office, Lehman
Brothers Holdings Inc., 3 World Financial Center, New York, New York 10285, USA
(212) 526-0660.
S-2
<PAGE>
SUMMARY INFORMATION--Q&A
This summary highlights selected information from this prospectus supplement and
the accompanying prospectus to help you understand the preferred securities. You
should carefully read this prospectus supplement and the accompanying prospectus
to understand fully the terms of the preferred securities, as well as the tax
and other considerations that are important to you in making a decision about
whether to invest in the preferred securities. You should pay special attention
to the "Risk Factors" section beginning on page S-10 of this prospectus
supplement to determine whether an investment in the preferred securities is
appropriate for you.
For your convenience, there are references throughout this document to specific
page numbers where more detailed information on some of the terms and concepts
discussed herein can be found.
WHAT IS THE TRUST?
Lehman Brothers Holdings Capital Trust II (the "trust") is a Delaware business
trust.
The trust will sell its preferred securities to the public and its common
securities to Lehman Brothers Holdings Inc. ("Holdings"). The trust will use the
proceeds from these sales to buy a series of 7.875% Subordinated Deferrable
Interest Debentures due 2048 (the "subordinated debentures") from Holdings with
the same financial terms as the preferred securities. Holdings will guarantee
payments made on the preferred securities to the extent described below.
There are five trustees of the trust. Three of them, the "regular trustees," are
officers of Holdings. The Chase Manhattan Bank will act as the "property
trustee" of the trust and Chase Manhattan Bank Delaware will act as the
"Delaware trustee."
WHAT ARE THE PREFERRED SECURITIES?
Each preferred security represents an undivided beneficial ownership interest in
the assets of the trust. Each preferred security will entitle the holders to
receive quarterly cash distributions as described below.
WHEN WILL YOU RECEIVE QUARTERLY DISTRIBUTIONS AND HOW MUCH WILL YOU BE PAID?
If you purchase the preferred securities, you will be entitled to receive
cumulative cash distributions at an annual rate of 7.875%. Distributions will
accrue from the date the trust issues the preferred securities and will be paid
quarterly in arrears on March 31, June 30, September 30 and December 31 of each
year, beginning June 30, 1999, unless they are deferred as described below.
WHEN CAN PAYMENT OF YOUR DISTRIBUTIONS BE DEFERRED?
Holdings can, on one or more occasions, defer the quarterly interest payments on
the subordinated debentures for up to 20 consecutive quarters unless the junior
subordinated debentures are in default. See page 14 of the accompanying
prospectus. In other words, Holdings may declare a five-year interest payment
moratorium on the subordinated debentures. A deferral of interest payments
cannot extend, however, beyond the maturity date of the subordinated debentures.
If Holdings defers interest payments on the subordinated debentures, the trust
will also defer distributions on the preferred securities. Any deferred
distributions will accrue additional amounts due at an annual rate of 7.875%
compounded quarterly. Once Holdings pays all deferred interest payments on the
subordinated debentures, with accrued interest, it can again postpone interest
payments on the subordinated debentures as described above.
S-3
<PAGE>
During any period in which Holdings defers interest payments on the subordinated
debentures, neither Holdings nor any of its subsidiaries will be permitted to do
any of the following (with limited exceptions described on page S-20):
- - pay a dividend or make any other payment or distribution on Holdings' capital
stock;
- - redeem, purchase or make a liquidation payment on any of Holdings' capital
stock;
- - make an interest, principal or premium payment, or repay, repurchase or
redeem, any of Holdings' debt securities that rank equal with or junior to the
subordinated debentures; or
- - make any guarantee payment with respect to any guarantee by Holdings of debt
securities of any of its subsidiaries, if the guarantee ranks equal to or
junior to the subordinated debentures.
If Holdings defers payments of interest on the subordinated debentures, the
subordinated debentures will at that time be treated as being issued with
original issue discount for United States federal income tax purposes. This
means you would be required to accrue interest income with respect to
distributions (even if they are deferred) and include such amounts in your gross
income for United States federal income tax purposes before you receive any cash
distributions relating to such interest payments. See "Certain United States
Federal Income Tax Consequences" beginning on page S-22.
WHEN CAN THE TRUST REDEEM THE PREFERRED SECURITIES?
The trust will redeem all of the outstanding preferred securities when the
subordinated debentures are paid at maturity on June 30, 2048. In addition, if
Holdings redeems any subordinated debentures before their maturity, the trust
will use the cash it receives on the redemption of the subordinated debentures
to redeem, on a proportionate basis, the preferred securities and the common
securities.
Holdings can redeem the subordinated debentures before their maturity at 100% of
their principal amount plus accrued and unpaid interest:
- - in whole or in part on one or more occasions any time on or after June 30,
2004; and
- - in whole at any time, if certain changes in tax or investment company laws
occur (which are more fully described on pages S-15 and S-16), provided
Holdings chooses to redeem within 90 days of the occurrence of such event.
HOW ARE THE PREFERRED SECURITIES GUARANTEED?
Holdings will fully and unconditionally guarantee, to the extent set forth in
the accompanying prospectus on pages 21-24:
- - amounts due on preferred securities to the extent the trust has funds
available for payment of such distributions (the "guarantee"); and
- - its obligations under the declaration of trust and the subordinated indenture
(the document governing the subordinated debentures).
The guarantee does not cover payments when the trust does not have sufficient
funds to make payments on the preferred securities. In other words, if Holdings
does not make a payment on the subordinated debentures, the trust will not have
sufficient funds to make payments on the preferred securities, and the guarantee
will not obligate Holdings to make those payments on the trust's behalf. In
addition, Holdings' obligations under the guarantee are subordinate to its
obligations under all of its other liabilities.
WHEN COULD THE SUBORDINATED DEBENTURES BE DISTRIBUTED TO YOU?
Holdings can terminate the trust at any time. If Holdings decides to terminate
the trust, the trust will redeem the preferred securities by distributing the
subordinated debentures to holders of the preferred securities and the common
securities on a proportionate basis.
WHAT HAPPENS IF THE TRUST IS TERMINATED AND THE SUBORDINATED DEBENTURES ARE NOT
DISTRIBUTED?
The trust may also terminate in circumstances where the subordinated debentures
will not be distributed. In those situations, the trust will pay the liquidation
amount of $25 per preferred security plus any accrued but unpaid distributions.
The trust will be able to make this distribution of cash only if the junior
subordinated debentures are redeemed by Holdings.
S-4
<PAGE>
WILL THE PREFERRED SECURITIES BE LISTED ON A STOCK EXCHANGE?
Applications have been filed with the NYSE and the Luxembourg Stock Exchange for
listing of the preferred securities. If listed, trading is expected to commence
on each exchange within 30 days after the preferred securities are first issued.
You should be aware that the listing of the preferred securities will not
necessarily ensure that a liquid trading market will be available for the
preferred securities.
If the trust distributes the subordinated debentures, Holdings will use its best
efforts to list them on the NYSE and the Luxembourg Stock Exchange or wherever
the preferred securities are then listed.
IN WHAT FORM WILL THE PREFERRED SECURITIES BE ISSUED?
The preferred securities will be represented by one or more global securities
that will be deposited with and registered in the name of The Depository Trust
Company, New York, New York ("DTC") or its nominee. This means that you will not
receive a certificate for your preferred securities. See "Book-Entry Issuance"
beginning on page S-26 for details.
S-5
<PAGE>
CONSOLIDATED CAPITALIZATION OF
LEHMAN BROTHERS HOLDINGS INC. AND SUBSIDIARIES
The following table set forth the audited consolidated capitalization of
Holdings and its subsidiaries as of February 28, 1999.
<TABLE>
<CAPTION>
AT FEBRUARY 28, 1999
(IN MILLIONS)
---------------------
<S> <C>
COMMERCIAL PAPER AND SHORT-TERM DEBT....................................... $ 7,168
LONG-TERM DEBT:
Senior notes............................................................. 23,263
Subordinated debt........................................................ 3,455
-------
TOTAL LONG-TERM DEBT..................................................... 26,718
-------
TOTAL COMMERCIAL PAPER, SHORT- AND LONG-TERM DEBT........................ 33,886
-------
TRUST PREFERRED SECURITIES SUBJECT TO MANDATORY REDEMPTION................. 325
STOCKHOLDERS' EQUITY:
Preferred Stock (1)...................................................... 908
Common Stock: $0.10 par value; 300,000,000 shares authorized; shares
issued: 122,070,747; shares outstanding: 118,977,746................... 12
Additional paid-in capital............................................... 3,451
Accumulated other comprehensive income (net of tax)...................... 10
Retained earnings........................................................ 1,299
Other stockholders' equity, net.......................................... 113
Common stock in treasury at cost: 3,093,001.............................. (154)
-------
TOTAL STOCKHOLDERS' EQUITY............................................... 5,639
-------
TOTAL COMMERCIAL PAPER, SHORT- AND LONG-TERM DEBT, TRUST PREFERRED
SECURITIES AND STOCKHOLDERS' EQUITY...................................... $ 39,850
-------
-------
</TABLE>
Except as set forth in this prospectus supplement and prospectus, there has been
no material change in the capitalization of Holdings since February 28, 1999 to
the date of this document.
- ------------------------
(1) Preferred Stock is as follows:
Holdings' authorized capital stock includes 38 million shares of preferred
stock, par value $1.00 per share. Holdings had outstanding the following
series of preferred stock with the following terms:
<TABLE>
<CAPTION>
NUMBER OF DATE NEXT
SHARES DIVIDENDS REDEMPTION REDEEMABLE
TITLE OF SERIES OUTSTANDING PER YEAR PRICE PER SHARE BY HOLDINGS
- -------------------------------------------- ------------ ----------- --------------- ------------
<S> <C> <C> <C> <C>
Redeemable Voting Preferred Stock........... 1,000 Variable(2) $ 1.00 Variable(3)
Cumulative Convertible Voting
Preferred Stock, Series A................. 2,300(1) $ 1.955 $ 39.10 Variable(4)
Cumulative Convertible Voting
Preferred Stock, Series B................. 9,161,384(1) $ 1.955 $ 39.10 Variable(4)
5.94% Cumulative Preferred Stock, Series
C......................................... 500,000 $ 29.70 $ 500.00 05/31/08
5.67% Cumulative Preferred Stock, Series
D......................................... 40,000 $ 283.50 $ 5,000.00 08/31/08
</TABLE>
-----------------------------------
(1) Each share of Cumulative Convertible Voting Preferred Stock, Series A
and B, is convertible at the holder's option into 0.3178313 of a share of
common stock, subject to an anti-dilution adjustment.
(2) The holders of the Redeemable Voting Preferred Stock (as of the date of
this prospectus supplement, The American Express Company and Nippon Life
Insurance Company) are entitled to 50% of the amount by which Holdings'
net income for a fiscal year exceeds $400 million, to a maximum of $50
million per year (prorated for the final dividend period, which runs from
December 1, 2001 to May 31, 2002).
(3) Redemption is mandatory on May 31, 2002. The holders also have the
right to require Holdings to redeem the Redeemable Voting Preferred Stock
if a Designated Event (as defined in Holdings' certificate of
incorporation) occurs, for an aggregate redemption payment of $150
million if such event occurs prior to November 30, 1999, declining $50
million per year thereafter.
(4) Redeemable at any time that there is a public market for Holdings'
common stock and the average market price per share thereof exceeds the
conversion price (at the date of this prospectus supplement) of
$123.0212380.
S-6
<PAGE>
LEHMAN BROTHERS HOLDINGS INC. AND CONSOLIDATED SUBSIDIARIES
SELECTED FINANCIAL DATA
(IN MILLIONS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
THREE MONTHS
TWELVE MONTHS ENDED ENDED
ELEVEN MONTHS NOVEMBER 30, FEBRUARY 28,
ENDED NOVEMBER 30, ------------------------------------------- ------------
1994 1995 1996 1997 1998 1999
-------------------- --------- --------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS
Net revenues.................. $ 2,738 3,071 3,444 3,873 4,113 1,118
Total non-interest expense.... 2,545 2,702 2,807 2,936 3,061 809
Income before taxes and
dividends on trust preferred
securities.................. 193 369 637 937 1,052 309
Net income.................... 113 242 416 647 736 211
BALANCE SHEET
ASSETS:
Cash and cash equivalents..... 964 874 2,149 1,685 3,055 3,670
Securities and other financial
instruments owned........... 47,473 53,021 61,453 76,862 77,000 89,459
Collateralized short-term
agreements.................. 48,107 52,524 52,991 57,752 58,722 72,282
Receivables................... 10,490 6,471 9,944 12,838 11,965 10,654
Property, equipment and
leasehold improvements (net
of accumulated depreciation
and amortization)........... 619 495 477 468 505 501
Other assets.................. 686 793 722 787 1,297 1,307
Total assets.................. 109,947 115,303 128,596 151,705 153,890 179,305
LIABILITIES AND STOCKHOLDERS'
EQUITY:
Securities and other financial
instruments sold but not yet
purchased................... 17,030 21,814 26,364 30,080 28,803 33,559
Collateralized short-term
financing................... 60,046 61,001 62,415 71,050 70,895 91,808
Payables...................... 5,657 6,864 8,586 13,857 10,525 10,265
Accrued liabilities and other
payables.................... 2,691 2,926 3,233 4,116 4,256 3,823
Long-term debt................ 11,321 12,765 15,922 20,261 27,341 26,718
Total liabilities............. 106,552 111,605 124,722 147,182 148,477 173,341
Total stockholders' equity.... 3,395 3,698 3,874 4,523 5,413 5,639
</TABLE>
S-7
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
ELEVEN MONTHS YEAR ENDED NOVEMBER 30,
ENDED NOVEMBER ------------------------------------------ THREE MONTHS ENDED
30, 1994 1995 1996 1997 1998 FEBRUARY 28, 1999
- ----------------- --------- --------- --------- --------- -----------------------
<S> <C> <C> <C> <C> <C>
1.03 1.03 1.06 1.07 1.07 1.08
</TABLE>
In computing the ratio of earnings to fixed charges, "earnings" consist of
earnings from continuing operations before income taxes and fixed charges.
"Fixed charges" consist principally of interest expense and one-third of office
rentals and one-fifth of equipment rentals, which are deemed to be
representative of the interest factor.
S-8
<PAGE>
DIRECTORS AND PRINCIPAL EXECUTIVE OFFICERS
OF LEHMAN BROTHERS HOLDINGS INC.
The Directors and Executive Officers of Holdings are as follows:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
------------------------------------------------------------
<S> <C>
DIRECTORS
Richard S. Fuld, Jr.......... Chairman and Chief Executive Officer
Michael L. Ainslie........... Former President and Chief Executive Officer, Sotheby's
Holdings
John F. Akers................ Retired Chairman, International Business Machines
Corporation
Roger S. Berlind............. Theatrical Producer
Thomas H. Cruikshank......... Retired Chairman and Chief Executive Officer, Halliburton
Company
Dr. Henry Kaufman............ President, Henry Kaufman & Company, Inc.
Hideichiro Kobayashi......... Director and General Manager for the Americas, Nippon Life
Insurance Company
John D. Macomber............. Principal, JDM Investment Group
Dina Merrill................. Director and Vice Chairman, RKO Pictures, Inc.
EXECUTIVE OFFICERS
Richard S. Fuld, Jr.......... Chairman and Chief Executive Officer
John L. Cecil................ Managing Director, Chief Financial Officer and Chief
Administrative Officer
Joseph M. Gregory............ Managing Director, Head of Global Equities
Bradley H. Jack.............. Managing Director, Co-Head of Investment Banking
Bruce R. Lakefield........... Managing Director, Chairman, Lehman Brothers Europe
Stephen M. Lessing........... Managing Director, Head of Global Sales and Research
Kevin J. McGilloway.......... Managing Director, Chief Information Officer
Michael F. McKeever.......... Managing Director, Co-Head of Investment Banking
Maryanne Rasmussen........... Managing Director, Chief Human Resources Officer
Mark Rufeh................... Managing Director, Chief Operations Oficer
Thomas A. Russo.............. Managing Director, Chief Legal Officer
Jeffrey Vanderbeek........... Managing Director, Head of Global Fixed Income
Jarett F. Wait............... Managing Director, Chief Operating Officer, Lehman Brothers
Asia
</TABLE>
S-9
<PAGE>
RISK FACTORS
BEFORE PURCHASING ANY PREFERRED SECURITIES, YOU SHOULD CAREFULLY READ THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS AND PAY SPECIAL ATTENTION
TO THE FOLLOWING RISK FACTORS.
SUBORDINATION
Holdings' obligations under the subordinated debentures will be subordinate to
all existing and any future senior indebtedness of Holdings. In addition, the
subordinated debentures will be effectively subordinated to all existing and
future obligations of Holdings' subsidiaries. Holdings' obligations under the
guarantee are subordinate to all of Holdings' liabilities except other
guarantees by Holdings of preferred securities. This means that Holdings cannot
make any payments on the subordinated debentures or the guarantee if Holdings is
in default, in the case of the subordinated debentures, on any of its senior
indebtedness or, in the case of the guarantee, on any liability of Holdings
except a guarantee by Holdings of preferred securities similar to those being
offered by the trust. In addition, in the event of the bankruptcy, liquidation
or dissolution of Holdings, its assets must be used to pay off its senior
obligations in full before any payments may be made on the subordinated
debentures or the guarantee. Substantially all of Holdings existing indebtedness
is senior indebtedness.
The subordinated indenture, the guarantee and the declaration of trust do not
limit the ability of Holdings to incur additional senior indebtedness.
The ability of the trust to pay amounts due on the preferred securities is
completely dependent upon Holdings' making payments on the subordinated
debentures when due.
For more information, please see "Description of Debt Securities--Subordinated
Debt" and "Description of Guarantees--Status of the Guarantees" on pages 8 and
22, respectively, of the accompanying prospectus.
HOLDINGS' ABILITY TO DEFER DISTRIBUTIONS HAS TAX CONSEQUENCES FOR YOU AND MAY
AFFECT THE TRADING PRICE OF THE PREFERRED SECURITIES
As long as the subordinated debentures are not in default, Holdings can, on one
or more occasions, defer interest payments on the junior subordinated debentures
for up to 20 consecutive quarters, but not beyond the maturity date of the
subordinated debentures. Because interest payments on the subordinated
debentures fund the distributions on the preferred securities, each such
deferral would result in a corresponding deferral of distributions on the
preferred securities.
Holdings does not currently intend to defer interest payments on the
subordinated debentures. However, if it does so in the future, the preferred
securities may trade at a price that does not fully reflect the value of the
accrued but unpaid distributions.
If you sell preferred securities during a deferral period, you may not receive
the same return on your investment as someone who continues to hold the
preferred securities. In addition, Holdings' right to defer interest payments on
the subordinated debentures could mean that the market price for the preferred
securities may be more volatile than that of other securities without interest
deferral rights.
At the end of any deferral period, Holdings must pay all of the accrued interest
on the subordinated debentures. Holdings must also pay interest on the deferred
interest payments at an annual rate of 7.875%, compounded quarterly. If Holdings
pays these amounts, it may elect to begin a new deferral period. There is no
other limitation on the number of times that Holdings may elect to begin a new
deferral period except that no deferral period may extend beyond 20 consecutive
quarters or beyond the maturity date of the subordinated debentures. See
"Certain Terms of the Preferred Securities-- Distributions" and "Certain Terms
of the Junior Subordinated Debentures--Option to Defer Interest Payments" on
pages S-14 and S-20, respectively.
If Holdings does defer interest payments on the subordinated debentures, you
will be required to accrue interest income for United States federal income tax
purposes in respect of your proportionate share of the subordinated debentures
held by the trust even if you normally report income when received. As a result,
you must include the accrued interest in your gross income for United States
federal income tax purposes prior to your receiving any cash distribution. See
"Certain United States Federal Income Tax Consequences--Interest Income and
Original Issue Discount" and "--Sales of Preferred Securities or Redemption of
Junior Subordinated Debentures" on
S-10
<PAGE>
pages S-23 and S-24 for more information regarding the tax consequences of
purchasing the preferred securities.
THE PREFERRED SECURITIES MAY BE REDEEMED AT ANY TIME IF A SPECIAL EVENT OCCURS
If a Special Event (see pages S-15 and S-16) occurs, Holdings can redeem all of
the subordinated debentures at a price equal to the principal amount of the
subordinated debentures plus any accrued and unpaid interest. If such a
redemption happens, the trust must use the redemption price it receives to
redeem the preferred securities.
OPTIONAL REDEMPTION
Holdings may redeem the subordinated debentures, in whole or in part, at any
time on or after June 30, 2004. If Holdings redeems subordinated debentures, the
trust must redeem an equivalent amount of preferred securities at the same time
at a redemption price equal to the liquidation amount of the preferred
securities plus any accrued and unpaid distributions.
EXCHANGE OF PREFERRED SECURITIES FOR SUBORDINATED DEBENTURES
Holdings has the right to terminate the trust and, after paying all of the
trust's debts, if any, to cause the trust to distribute subordinated debentures
in exchange for all of the outstanding preferred securities. For further
information, see "Certain Terms of the Preferred Securities--Optional
Liquidation of Trust and Distribution of Subordinated Debentures" on page S-17.
Assuming, as expected, that the trust will not be taxable as a corporation under
current United States federal income tax law, this exchange would not be a
taxable event to holders of the preferred securities. However, if the trust
becomes subject to United States federal income tax with respect to income
received or accrued on the subordinated debentures, a distribution of the
subordinated debentures by the trust could be a taxable event to the trust and
the holders of the preferred securities. For further information, see "Certain
United States Federal Income Tax Consequences--Distribution of Subordinated
Debentures or Cash upon Liquidation of the Trust" on page S-24.
RIGHTS UNDER THE GUARANTEE; DIRECT ACTION
Holdings guarantees the following payments on the preferred securities, but only
to the extent that the trust has funds available to make such payments:
- - any accumulated and unpaid distributions required to be paid on the preferred
securities;
- - the redemption price with respect to any preferred securities called for
redemption; and
- - upon a voluntary or involuntary dissolution, winding up or liquidation of the
trust (other than in connection with the distribution of subordinated
debentures to the holders of the preferred securities), the lesser of (a) the
aggregate liquidation amount of the preferred securities and accrued and
unpaid distributions thereon to the date of payment and (b) the amount of
assets of the trust remaining available for distribution to the holders of
preferred securities.
The guarantee is subordinated to all other liabilities of Holdings, and equal in
rank to Holdings' most senior preferred stock and any guarantees by Holdings in
respect of any preferred securities similar to those being offered by the trust,
as described under "Description of Guarantees-- Status of the Guarantees" on
page 22 of the accompanying prospectus.
The holders of a majority in liquidation amount of the outstanding preferred
securities have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the guarantee trustee under the
guarantee, or to direct the exercise of any power given to the guarantee trustee
under the guarantee. If the guarantee trustee does not enforce the guarantee,
any holder of preferred securities may proceed directly against Holdings to
enforce its rights under the guarantee without first proceeding against the
trust, the guarantee trustee or anybody else.
If Holdings defaults on the subordinated debentures, the trust will lack funds
for the payments on the preferred securities. If this happens, holders of
preferred securities will not be able to rely upon the guarantee for payment of
such amounts. Instead, if Holdings does not pay any amounts on the subordinated
debentures when due, a holder of preferred securities may proceed directly
against Holdings for payment of any amounts due on the preferred securities of
such holder. For more
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information, see "Certain Terms of the Preferred Securities--Trust Enforcement
Events" on page S-17.
By purchasing preferred securities, each holder of preferred securities agrees
to the provisions of the guarantee and the subordinated indenture.
LIMITED VOTING RIGHTS
You will only have limited voting rights. In particular, only Holdings can elect
and remove trustees, except under certain limited circumstances. For more
information, see "Lehman Brothers Holdings Capital Trust II" on page S-13.
STOCK EXCHANGE LISTINGS
Applications have been filed with the NYSE and the Luxembourg Stock Exchange for
listing of the preferred securities. However, if the preferred securities are
not listed on a national securities exchange or the Luxembourg Stock Exchange
and the underwriters do not make a market in them, the market for the preferred
securities may not be liquid, and they may be difficult to sell.
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LEHMAN BROTHERS HOLDINGS CAPITAL TRUST II
Lehman Brothers Holdings Capital Trust II is a business trust organized under
Delaware law. Securities issued by the trust will be governed by Delaware law.
Holdings established this trust by (1) filing a certificate of trust with the
Secretary of State of Delaware on January 16, 1998, and (2) executing a
declaration of trust on January 16, 1998, which was also signed by the property
trustee and the Delaware trustee.
The trust's business and affairs are conducted by its trustees, which are The
Chase Manhattan Bank, as property trustee, Chase Manhattan Bank Delaware, as
Delaware trustee, and three regular trustees. The regular trustees are employees
of Holdings. The Chase Manhattan Bank will also act as trustee under the
guarantee.
Holdings has the right to appoint, remove and replace the trustees. If an event
of default occurs under the subordinated indenture, the holders of a majority in
liquidation amount of the preferred securities will have this right.
Holdings, as issuer of the subordinated debentures, will pay all fees and
expenses related to the trust and the offering of the preferred securities.
Holdings, as borrower, will also pay, all ongoing costs, expenses and
liabilities of the trust, except obligations to make distributions and other
payments on the common and preferred securities.
The trust is being established for the following purposes only:
- - to issue and sell the common and preferred securities described in this
prospectus supplement (each with a liquidation amount of $25);
- - to use the proceeds from the sale of the common and preferred securities to
acquire the subordinated debentures; and
- - to engage in activities that are directly related to these activities, such as
registering the transfer of the preferred securities.
Because the trust is being established only for the purposes listed above, the
subordinated debentures will be the sole assets of the trust, and payments under
the subordinated debentures will be the sole source of income to the trust.
All of the common securities of the trust will be owned by Holdings. The common
securities will rank equally with the preferred securities, and payments on the
common securities will be made on a proportionate basis with the preferred
securities, unless Holdings fails to pay amounts that become due under the
subordinated debentures or defaults under certain other circumstances described
in "Description of Debt Securities--Events of Default" beginning on page 14 of
the accompanying prospectus. If Holdings fails to pay these amounts, the trust
will be unable to make payments under the common securities until it satisfies
its obligations under the preferred securities. See "Certain Terms of the
Preferred Securities--Subordination of Common Securities" on page S-17 for
further details. Holdings will acquire common securities in total liquidation
amount equal to at least 3% of the total capital of the trust.
The trust may only issue $409,278,375 in liquidation amount of preferred and
common securities. The preferred securities will always constitute approximately
97% of the liquidation amount of all issued securities and the common securities
will constitute the balance. On April 20, 1999, the liquidation amount of
preferred and common securities will be $371,134,025 ($360,000,000 of preferred
securities and $11,134,025 of common securities). If the over-allotment option
is exercised in full by the Underwriters, the liquidation amount of preferred
and issued securities will be $409,278,375 ($397,000,000 of preferred securities
and $12,278,375 of common securities).
For additional information concerning the trust, see "The LBH Trusts" on page 5
in the accompanying prospectus.
The executive office of the trust is c/o Lehman Brothers Holdings Inc., 3 World
Financial Center, New York, New York 10285, and its telephone number is (212)
526-7000.
We anticipate that the trust will not be required to make any filings with the
Securities and Exchange Commission.
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USE OF PROCEEDS
The trust will invest all the proceeds from the sale of the preferred securities
in the subordinated debentures. Holdings will use the net proceeds from the sale
of the subordinated debentures for general corporate purposes.
ACCOUNTING TREATMENT
For financial reporting purposes, the trust will be treated as a subsidiary of
Holdings, and its accounts will be included in Holdings' consolidated financial
statements.
In its future financial reports, Holdings will:
- - present the subordinated debentures as debt on its unconsolidated balance
sheet and payments of interest as an expense on its statement of income;
- - present the preferred securities issued by the trust on Holdings' consolidated
balance sheet as a separate line item after total liabilities and before
stockholders' equity, similar to a minority interest;
- - include a footnote in its consolidated financial statements stating that the
sole assets of the trust are subordinated debentures issued by Holdings and
providing information about the preferred securities and the guarantee; and
- - record distributions due on the preferred securities as charges to income in
its consolidated statements of income.
DESCRIPTION OF SECURITIES
This prospectus supplement summarizes the specific terms and provisions of the
preferred securities, the subordinated debentures and the guarantee, and
supplements the general description of the terms and provisions of these
securities in the accompanying prospectus. These summaries are not meant to be
complete descriptions of each security. However, this prospectus supplement and
the accompanying prospectus do contain the material terms and conditions for
each security. For more information, please refer to the declaration of trust,
the subordinated indenture and the guarantee. Forms of these documents are filed
as exhibits to the registration statement of which this prospectus supplement
and the accompanying prospectus are a part. All terms used but not defined in
this prospectus supplement have the meanings given to them in those documents.
CERTAIN TERMS OF THE PREFERRED SECURITIES
DISTRIBUTIONS
The preferred securities represent undivided beneficial ownership interests in
the assets of the trust. The only assets of the trust will be the subordinated
debentures. Distributions on the preferred securities are cumulative and will
accrue from April 20, 1999 at the annual rate of 7.875%. Distributions will be
payable quarterly in arrears on March 31, June 30, September 30 and December 31
of each year, beginning June 30, 1999. Distributions not paid when due will
accumulate additional distributions, at the annual rate of 7.875% on the amount
of unpaid distributions, compounded quarterly. When we refer to any payment of
distributions, the term "distributions" includes any such additional
distributions. The amount of distributions payable for any period will be
computed on the basis of a 360-day year comprised of twelve 30-day months. The
amount of distributions payable for any period shorter than a full quarterly
period will be computed on the basis of a 30-day month and, for periods of less
than a month, the actual number of days elapsed per 30-day month.
If distributions are payable on a date that is not a business day (as defined at
the end of this paragraph), payment will be made on the next business day (and
without any interest or other payment in respect of such delay). However, if the
next business day is in the next calendar year, payment of distributions will be
made on the preceding business day. A "business day" means each day except
Saturday, Sunday and any day on which banking institutions in The City of New
York are authorized or required by law to close. If certificated preferred
securities have been issued and the preferred securities are listed on the
Luxembourg Stock Exchange, distributions at the
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Luxembourg paying agent will be payable only on a business day in Luxembourg.
Distributions on the preferred securities will only be paid if the trust has
sufficient funds available to make such payments. The income of the trust
available for the payment of distributions will be limited to payments made by
Holdings on the subordinated debentures.
DEFERRAL OF DISTRIBUTIONS
If the subordinated debentures are not in default, Holdings can, on one or more
occasions, defer interest payments on the subordinated debentures for up to 20
consecutive quarterly periods. A deferral of interest payments cannot extend,
however, beyond the maturity date of the subordinated debentures. If Holdings
defers interest payments on the subordinated debentures, the trust will also
defer quarterly distributions on the preferred securities. During a deferral
period, distributions otherwise due to you would continue to accumulate. See
"Certain Terms of the Subordinated Debentures--Option to Defer Interest
Payments" for a discussion of how you will be notified of a deferral of interest
by Holdings.
Once Holdings makes all deferred interest payments on the subordinated
debentures, it can again defer interest payments on the subordinated debentures
as discussed above.
Holdings does not currently intend to defer interest payments on the
subordinated debentures. However, if Holdings does defer such interest payments,
it will be subject to certain restrictions relating to the payment of dividends
on or purchases of its capital stock and payments on its debt securities that
rank equal with or junior to the subordinated debentures. See "Certain Terms of
the Subordinated Debentures--Option to Defer Interest Payments" on page S-20.
If Holdings chooses to defer payments of interest on the subordinated
debentures, the subordinated debentures would at that time be treated as being
issued with original issue discount for United States federal income tax
purposes. This means you will be required to include interest income in gross
income for United States federal income tax purposes before you receive cash
distributions. This treatment will apply as long as you own preferred
securities. See "Certain United States Federal Income Tax Consequences--Interest
Income and Original Issue Discount" on pages S-23 and S-24.
PAYMENT OF DISTRIBUTIONS
Distributions on the preferred securities will be payable to holders registered
on the relevant record date. Payments on the preferred securities while they are
represented by a global security will be made in immediately available funds to
DTC, the depositary for the preferred securities.
As long as the preferred securities are only in book-entry form, the record date
for the payment of distributions will be one business day before the
distribution date. If the preferred securities are ever issued in certificated
form, the record date for the payment of distributions will be determined by the
regular trustees and will be at least one business day before the relevant
payment dates.
REDEMPTION
Holdings may redeem the subordinated debentures before their maturity:
- - in whole or in part on one or more occasions any time on or after June 30,
2004; and
- - in whole at any time, if certain changes in tax or investment company law
occur (each of which is a "Special Event" and is described more fully under
"--Special Event Redemption" below).
When Holdings pays off the subordinated debentures, either at maturity on June
30, 2048 or upon early redemption (as discussed above), the trust will use the
cash it receives from the redemption of the subordinated debentures to redeem a
like amount of the preferred and common securities. The redemption price for the
subordinated debentures is 100% of their principal amount plus accrued and
unpaid interest.
If less than all the preferred and common securities are redeemed, the aggregate
liquidation amount of preferred and common securities to be redeemed will be
allocated proportionately among the preferred and common securities, subject to
the exceptions described under "--Subordination of Common Securities" on page
S-17. The preferred securities to be redeemed will be redeemed on a
proportionate basis by DTC if they are in book-entry-only form.
SPECIAL EVENT REDEMPTION
If a tax event or an investment company event (as defined below) has occurred
and is continuing, and Holdings cannot cure the event by some reasonable action,
Holdings may redeem the subordinated
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debentures, within 90 days following the occurrence of the Special Event.
"Tax event" as used herein means the receipt by the trust of an opinion of
independent tax counsel experienced in such matters, to the effect that, as a
result of
- - any amendment to, change in or announced proposed change in the laws or
regulations interpreting such laws of the United States or any political
subdivision or taxing authority; or
- - any official administrative pronouncement, action or judicial decision
interpreting or applying such laws or regulations;
where such amendment or change becomes effective, or proposed change,
pronouncement, action or decision is announced on or after the date of this
prospectus supplement, there is more than an insubstantial risk currently or
within the 90 days following such opinion that:
- - the trust will be subject to United States federal income tax with respect to
income received or accrued on the subordinated debentures;
- - interest payable by Holdings on the subordinated debentures will not be
deductible by Holdings, in whole or in part, for United States federal income
tax purposes; or
- - the trust will be subject to more than an insubstantial amount of other taxes,
duties or other governmental charges.
"Investment company event" means the receipt by the trust of an opinion of a
nationally recognized independent counsel to the effect that, as a result of the
occurrence of a change in law or regulation or a written change in
interpretation or application of law or regulation by any legislative body,
court, governmental agency or regulatory authority, there is more than an
insubstantial risk that the trust will be considered an "investment company"
under the Investment Company Act of 1940 that is required to be registered under
this law.
If Holdings does not elect to redeem the subordinated debentures following a tax
event or investment company event, the preferred securities will remain
outstanding until the repayment of the subordinated debentures.
REDEMPTION PROCEDURES
The trust will give you at least 30 days' notice before any redemption of
preferred securities. To the extent funds are available for payment, the trust
will irrevocably deposit with DTC sufficient funds to pay the redemption amount
for the preferred securities being redeemed. The trust will also give DTC
irrevocable instructions, and authority to pay the redemption amount to the
preferred securities holders. Any distribution to be paid on or before a
redemption date for any preferred securities called for redemption will be
payable to the registered holders on the record date for the distribution.
Once notice of redemption is given and the redemption amount is irrevocably
deposited, additional distributions on the preferred securities will cease to
accrue. In addition, all rights of the holders of the preferred securities
called for redemption will cease, except for the right to receive distributions
payable prior to the redemption date and the redemption amount.
If any redemption date is not a business day, the redemption amount will be
payable on the next business day, without any interest or other payment in
respect of any such delay. However, if the next business day is in the next
calendar year, the, redemption amount will be payable on the preceding business
day.
If payment of the redemption amount for any preferred securities called for
redemption is improperly withheld or refused and not paid either by the trust or
by Holdings pursuant to the guarantee, distributions on the preferred securities
will continue to accrue at the applicable rate from the originally scheduled
redemption date to the actual date of payment. In this case, the actual payment
date will be the redemption date for purposes of calculating the redemption
amount.
Holdings or its affiliates may, at any time, purchase outstanding preferred
securities by tender, in the open market or by private agreement.
Any preferred securities which are repurchased or redeemed will be cancelled.
WITHHOLDING
All payments of principal and interest will be made without withholding or
deduction for, or on account of, any present or future taxes, duties,
assessments or governmental charges of whatever nature imposed or levied by or
on behalf of the jurisdiction of incorporation of Holdings or any political
subdivision thereof or any authority therein or thereof having power to tax
unless the withholding or deduction of such taxes, duties, assessments or
governmental charges is required by law (based on the advice of counsel).
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OPTIONAL LIQUIDATION OF THE TRUST AND DISTRIBUTION OF SUBORDINATED DEBENTURES
Holdings may dissolve the trust at any time, and after paying the creditors of
the trust may cause the subordinated debentures to be exchanged for the
preferred securities. Holdings will give holders of the preferred securities at
least 10 business days' prior notice of such dissolution. Holders of preferred
securities may exchange the preferred securities for subordinated debentures at
the Luxembourg paying agent for so long as the preferred securities are listed
on the Luxembourg Stock Exchange.
Assuming that the trust is not taxable as a corporation, a distribution of
subordinated debentures upon a liquidation of the trust would not be a taxable
event to holders of the preferred securities. If, however, the trust were
subject to United States federal income tax with respect to income accrued or
received on the subordinated debentures, the distribution of subordinated
debentures by the trust would be a taxable event to the trust and you.
If Holdings elects to dissolve the trust, thus causing the subordinated
debentures to be distributed in exchange for the preferred securities, Holdings
will continue to have the right to redeem the subordinated debentures in certain
circumstances. See "Certain Terms of the Subordinated Debentures--Redemption" on
page S-19 for more information.
SUBORDINATION OF COMMON SECURITIES
Payment of distributions or any redemption or liquidation amounts regarding the
preferred and common securities will be made proportionately based on the
aggregate liquidation amounts of the preferred and common securities. However,
if the subordinated debentures are in default, no payments may be made on the
common securities until all unpaid amounts on the preferred securities have been
provided for or paid in full.
TRUST ENFORCEMENT EVENTS
An event of default under the subordinated indenture (an "indenture event of
default") constitutes an event of default under the declaration of trust
governing the trust securities (a "trust enforcement event"). See "Description
of Debt Securities--Events of Default" on pages 14 and 15 of the accompanying
prospectus. Upon the occurrence and continuance of a trust enforcement event,
the property trustee, as the sole holder of the subordinated debentures, will
have the right under the subordinated indenture to declare the principal amount
of the subordinated debentures due and payable.
If the property trustee fails to enforce its rights under the subordinated
debentures, any holder of preferred securities may institute a legal proceeding
against Holdings to enforce the property trustee's rights under the subordinated
debentures. However, if a trust enforcement event has occurred and is continuing
and such event is attributable to the failure of Holdings to pay interest or
principal on the subordinated debentures when due, the registered holder of
preferred securities may institute a direct action for payment on or after the
due date.
Pursuant to the declaration of trust, the holder of the common securities will
be deemed to have waived any trust enforcement event with respect to the common
securities until all trust enforcement events with respect to the preferred
securities have been cured, waived or otherwise eliminated. Until such trust
enforcement events with respect to the preferred securities have been so cured,
waived or otherwise eliminated, the property trustee will be deemed to be acting
solely on behalf of the holders of the preferred securities and only the holders
of the preferred securities will have the right to direct the property trustee
in accordance with the terms of the preferred securities.
VOTING RIGHTS; AMENDMENT OF THE DECLARATION
Except as provided below and under "Description of Guarantees--Amendments and
Assignment" on page 23 in the accompanying prospectus and as otherwise required
by law, the holders of the preferred securities will have no voting rights.
So long as any subordinated debentures are held by the property trustee, the
holders of a majority of the preferred securities will have the right to direct
the time, method and place of conducting any proceeding for any remedy available
to the property trustee, or to direct the exercise of any trust or power
conferred upon the property trustee under the declaration of trust, including
the right to direct the property trustee, as holder of the subordinated
debentures, to:
- - exercise the remedies available to it under the subordinated indenture as a
holder of the subordinated debentures;
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- - consent to any amendment or modification of the subordinated indenture or the
subordinated debentures where such consent shall be required; or
- - waive any past default and its consequences that is waivable under the
indenture.
If an indenture event of default has occurred and is continuing, the holders of
25% of the aggregate liquidation amount of the preferred securities may direct
the property trustee to declare the principal and interest on the subordinated
debentures due and payable. However, where a consent or action under the
subordinated indenture would require the consent or action of the holders of
more than a majority of the aggregate principal amount of subordinated
debentures affected thereby, only the holders of that greater percentage of the
preferred securities may direct the property trustee to give such consent or to
take such action. See "Description of Debt Securities--Meetings, Modification
and Waiver" on page 16 in the accompanying prospectus.
The declaration of trust may be amended from time to time, without the consent
of the holders of the preferred securities:
- - to cure any ambiguity or correct or supplement any provisions that may be
defective or inconsistent with any other provision;
- - to add to the covenants, restrictions or obligations of Holdings in its
capacity as sponsor of the trust;
- - to conform to any change in Rule 3a-5 under the Investment Company Act of 1940
or written change in interpretation or application of Rule 3a-5 under the
Investment Company Act of 1940 by any legislative body, court, government
agency or regulatory authority; or
- - to modify, eliminate or add to any provisions as necessary to ensure that the
trust will be classified for United States federal income tax purposes as a
grantor trust at all times or to ensure that the trust will not be required to
register as an "investment company" under the Investment Company Act of 1940.
Amendments made without the consent of the preferred securities cannot adversely
affect in any material respect the rights of the holders of preferred or common
securities.
The declaration of trust may also be amended as to other matters with the
consent of holders of at least 66 2/3% of the outstanding preferred securities.
However, without the consent of each affected holder of preferred or common
securities, the declaration of trust may not be amended to:
- - change the amount or timing of any distribution or otherwise adversely affect
the amount of any distribution required to be made; or
- - restrict the right of a holder to institute suit for the enforcement of any
such payment.
The declaration of trust may not be amended if the amendment would cause the
trust to be treated as other than a grantor trust for federal income tax
purposes or to be deemed to be an "investment company" requiring registration
under the Investment Company Act of 1940.
Any required approval or direction of holders of preferred securities may be
given at a meeting convened for such purpose or pursuant to written consent.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The property trustee, other than during the occurrence and continuance of a
trust enforcement event, undertakes to perform only the duties that are
specifically set forth in the declaration of trust and, after a trust
enforcement event (which has not been cured or waived), must exercise the same
degree of care and skill as a prudent person would exercise or use in the
conduct of his or her own affairs. Subject to this provision, the property
trustee is under no obligation to exercise any of the powers vested in it by the
declaration of trust at the request of any holder of preferred securities unless
it is offered reasonable security and indemnity against the costs, expenses and
liabilities that might be incurred thereby.
CERTIFICATED SECURITIES--REGISTRATION, TRANSFER AND PAYMENT
If the trust issues certificated securities, each one will be registered in the
name of the relevant securityholder. The preferred securities may be transferred
or exchanged without the payment of any service charge (other than any tax or
other governmental charge) by contacting (1) the property trustee, The Chase
Manhattan Bank, 450 West 33rd Street, New York, New York 10001, Attention:
Corporate Trust Department or (2) for so long as the preferred securities are
listed on the Luxembourg Stock Exchange, the Luxembourg transfer agent and
paying agent, Kredietbank S.A.
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Luxembourgeoise, 43, Boulevard Royal, L-2955 Luxembourg.
Transfers of a certificated preferred security will only be made upon the
surrender of the certificate at the offices specified above, together with the
form of transfer duly completed and executed and any other evidence that the
agent may reasonably require. In the case of a transfer of part of a holding of
preferred securities represented by one certificate, a new certificate shall be
issued to the transferee in respect of the part transferred and a further new
certificate in respect of the balance of the holding not transferred shall be
issued to the transferor.
Distribution payments on certificated preferred securities will be made by
check. Payment of the redemption price or liquidation amount will be made in
immediately available funds when you surrender a preferred security.
NOTICES
Notices to holders of the preferred securities will be published in a leading
daily newspaper in The City of New York, in London and, so long as the preferred
securities are listed on the Luxembourg Stock Exchange, in Luxembourg. It is
expected that publication will be made in The City of New York in THE WALL
STREET JOURNAL, in London in the FINANCIAL TIMES, and in Luxembourg in the
LUXEMBOURGER WORT. Any such notice shall be deemed to have been given on the
date of such publication or, if published more than once, on the date of the
first such publication.
CERTAIN TERMS OF THE SUBORDINATED DEBENTURES
The subordinated debentures will be issued pursuant to the subordinated
indenture, dated as of February 1, 1996, as amended and supplemented.
The preferred securities, the subordinated debentures and the guarantee do not
limit the ability of Holdings and its subsidiaries to incur additional
indebtedness, including indebtedness that ranks senior in priority of payment to
the subordinated debentures and the guarantee. At February 28, 1999,
approximately $23.263 billion of senior unsecured indebtedness of Holdings was
outstanding. In addition, the subordinated debentures will be effectively
subordinated to all existing and future obligations of Holdings' subsidiaries.
At February 28, 1999, approximately $3.455 billion of unsecured indebtedness of
Holdings' subsidiaries not included in Holdings' senior unsecured indebtedness
was outstanding.
INTEREST RATE AND MATURITY
The subordinated debentures will mature on June 30, 2048 and will bear interest
at the annual rate of 7.875%, payable quarterly in arrears on March 31, June 30,
September 30 and December 31 of each year, beginning June 30, 1999. Interest
payments not paid when due will themselves accrue additional interest at the
annual rate of 7.875% on the amount of unpaid interest (to the extent permitted
by law), compounded quarterly. The amount of interest payable for any period
will be computed based on a 360-day year comprised of twelve 30-day months. The
amount of interest payable for any period shorter than a full quarterly period
will be computed on the basis of a 30-day month and, for periods of less than a
month, the actual number of days elapsed per 30-day month. The interest payment
provisions for the subordinated debentures correspond to the distribution
provisions of the preferred securities. The subordinated debentures do not have
a sinking fund. This means that Holdings is not required to make any principal
payments prior to maturity.
REDEMPTION
Holdings has the option to redeem some or all of the subordinated debentures
before their maturity. See "Certain Terms of the Preferred Securities--
Redemption" and "--Special Event Redemption" on pages S-15 and S-16 for further
information.
DISTRIBUTION OF SUBORDINATED DEBENTURES
If the property trustee distributes the subordinated debentures to the preferred
and common securities holders upon the dissolution and liquidation of the trust,
the subordinated debentures will be issued in denominations of $25 principal
amount and integral multiples thereof. Holdings anticipates that the
subordinated debentures would be distributed in the form of one or more global
securities and DTC, or any successor depositary for the preferred securities,
would act as depositary for the subordinated debentures. The depositary
arrangements for the subordinated debentures would be substantially similar to
those in effect for the preferred securities.
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For a description of DTC and the terms of the depositary arrangements relating
to payments, transfers, voting rights, redemption and other notices and other
matters, see "Book-Entry Issuance" beginning on page S-26.
OPTION TO DEFER INTEREST PAYMENTS
Holdings can defer interest payments on the subordinated debentures for up to 20
consecutive quarterly periods if the subordinated debentures are not in default.
A deferral of interest payments cannot extend, however, beyond the maturity date
of the subordinated debentures. During the deferral period, interest will
continue to accrue on the subordinated debentures, compounded quarterly and
deferred interest payments will accrue additional interest. No interest will be
due and payable on the subordinated debentures until the end of the deferral
period except upon a redemption of the subordinated debentures during a deferral
period.
Holdings may pay at any time all or any portion of the interest accrued to that
point during a deferral period. At the end of the deferral period or on any
redemption date, Holdings will be obligated to pay all accrued and unpaid
interest.
Once Holdings makes all interest payments on the subordinated debentures, with
accrued and unpaid interest, it can again defer interest payments on the
subordinated debentures as described above.
During any deferral period, neither Holdings or any of its subsidiaries will be
permitted to:
- - pay a dividend or make any other payment or distribution on Holdings' capital
stock;
- - redeem, purchase or make a liquidation payment on any of Holdings' capital
stock;
- - make an interest, principal or premium payment, or repay, repurchase or
redeem, any of Holdings' debt securities that rank equal with or junior to the
subordinated debentures; or
- - make any guarantee payment with respect to any guarantee by Holdings of debt
securities of any of its subsidiaries, if the guarantee ranks equal to or
junior to the subordinated debentures.
During any deferral period, however, Holdings will be permitted to:
- - pay dividends or distributions by way of issuance of its common stock;
- - make payments under the guarantee in respect of the preferred and common
securities;
- - declare or pay a dividend in connection with the implementation of a
shareholders' rights plan, or the issuing of stock under such a plan or
repurchase such rights; and
- - purchase common stock relating to the issuing of common stock or rights under
any of Holdings' benefit plans.
If the property trustee is the sole holder of the subordinated debentures,
Holdings will give the trust, the regular trustees and the property trustee
notice if it decides to defer interest payments on the subordinated debentures.
Holdings will give that notice one business day before the earlier of:
- - the next date distributions on the preferred securities are payable; or
- - the date the trust is required to give notice to the NYSE (or any other
applicable self-regulatory organization) or to holders of the preferred
securities of the record date or the date any distribution is payable, but in
any event at least one business day before the record date.
The regular trustees will give notice to the holders of preferred securities if
Holdings decides to defer interest payments on the subordinated debentures.
If the property trustee is not the sole holder of the subordinated debentures,
Holdings will give the holders notice of any deferral period ten business days
prior to the earlier of:
- - the next interest payment date; or
- - the date Holdings is required to give notice to the NYSE (or any other
applicable self-regulatory organization) or to holders of the subordinated
debentures of the record date or payment, date of any related interest
payment, but in any event at least two business days prior to the record date.
MISCELLANEOUS
The subordinated indenture provides that Holdings, as borrower, will pay all
fees and expenses related to (i) the issuance and exchange of the trust
securities and the subordinated debentures, (ii) the organization, maintenance
and dissolution of the trust, (iii) the retention of the trustees and (iv) the
enforcement by the property trustee of the rights of the holders of the
preferred securities. The subordinated indenture and the subordinated debentures
are governed by New York law.
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RELATIONSHIP AMONG THE PREFERRED SECURITIES, THE SUBORDINATED DEBENTURES AND THE
GUARANTEE
FULL AND UNCONDITIONAL GUARANTEE
Payments of distributions and other amounts due on the preferred securities are
irrevocably guaranteed by Holdings (to the extent the trust has funds available
for the payment of such distributions) as set forth under "Description of
Guarantees" on pages 21-24 of the accompanying prospectus. The date of the
guarantee will be April 20, 1999. If Holdings does not make payments under the
subordinated debentures, the trust will not have sufficient funds to pay
distributions or other amounts due on the preferred securities.
The guarantee does not cover payment of distributions when the trust does not
have sufficient funds to pay such distributions. In that event, a holder of
preferred securities may institute a legal proceeding directly against Holdings
to enforce payment of the subordinated debentures to such holder in accordance
with their terms including Holdings' right to defer interest payments.
Taken together, Holdings' obligations under the declaration of trust, the
subordinated debentures, the subordinated indenture and the guarantee provide a
full and unconditional guarantee of payments of distributions and other amounts
due on the preferred securities.
SUFFICIENCY OF PAYMENTS
As long as payments of interest, principal and other payments are made when due
on the subordinated debentures, those payments will be sufficient to cover
distributions and other payments due on the preferred securities because of the
following factors:
- - the aggregate principal amount of the subordinated debentures will be equal to
the sum of the aggregate stated liquidation amount of the preferred and common
securities;
- - the interest rate and payment dates on the subordinated debentures will match
the distribution rate and payment dates for the preferred securities;
- - Holdings, as borrower, will pay, and the trust will not be obligated to pay,
all costs, expenses and liabilities of the trust except the trust's
obligations under the preferred and common securities; and
- - the declaration of trust further provides that the trust will not engage in
any activity that is not consistent with the limited purposes of the trust.
Holdings has the right to set-off any payment it is otherwise required to make
under the subordinated indenture with and to the extent Holdings makes a related
payment under the guarantee.
ENFORCEMENT RIGHTS OF HOLDERS OF PREFERRED SECURITIES
If a trust enforcement event occurs, the holders of preferred securities would
rely on the enforcement by the property trustee of its rights as registered
holder of the subordinated debentures against Holdings. In addition, the holders
of a majority in liquidation amount of the preferred securities will have the
right to direct the time, method, and place of conducting any proceeding for any
remedy available to the property trustee or to direct the exercise of any trust
or power conferred upon the property trustee under the declaration of trust,
including the right to direct the property trustee to exercise the remedies
available to it as the holder of the subordinated debentures. The subordinated
indenture provides that the indenture trustee shall give holders of subordinated
debentures notice of all events of default within 30 days after occurrence.
If the property trustee fails to enforce its rights under the subordinated
debentures in respect of an indenture event of default after a holder of
preferred securities has made a written request, such holder may, to the extent
permitted by applicable law, institute a legal proceeding against Holdings to
enforce the property trustee's rights under the subordinated debentures. In
addition, if Holdings fails to pay interest or principal on the subordinated
debentures, a holder of preferred securities may directly institute a proceeding
for enforcement of payment to such holder of the principal of or interest on the
subordinated debentures having a principal amount equal to the aggregate stated
liquidation amount of the preferred securities of such holder (a "direct
action"). In
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connection with such a direct action, Holdings will have the right under the
indenture to set off any payment made to such holder by Holdings. The holders of
preferred securities will not be able to exercise directly any other remedy
available to the holders of the subordinated debentures.
LIMITED PURPOSE OF TRUST
The preferred securities evidence beneficial ownership interests in the trust,
and the trust exists for the sole purpose of issuing the common and preferred
securities and investing the proceeds thereof in subordinated debentures. A
principal difference between the rights of a holder of preferred securities and
a holder of subordinated debentures is that a holder of subordinated debentures
is entitled to receive from Holdings the principal of and interest accrued on
subordinated debentures held, while a holder of preferred securities is entitled
to receive distributions to the extent the trust has funds available for the
payment of such distributions.
RIGHTS UPON TERMINATION
Upon any dissolution, winding-up or liquidation of the trust involving the
liquidation of the subordinated debentures, the holders of the preferred
securities will be entitled to receive, out of assets held by the trust, subject
to the rights of any creditors of the trust, the liquidation distribution in
cash. Upon any voluntary or involuntary liquidation or bankruptcy of Holdings,
the property trustee, as holder of the subordinated debentures, would be a
subordinated creditor of Holdings, subordinated in right of payment to all
senior debt as set forth in the subordinated indenture, but entitled to receive
payment in full of principal and interest before any stockholders of Holdings
receive payments or distributions. Because Holdings is the guarantor under the
guarantee and, under the subordinated indenture, has agreed to pay for all
costs, expenses and liabilities of the trust (other than the trust's obligations
to the holders of the preferred securities), the positions of a holder of
preferred securities and a holder of the subordinated debentures relative to
other creditors and to stockholders of Holdings in the event of liquidation or
bankruptcy of Holdings would be substantially the same.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a description of the material United States federal income tax
consequences of the purchase, ownership and disposition of the preferred
securities. Where noted, it constitutes the opinion of Simpson Thacher &
Bartlett, special United States federal income tax counsel to Holdings and the
trust.
Except where we state otherwise, this summary deals only with preferred
securities held as capital assets by a holder who:
- - is a United States person (as defined below), and
- - purchases the preferred securities upon original issuance at their original
issue price.
A " United States person" is a holder who is one of the following:
- - a citizen or resident of the United States;
- - a corporation, partnership or other entity created or organized in or under
the laws of the United States or any political subdivision of the United
States;
- - an estate the income of which is subject to United States federal income
taxation regardless of its source; or
- - any trust that (1) is subject to the supervision of a court within the United
States and the control of one or more United States persons or (2) has a valid
election in effect under applicable United States Treasury regulations to be
treated as a United States person.
Your tax treatment may vary depending on your particular situation. This summary
does not address all the tax consequences that may be relevant to holders that
are subject to special tax treatment, such as:
- - banks;
- - real estate investment trusts;
- - regulated investment companies;
- - insurance companies;
- - dealers in securities or currencies;
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- - tax-exempt investors;
- - persons holding preferred securities as part of a hedging, conversion or
constructive sale transaction;
- - persons holding preferred securities as part of a straddle; or
- - foreign investors.
In addition, this summary does not include any description of the following,
either of which may be applicable to you:
- - any alternative minimum tax consequences; or
- - the tax laws of any state, local or foreign government.
This summary is based on the Internal Revenue Code of 1986, as amended (the
"Code"), the Treasury regulations promulgated under the Code and administrative
and judicial interpretations. These income tax laws, regulations and
interpretations, however, may change at any time. Any change could be
retroactive to the issuance date of the preferred securities.
The authorities on which this summary is based are subject to various
interpretations and the opinions of Simpson Thacher & Bartlett are not binding
on the Internal Revenue Service ("IRS") or the courts. Either the IRS or the
courts could disagree with the explanations or conclusions contained in this
summary. Nevertheless, Simpson Thacher & Bartlett has advised us that they
believe that the opinions expressed in this summary, if challenged, would be
sustained by a court with jurisdiction in a properly presented case.
YOU SHOULD CONSULT YOUR OWN TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES TO
YOU OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE PREFERRED SECURITIES,
INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN, AND OTHER TAX LAWS.
FOR A DISCUSSION OF THE POSSIBLE REDEMPTION OF THE PREFERRED SECURITIES UPON THE
OCCURRENCE OF A TAX EVENT SEE "CERTAIN TERMS OF THE PREFERRED
SECURITIES--SPECIAL EVENT REDEMPTION" ON PAGES S-15 AND S-16.
CLASSIFICATION OF THE TRUST
In connection with the issuance of the preferred securities, Simpson Thacher &
Bartlett is of the opinion that under current law and assuming full compliance
with the terms of the declaration of trust, and based upon certain facts and
assumptions contained in such opinion, the trust will be classified as a grantor
trust for United States federal income tax purposes and not as an association
taxable as a corporation. As a result, for United States federal income tax
purposes, you generally will be treated as owning an undivided beneficial
ownership interest in the subordinated debentures. Thus, you will be required to
include in your gross income your proportionate share of the interest income or
original issue discount that is paid or accrued on the subordinated debentures.
See "--Interest Income and Original Issue Discount" below.
CLASSIFICATION OF THE SUBORDINATED DEBENTURES
Holdings, the trust and you (by your acceptance of a beneficial ownership
interest in a preferred security) agree to treat the subordinated debentures as
indebtedness for all United States tax purposes. In connection with the issuance
of the subordinated debentures, Simpson Thacher & Bartlett is of the opinion
that, under current law and based on certain representations, facts and
assumptions set forth in such opinion, the subordinated debentures will be
classified as indebtedness for United States federal income tax purposes.
INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT
You will generally be taxed on the stated interest on the subordinated
debentures as ordinary income at the time it is paid or accrued in accordance
with your regular method of tax accounting. We anticipate that the subordinated
debentures will not be issued with an issue price that is less than their stated
redemption price at maturity. Thus, the subordinated debentures will not be
subject to the special original issue discount ("OID") rules, at least upon
initial issuance.
If, however, Holdings exercises its right to defer payments of interest on the
subordinated debentures, the subordinated debentures will become OID instruments
at such time. In such case, you will be subject to the special OID rules
described below. Once the subordinated debentures become OID instruments, they
will be taxed as OID instruments for as long as they remain outstanding.
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Under the OID economic accrual rules, the following occur:
- - you would accrue an amount of interest income each year that approximates the
stated interest payments called for under the terms of the subordinated
debentures using the constant-yield-to-maturity method of accrual described in
section 1272 of the Code;
- - any amount of OID included in your gross income (whether or not during a
deferral period) with respect to the preferred securities would increase your
tax basis in such preferred securities; and
- - the actual cash payments of interest you receive on the subordinated
debentures in respect of such accrued OID would reduce your tax basis in such
preferred securities.
The Treasury regulations dealing with OID have not yet been addressed in any
rulings or other interpretations by the IRS. It is possible that the IRS could
assert that the subordinated debentures were issued initially with OID. If the
IRS were successful, regardless of whether Holdings exercises its option to
defer payments of interest on such subordinated debentures, you would be subject
to the special OID rules described above.
If you are a corporate holder of preferred securities, you will not be entitled
to a dividends-received deduction with respect to any income you recognize with
respect to the preferred securities.
DISTRIBUTION OF SUBORDINATED DEBENTURES OR CASH UPON LIQUIDATION OF THE TRUST
As described under the caption "Certain Terms of the Preferred
Securities--Optional Liquidation of the Trust and Distribution of Subordinated
Debentures," on page S-17 the subordinated debentures held by the trust may be
distributed to you in exchange for your preferred securities when the trust is
liquidated. Under current law, this type of distribution would not be taxable.
Upon a distribution, you will receive your proportionate share of the
subordinated debentures previously held indirectly through the trust. Your
holding period and aggregate tax basis in the subordinated debentures will equal
the holding period and aggregate tax basis that you had in your preferred
securities before the distribution.
If the trust were treated as an association taxable as a corporation, a tax
event would occur. If Holdings elected to distribute the subordinated debentures
to you upon such event the distribution would likely be taxable to the trust and
to you. Holdings also could redeem the subordinated debentures and distribute
the resulting cash in liquidation of the trust. This distribution of cash would
be taxable as described below under "--Sales of Preferred Securities or
Redemption of Subordinated Debentures". Further, in other circumstances
described under "Certain Terms of the Preferred Securities--Special Event
Redemption" on pages S-15 and S-16, Holdings may redeem the subordinated
debentures and distribute cash in liquidation of the trust. This distribution of
cash would also be taxable as described below under "--Sales of Preferred
Securities or Redemption of Subordinated Debentures."
If you receive subordinated debentures in exchange for your preferred
securities, you would accrue interest in respect of the subordinated debentures
received from the trust in the manner described above under "--Interest Income
and Original Issue Discount" on pages S-23 and S-24.
SALES OF PREFERRED SECURITIES OR REDEMPTION OF SUBORDINATED DEBENTURES
If you sell your preferred securities or receive cash upon redemption of the
subordinated debentures, you will recognize gain or loss equal to the difference
between:
- - your amount realized on the sale or redemption; and
- - your adjusted tax basis in your preferred securities or subordinated
debentures.
Your gain or loss will be capital gain or loss except to the extent any amount
realized is treated as payment of accrued but unpaid interest (other than OID)
with respect to your proportionate share of the subordinated debentures required
to be included in income. The gain or loss will generally be a long-term capital
gain or loss if you have held your preferred securities for more than one year.
Long-term capital gains of individuals derived with respect to capital assets
held for more than one year are taxed at a maximum rate of 20%. The
deductibility of capital losses is subject to limitations.
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NON-UNITED STATES HOLDERS
The following discussion only applies to you if you are not a United States
person. As discussed above, the preferred securities will be treated as evidence
of indirect beneficial ownership interests in the subordinated debentures. See
"--Classification of the Trust" on page S-23. Thus, under present United States
federal income tax law, and subject to the discussion below concerning backup
withholding:
(1) no withholding of United States federal income tax will be required with
respect to the payment by Holdings or any paying agent of principal or interest
(which for purposes of this discussion includes any OID) to you on the preferred
securities (or the subordinated debentures) if you meet all of the following
requirements:
- you do not actually or constructively own 10% or more of the total combined
voting power of all classes of stock of Holdings entitled to vote within the
meaning of section 871(h)(3) of the Code and the regulations thereunder;
- you are not a controlled foreign corporation that is related to Holdings
through stock ownership;
- you are not a bank whose receipt of interest on the subordinated debentures
is described in section 881(c)(3)(A) of the Code; and
- you satisfy the statement requirement (described generally below) set forth
in section 871(h) and section 881(c) of the Code and the regulations
thereunder; and
(2) no withholding of United States federal income tax generally will be
required with respect to any gain you realize upon the sale or other disposition
of the preferred securities (or the subordinated debentures).
To satisfy the requirement referred to in (1) above, you, or a financial
institution holding the preferred securities on your behalf, must provide, in
accordance with specified procedures, to the trust or its paying agent, a
statement to the effect that you are not a United States person. Currently, you
can meet this requirement if one of the following occurs:
- - you provide your name and address, and certify, under penalties of perjury,
that you are not a United States person (this certification may be made on an
IRS Form W-8 (or successor form)); or
- - a financial institution holding the preferred securities on your behalf
certifies, under penalties of perjury, that:
- you provided it with a statement described above; and
- the financial institution furnishes a paying agent with a copy of the
statement.
Under final Treasury regulations (the "Final Regulations"), the statement
requirement referred to in (1) above may also be satisfied with other
documentary evidence for interest paid after December 31, 1999 with respect to
an offshore account or through certain foreign intermediaries.
If you cannot satisfy the requirements of the "portfolio interest" exception
described in (1) above, payments of premium, if any, and interest (including any
OID) made to you, will be subject to a 30% United States withholding tax unless
you provide Holdings or its paying agent, as the case may be, with one of the
following properly executed forms:
- - IRS Form 1001 (or successor form) claiming an exemption from, or a reduction
of, this withholding tax under the benefit of a tax treaty; or
- - IRS Form 4224 (or successor form) stating that interest paid on the preferred
securities (or the subordinated debentures) is not subject to this withholding
tax because it is effectively connected with your conduct of a trade or
business in the United States.
Under the Final Regulations, you will generally be required to provide IRS Form
W-8 in lieu of IRS Form 1001 and IRS Form 4224, although alternative
documentation may be applicable in certain situations.
If you are engaged in a trade or business in the United States and interest on
the preferred securities (or subordinated debentures) is effectively connected
with the conduct of your trade or business, you will be subject to United States
federal income tax on such interest on a net income basis in the same manner as
if you were a United States person. However, you will not be subject to
withholding described above.
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In addition, if you are a foreign corporation, you may be subject to a branch
profits tax equal to 30% (or lesser rate under an applicable tax treaty) of your
effectively connected earnings and profits for the taxable year, subject to
adjustments. For this purpose, such interest would be included in your earnings
and profits.
You will generally not be subject to United States federal income tax on any
gain you realized upon the sale or other disposition of the preferred securities
(or the subordinated debentures) unless:
- - the gain is effectively connected with your trade or business in the United
States; or
- - you are an individual and you are present in the United States for 183 days or
more in the taxable year of such sale, exchange or retirement and certain
other conditions are met.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Income on the preferred securities held of record by United States persons
(other than corporations and other exempt holders) will be reported annually to
such holders and to the IRS. Such income will be reported to you on IRS Form
1099, which should be mailed to the holders of record prior to January 31
following each calendar year.
"Backup withholding" at a rate of 31% will apply to payments of interest to
non-exempt United States persons unless you:
- - furnish your taxpayer identification number in the manner prescribed in
applicable Treasury regulations;
- - certify that such number is correct;
- - certify as to no loss of exemption from backup withholding; and
- - meet certain other conditions.
In general, no information reporting or backup withholding will be required with
respect to payments made by the trust or any paying agent to non-United States
persons if a statement described in (1) under "Non-United States Holders" on
page S-25 has been received and the payor does not have actual knowledge that
you are a United States person.
In addition, backup withholding and information reporting may apply to the
proceeds from disposition of preferred securities (or subordinated debentures)
within the United States or conducted through certain United States related
financial intermediaries unless the statement described in (1) under "Non-United
States Holders" on page S-25 has been received (and the payor does not have
actual knowledge that you are a United States person) or you otherwise establish
an exemption.
Any amounts withheld from you under the backup withholding rules generally will
be allowed as a refund or a credit against your United States federal income tax
liability, provided the required information is furnished to the IRS.
BOOK-ENTRY ISSUANCE
The preferred securities will be represented by one or more global securities
that will be deposited with and registered in the name of DTC or its nominee.
This means that the trust will not issue certificates to you for the preferred
securities. Each global security will be issued to DTC which will keep a
computerized record of its participants (for example, a broker) whose clients
have purchased the preferred securities. Each participant will then keep a
record of its clients. Unless it is exchanged in whole or in part for a
certificated security, a global security may not be transferred. However, DTC,
its nominees and their successors may transfer a global security as a whole to
one another.
Beneficial interests in a global security will be shown on, and transfers of the
global security will be made only through, records maintained by DTC and its
participants. DTC has provided the trust and Holdings with the following
information: 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 United States Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code and a
"clearing agency" registered under the provisions of Section 17A of the
Securities Exchange Act of 1934. DTC holds securities that its participants
("direct
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participants") deposit with DTC. DTC also records the settlements among direct
participants of securities transactions, such as transfers and pledges, in
deposited securities through computerized records for direct participants'
accounts. This eliminates the need to exchange certificates. Direct participants
include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations.
DTC's book-entry system is also used by other organizations such as securities
brokers and dealers, banks and trust companies that work through a direct
participant. The rules that apply to DTC and its participants are on file with
the SEC.
DTC is owned by a number of its direct participants and by the NYSE, the
American Stock Exchange, Inc. and the National Association of Securities
Dealers, Inc.
When you purchase preferred securities through the DTC system, the purchases
must be made by or through a direct participant, who will receive credit for the
preferred securities on DTC's records. Since you actually own the preferred
securities, you are the beneficial owner. Your ownership interest will only be
recorded on the direct (or indirect) participants' records. DTC has no knowledge
of your individual ownership of the preferred securities. DTC's records only
show the identity of the direct participants and the amount of the preferred
securities held by or through them. You will not receive a written confirmation
of your purchase or sale or any periodic account statement directly from DTC.
You should instead receive these from your direct (or indirect) participant. As
a result, the direct (or indirect) participants are responsible for keeping
accurate account of the holdings of their customers like you.
The property trustee will wire payments on the preferred securities to DTC's
nominee. Holdings, the trust and the property trustee will treat DTC's nominee
as the owner of each global security for all purposes. Accordingly, Holdings,
the trust, the property trustee and any paying agent will have no direct
responsibility or liability to pay amounts due on the global security to you or
any other beneficial owners in the global security.
Any redemption notices will be sent by Holdings and the trust directly to DTC,
who will in turn inform the direct participants (or the indirect participants),
who will then contact you as a beneficial holder. If less than all of the
preferred securities are being redeemed, DTC will proportionally allot the
amount of the interest of each direct participant to be redeemed.
It is DTC's current practice, upon receipt of any payment of distributions or
liquidation amount, to credit direct participants' accounts on the payment date
based on their holdings of beneficial interests in the global securities as
shown on DTC's records. In addition, it is DTC's current practice to assign any
consenting or voting rights to direct participants whose accounts are credited
with preferred securities on a record date, by using an omnibus proxy. Payments
by participants to owners of beneficial interests in the global securities, and
voting by participants, will be based on the customary practices between the
participants and owners of beneficial interests. However, payments will be the
responsibility of the participants and not of DTC, the property trustee,
Holdings or the trust.
Preferred securities represented by a global security will be exchangeable for
certificated securities with the same terms in authorized denominations only if:
- - DTC is unwilling or unable to continue as depositary or if DTC ceases to be a
clearing agency registered under applicable law and a successor depositary is
not appointed by the trust within 90 days; or
- - the trust decides to discontinue use of the system of book-entry transfer
through DTC (or any successor depositary).
If the book-entry only system is discontinued, the property trustee will keep
the registration books for the preferred securities at its corporate office and
follow the practice and procedures discussed immediately below. The trust does
not anticipate that it will discontinue use of book-entry transfer through DTC.
As long as the preferred securities are listed on the Luxembourg Stock Exchange,
the preferred securities will be accepted for clearance through a recognized
clearance system.
DTC's management is aware that some computer applications, systems and the like
for processing data that are dependent upon calendar dates, including dates
before, on, and after January 1, 2000, may encounter "Year 2000 problems." DTC
has informed its participants and other members of the financial community that
it has developed and is implementing a program so that its systems, as the same
relate to the timely payment of distributions (including principal and interest
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payments) to security holders, book-entry deliveries, and settlement of trades
within DTC, continue to function appropriately. This program includes a
technical assessment and a remediation plan, each of which is complete.
Additionally, DTC's plan includes a testing phase, which is expected to be
completed within appropriate time frames.
However, DTC's ability to perform properly its services is also dependent upon
other parties, including but not limited to issuers and their agents, as well as
third-party vendors from whom DTC licenses software and hardware, and third-
party vendors on whom DTC relies for information of the provision of services,
including telecommunications and electrical utility service providers, among
others. DTC has informed its participants and other members of the financial
community that it is contacting (and will continue to contact) third-party
vendors from whom DTC acquires services to: impress upon them the importance of
such service being Year 2000 compliant; and determine the extent of their
efforts for Year 2000 remediation (and, as appropriate, testing) of their
services. In addition, DTC is in the process of developing such contingency
plans as it deems appropriate.
EUROCLEAR AND CEDEL
Links have been established among DTC, Cedel and Euroclear, to facilitate the
initial issuance of the preferred securities and cross-market transfers of the
preferred securities associated with secondary market trading.
Although DTC, Cedel and Euroclear have agreed to the procedures provided below
in order to facilitate transfers of the preferred securities among their
participants, they are under no obligation to perform or continue to perform
such procedures and such procedures may be modified or discontinued at any time.
Cedel and Euroclear will hold interests on behalf of their participants through
customers' securities accounts in Cedel's and Euroclear's names on the books of
their respective depositaries (the "U.S. depositaries"), which in turn will hold
such interests in customers' securities accounts in the depositaries' names on
the books of DTC.
When preferred securities are to be transferred from the account of a DTC
participant to the account of a Cedel participant or a Euroclear participant,
the purchaser must send instructions to Cedel or Euroclear through a participant
at least one business day prior to settlement. Cedel or Euroclear, as the case
may be, will instruct the relevant U.S. depositary to receive the preferred
securities against payment. Payment will then be made by such U.S. depositary to
the DTC participant's account against delivery of the preferred securities.
After settlement has been completed, the preferred securities will be credited
to the respective clearing system and by the clearing system, in accordance with
its usual procedures, to the Cedel participant's or Euroclear participant's
account. Credit for the preferred securities will appear on the next day
(European time).
Because the settlement is taking place during New York business hours, DTC
participants can employ their usual procedures for sending preferred securities
to the relevant U.S. depositary for the benefit of Cedel participants or
Euroclear participants. The sale proceeds will be available to the DTC seller on
the settlement date. Thus, to the DTC participant, a cross market transaction
will settle no differently than a trade between two DTC participants.
Due to time zone differences in their favor, Cedel participants or Euroclear
participants may employ their customary procedures for transactions in which
preferred securities are to be transferred by the respective clearing system
through the relevant U.S. depositary to another DTC participant. The seller must
send instructions to Cedel or Euroclear through a participant at least one
business day prior to settlement. In these cases, Cedel or Euroclear will
instruct its U.S. depositary to credit the preferred securities to the DTC
participant's account against payment. The payment will then be reflected in the
account of the Cedel participant or Euroclear participant the following day, and
receipt of the cash proceeds in the Cedel participant's or Euroclear
participant's account will be back-valued to the value date (which would be the
preceding day, when settlement occurs in New York). If the Cedel participant or
Euroclear participant has a line of credit with its respective clearing system
and elects to draw on such line of credit in anticipation of receipt of the sale
proceeds in its account, the back-valuation may substantially reduce or offset
any overdraft charges incurred over the one-day period. If settlement is not
completed on the intended value date (i.e., the trade falls), receipt of the
cash proceeds in the Cedel participant's or Euroclear participant's account
would instead be valued as of the actual settlement date.
S-28
<PAGE>
ERISA CONSIDERATIONS
Each fiduciary of an employee benefit plan subject to Title I of ERISA, a plan
described in Section 4975 of the Code, including an individual retirement
arrangement or a Keogh plan, and any entity whose underlying assets include
"plan assets" by reason of any such employee benefit plan's or plan's investment
in such entity (each, a "Plan") should consider the fiduciary responsibility and
prohibited transaction provisions of ERISA and Section 4975 of the Code in the
context of the Plan's particular circumstances before authorizing an investment
in the preferred securities. Accordingly, such a fiduciary should consider,
among other factors, that each Plan investing in the preferred securities will
be deemed to have represented that the Plans's purchase and holdings of the
preferred securities is covered by one or more specified prohibited transaction
class exemptions. Plan fiduciaries should also consider whether the Plan's
investment in the preferred securities would satisfy the prudence and
diversification requirements of ERISA and would be consistent with the documents
and instruments governing their Plan.
Section 406 of ERISA and Section 4975 of the Code prohibit Plans from engaging
in certain transactions involving "plan assets" with persons who are "parties in
interest" under ERISA or "disqualified persons" under the Code ("Parties in
Interest") with respect to such a Plan. A violation of these "prohibited
transaction" rules may result in an excise tax, penalty or other liabilities
under ERISA and/or Section 4975 of the Code for such persons, unless exemptive
relief is available under an applicable statutory or administrative exemption.
Employee benefit plans that are governmental plans (as defined in Section 3(32)
of ERISA), certain church plans (as defined in Section 3(33) of ERISA or Section
4975(g)(2) of the Code) and foreign plans (as described in Section 4(b)(4) of
ERISA) are not subject to the requirements of ERISA or Section 4975 of the Code.
Under a regulation (the "Plan Assets Regulation") issued by the United States
Department of Labor (the "DOL"), the assets of the trust would be deemed to be
"plan assets" of a Plan for purposes of ERISA and Section 4975 of the Code if
"plan assets" of a Plan were used to acquire an equity interest in the trust and
no exception were applicable under the Plan Assets Regulation. An "equity
interest" is defined under the Plan Assets Regulation as any interest in an
entity other than an instrument which is treated as indebtedness under
applicable local law and which has no substantial equity features. Under one
such exception contained in the Plan Assets Regulation, the assets of the trust
would not be deemed to be "plan assets" of investing Plans if, immediately after
the most recent acquisition of any equity interest in the trust, less than 25%
of the value of each class of equity interests in the trust were held by Plans,
other employee benefit plans not subject to ERISA or Section 4975 of the Code
(such as governmental, church or foreign plans), and entities holding assets
deemed to be "plan assets" of any Plan (collectively, "Benefit Plan Investors").
No assurance can be given that the value of the preferred securities held by
Benefit Plan Investors will be less than 25% of the total value of such
preferred securities at the completion of the initial offering of the preferred
securities or thereafter, and no monitoring or other measures will be taken with
respect to the satisfaction of the conditions to this exception. All of the
common securities will be purchased and held by Holdings.
It is possible that the preferred securities may qualify as "publicly-offered
securities" under the Plan Assets Regulation. "Publicly-offered securities"
within the meaning of the Plan Assets Regulation are:
- - widely held (i.e., owned by more than 100 investors independent of Holdings
and of each other);
- - freely transferable; and
- - sold as part of an offering pursuant to an effective registration statement
under the Securities Act of 1933 and then timely registered under Section
12(b) or 12(g) of the Securities Exchange Act of 1934.
If the preferred securities are "publicly-offered securities," the underlying
assets of the trust would not be deemed to be "plan assets" of investing Plans.
The underwriters expect:
- - that the preferred securities will be held by at least 100 independent
investors at the conclusion of the offering of the preferred securities;
- - that there will be no restrictions imposed on the transfer of the preferred
securities; and
S-29
<PAGE>
- - that the preferred securities will be sold as part of an offering pursuant to
an effective registration statement under the Securities Act of 1933 and then
will be timely registered under the Securities Exchange Act of 1934.
There can be no assurance that this or any of the other exceptions set forth in
the Plan Assets Regulation will apply to the preferred securities, and, as a
result, under the terms of the Plan Assets Regulation, an investing Plan's
assets could be considered to include an undivided interest in the assets held
by the trust (including the subordinated debentures), and transactions by the
trust could be subject to the fiduciary responsibility provision of Title I of
ERISA.
Regardless of whether the assets of the trust are deemed to be "plan assets" of
Plans investing in the trust, as discussed above, the acquisition and holding of
the preferred securities with "plan assets" of a Plan could itself result in a
prohibited transaction. The DOL has issued five prohibited transaction class
exemptions ("PTCEs") that may provide exemptive relief for direct or indirect
prohibited transactions resulting from the purchase and/or holding of the
preferred securities by a Plan. These class exemptions are:
- - PTCE 96-23 (for certain transactions determined by "in-house asset managers");
- - PTCE 95-60 (for certain transactions involving insurance company general
accounts);
- - PTCE 91-38 (for certain transactions involving bank collective investment
funds);
- - PTCE 90-1 (for certain transactions involving insurance company pooled
separate accounts); and
- - PTCE 84-14 (for certain transactions determined by independent "qualified
professional asset managers").
Such class exemptions may not, however, apply to all of the transactions that
could be deemed prohibited transactions in connection with a Plan's investment
in the preferred securities.
Any purchaser of the preferred securities that is an insurance company using
assets of its general account should note that, based on the reasoning of the
United States Supreme Court set forth in JOHN HANCOCK MUTUAL LIFE INSURANCE
COMPANY V. HARRIS TRUST & SAVINGS BANK, 114 S. Ct. 517 (1993), an insurance
company's general account may be deemed to include assets of Plans investing in
such general account (e.g., through the purchase of an annuity contract).
On December 22, 1997, the DOL issued a proposed regulation (64 F.R. 66908) under
Section 401(c) of ERISA intended to provide guidance on which assets held by an
insurance company in its general account constitute "plan assets" in cases where
such insurer has issued, on or before December 31, 1998, policies or contracts
to or for the benefit of a Plan that are supported by assets of such insurer's
general account and when the underlying general account assets will not be
deemed to be assets of such Plan if the insurer satisfies the requirements of
such regulation (if adopted as proposed).
Section 401(c) of ERISA also provides for certain other temporary and
transitional rules concerning the application of the fiduciary responsibility
and prohibited transaction provisions of ERISA and Section 4975 of the Code to
assets of an insurer's general account that support insurance policies or
contracts issued by the insurer. The plan asset status of insurance company
separate accounts is unaffected by Section 401(c) of ERISA and the proposed
regulations thereunder. Any insurance company considering the use of its general
account assets to purchase preferred securities should consult with its counsel
concerning these and other matters affecting its purchase decision.
Because of ERISA's prohibitions and those of Section 4975 of the Code, discussed
above, the preferred securities, or any interest therein, should not be
purchased or held by any Plan or any person investing "plan assets" of any Plan,
unless such purchase and holding is covered by the exemptive relief available
under PTCE 96-23, 95-60, 91-38, 90-1 or 84-14 (or some other applicable class or
individual exemption). Accordingly, each purchaser or holder of the preferred
securities or any interest therein will be deemed to have represented by its
purchase and holding thereof that either:
- - it is not a Plan and no part of the assets to be used by it to purchase and/or
hold such preferred securities or any interest therein constitutes "plan
assets" of any Plan; or
- - it is itself a Plan, or is purchasing or holding the preferred securites or an
interest therein on behalf of or with "plan assets" of one or more Plans, and
each such purchase and holding of such securities satisfies the requirements
of, and
S-30
<PAGE>
is entitled to full exemptive relief under, PTCE 96-23, 95-60, 91-38, 90-1 or
84-14 (or some other applicable class or individual exemption).
Although, as noted above, governmental plans are not subject to ERISA, including
the prohibited transaction provisions thereof, or of Section 4975 of the Code,
state laws or regulations governing the investment and management of the assets
of such plans may contain fiduciary and prohibited transaction provisions
similar to those under ERISA and Section 4975 of the Code discussed above.
Similarly, fiduciaries of other plans not subject to ERISA may be subject to
other legal restrictions under applicable laws that are similar to ERISA.
Accordingly, fiduciaries of governmental plans or other plans not subject to
ERISA, in consultation with their advisors, should consider the impact of their
respective state laws on their investment in preferred securities, and the
considerations discussed above, to the extent applicable.
Due to the complexity of the fiduciary responsibility and prohibited transaction
rules described above and the penalties that may be imposed upon persons
involved in non-exempt prohibited transactions, it is particularly important
that fiduciaries or other persons considering purchasing the preferred
securities on behalf of or with "plan assets" of any Plan consult with their
counsel, prior to any such purchase, with respect to the potential applicability
of ERISA and Section 4975 of the Code to such investment and whether any
exemption would be applicable and determine on their own whether all conditions
of such exemption or exemptions have been satisfied such that the acquisition
and holding of preferred securities by the purchaser Plan are entitled to full
exemption relief thereunder.
S-31
<PAGE>
UNDERWRITING
GENERAL
Based on the terms and conditions of an underwriting agreement dated the date of
this prospectus supplement, the trust has agreed to sell to each of the
underwriters named below, and each of the underwriters, for whom Lehman Brothers
Inc., Bear, Stearns & Co. Inc., Goldman, Sachs & Co., Merrill Lynch, Pierce,
Fenner & Smith Incorporated, Morgan Stanley & Co. Incorporated, PaineWebber
Incorporated, Prudential Securities Incorporated and Salomon Smith Barney Inc.
are acting as the representatives, has severally agreed to purchase from the
trust, the number of preferred securities set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
PREFERRED
UNDERWRITERS SECURITIES
- --------------------------------------------------------------------------------------------- -------------------
<S> <C>
Lehman Brothers Inc.......................................................................... 1,437,750
Bear, Stearns & Co. Inc...................................................................... 1,437,750
Goldman, Sachs & Co.......................................................................... 1,437,750
Merrill, Lynch, Pierce, Fenner & Smith
Incorporated...................................................................... 1,437,750
Morgan Stanley & Co. Incorporated............................................................ 1,437,750
PaineWebber Incorporated..................................................................... 1,437,750
Prudential Securities Incorporated........................................................... 1,437,750
Salomon Smith Barney Inc..................................................................... 1,437,750
ABN AMRO Incorporated........................................................................ 84,000
BT Alex. Brown Incorporated.................................................................. 84,000
Chase Securities Inc......................................................................... 84,000
CIBC Oppenheimer Corp........................................................................ 84,000
Countrywide Securities Corporation........................................................... 84,000
Dresdner Kleinwort Benson North America LLC.................................................. 84,000
A.G. Edwards & Sons, Inc..................................................................... 84,000
EVEREN Securities, Inc....................................................................... 84,000
First Chicago Capital Markets, Inc........................................................... 84,000
First Security Van Kasper.................................................................... 84,000
HSBC Securities, Inc......................................................................... 84,000
ING Baring Furman Selz LLC................................................................... 84,000
Legg Mason Wood Walker, Incorporated......................................................... 84,000
NationsBanc Montgomery Securities LLC........................................................ 84,000
SG Cowen Securities Corporation.............................................................. 84,000
U.S. Bancorp Piper Jaffray Inc............................................................... 84,000
U.S. Clearing Corp........................................................................... 84,000
Warburg Dillon Read LLC...................................................................... 84,000
Advest, Inc.................................................................................. 42,000
BZW Securities Inc........................................................................... 42,000
Robert W. Baird & Co. Incorporated........................................................... 42,000
Blaylock & Partners, L.P..................................................................... 42,000
J.C. Bradford & Co........................................................................... 42,000
Commerzbank Capital Markets Corp............................................................. 42,000
Craigie Incorporated......................................................................... 42,000
Crowell, Weedon & Co......................................................................... 42,000
Dain Rauscher Incorporated................................................................... 42,000
Davenport & Company LLC...................................................................... 42,000
Fahnestock & Co. Inc......................................................................... 42,000
Fifth Third Securities, Inc.................................................................. 42,000
First Albany Corporation..................................................................... 42,000
First Union Capital Markets, a division of Wheat First Securities, Inc....................... 42,000
Gibraltar Securities Co...................................................................... 42,000
Gruntal & Co., L.L.C......................................................................... 42,000
JW Genesis Securities, Inc................................................................... 42,000
J.J.B. Hilliard, W.L. Lyons, Inc............................................................. 42,000
Janney Montgomery Scott Inc.................................................................. 42,000
</TABLE>
S-32
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
PREFERRED
UNDERWRITERS SECURITIES
- --------------------------------------------------------------------------------------------- -------------------
<S> <C>
McDonald Investments Inc., a KeyCorp Company................................................. 42,000
Mesirow Financial, Inc....................................................................... 42,000
Morgan Keegan & Company, Inc................................................................. 42,000
Olde Discount Corporation.................................................................... 42,000
Parker/Hunter Incorporated................................................................... 42,000
Raymond James & Associates, Inc.............................................................. 42,000
The Robinson-Humphrey Company, LLC........................................................... 42,000
Scott & Stringfellow, Inc.................................................................... 42,000
Stephens Inc................................................................................. 42,000
Sterne, Agee & Leach, Inc.................................................................... 42,000
TD Securities (USA) Inc...................................................................... 42,000
Tucker Anthony Incorporated.................................................................. 42,000
Wachovia Securities, Inc..................................................................... 42,000
The Williams Capital Group, L.P.............................................................. 42,000
-------------------
Total.................................................................................. 14,400,000
-------------------
-------------------
</TABLE>
The trust has granted the underwriters an option to purchase an aggregate of up
to an additional 1,480,000 preferred securities solely to cover over-allotments,
at the initial offering price to the public. Any or all of such options may be
exercised at any time until 30 days after the date of the underwriting
agreement. To the extent that the option is exercised, the underwriters will be
committed, subject to certain conditions, to purchase a number of the additional
preferred securities proportionate to such underwriter's initial commitment as
indicated in the preceding table.
The underwriters are obligated to purchase all of the preferred securities, if
any preferred securities are purchased.
Holdings has agreed with the underwriters to indemnify them against certain
civil liabilities, including liabilities under the Securities Act of 1933, or to
contribute with respect to payments which the underwriters may be required to
make.
The underwriters have in the past and may in the future engage in transactions
with, or perform services for, Holdings or its subsidiaries in the ordinary
course of their businesses.
COMMISSIONS AND DISCOUNTS
The underwriters will offer the preferred securities directly to the public at
$25 per preferred security. The underwriters may also offer the preferred
securities to certain securities dealers at the above mentioned offering price
less a concession of $0.50 per preferred security (or $0.30 per preferred
security with respect to sales to certain institutions). The underwriters may
allow, and such dealers may reallow, a discount not in excess of $0.35 per
preferred security to certain brokers and dealers. After the initial public
offering, the public offering price, concession and discount may be changed.
Since the proceeds from the sale of the preferred securities will be used to
purchase the subordinated debentures, Holdings has agreed to pay to the
underwriters an underwriting commission of $0.7875 per preferred security (a
total of $11,340,000 or $12,505,500 if the over-allotment option is exercised in
full); except that for sales to of preferred securities to certain institutions
the underwriting commission will be $0.50 per preferred security. Therefore, to
the extent of such sales, the actual amount of commission will be less than the
aggregate amount specified in the preceding sentence.
Holdings will pay certain expenses, expected to be approximately $300,000
associated with the offer and sale of the preferred securities.
NEW YORK AND LUXEMBOURG STOCK EXCHANGE LISTINGS
Before this offering, there has been no established public trading market for
the preferred securities. Applications have been filed with the NYSE and the
Luxembourg Stock Exchange for listing of the purchased securities. If listed,
trading of the preferred securities is expected to commence on each exchange
within 30 days of the issuance of the preferred securities. In order to meet all
of the requirements for listing the preferred securities on the NYSE, the
underwriters have agreed to sell the preferred securities to a minimum of 400
beneficial holders. The representatives have advised Holdings that they intend
to make a market in the preferred securities prior to the commencement of
trading on
S-33
<PAGE>
the NYSE and the Luxembourg Stock Exchange. However, the representatives are not
obligated to do so and may discontinue market making at any time without notice.
We can not give any assurance about the liquidity of the trading market for the
preferred securities.
NO SALES OF SIMILAR SECURITIES
Holdings and the trust have agreed that for 30 business days after the date of
this prospectus supplement they will not directly or indirectly offer, sell,
offer to sell, grant any option for the sale of or otherwise dispose of any
preferred securities or subordinated debentures or any securities convertible or
exchangeable into, or exercisable for preferred securities or subordinated
debentures, or any debt securities substantially similar to subordinated
debentures or any equity securities substantially similar to the preferred
securities (except for the preferred securities and subordinated debentures
described in this prospectus supplement) without the prior written consent of
Lehman Brothers Inc.
CONFIRMATION TO DISCRETIONARY ACCOUNTS NOT PERMITTED
The underwriters may not confirm sales to any accounts over which they exercise
discretionary activity without the prior approval of the customer.
PRICE STABILIZATION AND SHORT POSITIONS
In connection with the sale of the preferred securities, SEC rules permit the
underwriters to engage in transactions that stabilize the price of the preferred
securities. These transactions may include purchases for the purpose of fixing
or maintaining the price of the preferred securities.
The underwriters may create a short position in the preferred securities in
connection with the offering. That means they may sell a larger number of the
preferred securities than is shown on the cover page of this prospectus
supplement. If they create a short position, the underwriters may purchase
preferred securities in the open market to reduce the short position.
If the underwriters purchase the preferred securities to stabilize the price or
to reduce their short position, the price of the preferred securities could be
higher than it might be if they had not made such purchases. The underwriters
make no representation or prediction about any effect that the purchases may
have on the price of the preferred securities.
The underwriters may suspend any of these activities at any time.
The representatives of the underwriters may also impose a penalty bid on certain
underwriters and selling group members. This means that if the representatives
purchase preferred securities in the open market to reduce the underwriters'
short position or to stabilize the price of the preferred securities, they may
reclaim the amount of the selling concession from the underwriters or selling
group members who sold those securities as part of this offering.
UNITED KINGDOM SELLING RESTRICTIONS
Each underwriter has represented and agreed that (i) it has not offered or sold
and prior to the date six months after the date of issue of the preferred
securities will not offer or sell preferred securities in the United Kingdom
except to persons whose ordinary activities involve them in acquiring, holding,
managing or disposing of investments (as principal or agent) for the purposes of
their businesses or otherwise in circumstances which have not resulted and will
not result in an offer to the public in the United Kingdom within the meaning of
the public offers of Securities Regulations 1995; (ii) it has complied and will
comply with all applicable provisions of the Financial Services Act 1986 with
respect to anything done by it in relation to the preferred securities in, from
or otherwise involving the United Kingdom; and (iii) it has only issued or
passed on, and will only issue or pass on, in the United Kingdom any document
received by it in connection with the issue of the preferred securities to a
person who is of a kind described in Article 11(3) of the Financial Services Act
1986 (Investment Advertisement) (Exemptions) Order 1996 or is a person to whom
the document may otherwise lawfully be issued or passed on.
NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC.
The underwriting arrangements for this offering comply with the requirements of
Rule 2720 of the NASD regarding an NASD member firm underwriting securities of
its affiliate.
S-34
<PAGE>
GENERAL INFORMATION
Application has been made to list the preferred securities on the Luxembourg
Stock Exchange. For purposes of the Luxembourg listing, the preferred securities
will be considered debt securities, will be listed under the title "ordinary
debt securities" and will be priced as a percentage of their liquidation amount.
In connection with the Luxembourg listing application, the Certificate of
Incorporation and the By-Laws of Holdings, the certificate of trust, the
declaration of trust and a legal notice relating to the issuance of the
preferred securities have been deposited prior to listing with GREFFIER EN CHEF
DU TRIBUNAL D'ARRONDISSEMENT DE ET A LUXEMBOURG, where copies thereof may be
obtained upon request. Copies of the above documents together with this
prospectus supplement and the attached prospectus, the subordinated indenture
and the guarantee and Holdings' current annual and quarterly reports, as well as
all future annual reports and quarterly reports, so long as any of the preferred
securities are outstanding, will be made available for inspection at the main
office of Kredietbank S.A Luxembourg, in Luxembourg. Kredietbank S.A. in
Luxembourg will act as intermediary between the Luxembourg Stock Exchange and
Holdings and the holders of the preferred securities for so long as the
preferred securities are in global form. In addition, copies of the annual
reports and quarterly reports of Holdings may be obtained free of charge at such
office.
Except as disclosed or contemplated herein or in the attached prospectus
(including the documents incorporated therein by reference), there has been no
material adverse change in the financial position of Holdings since February 28,
1999.
The independent auditors of Holdings are Ernst & Young LLP, New York, New York.
Neither Holdings nor any of its subsidiaries is involved in litigation,
arbitration, or administrative proceedings relating to claims or amounts that
are material in the context of the issue of the preferred securities. Holdings
is not aware of any such litigation, arbitration, or administrative proceedings
pending or threatened.
Resolutions relating to the issue and sale of the preferred securities were
adopted by Holdings Board of Directors on April 6, 1998 and April 15, 1999.
The preferred securities have been accepted for clearance through Euroclear and
Cedelbank and have been assigned Common Code No. 9688773, International Security
Identification Number (ISIN) US52518G2093 and CUSIP No. 52518G209.
S-35
<PAGE>
PROSPECTUS
LEHMAN BROTHERS HOLDINGS INC.
DEBT SECURITIES
PREFERRED STOCK
DEPOSITARY SHARES
-----------------
LEHMAN BROTHERS HOLDINGS CAPITAL TRUST I
LEHMAN BROTHERS HOLDINGS CAPITAL TRUST II
LEHMAN BROTHERS HOLDINGS CAPITAL TRUST III
TRUST PREFERRED SECURITIES
FULLY AND UNCONDITIONALLY GUARANTEED, TO THE EXTENT SET FORTH HEREIN, BY
LEHMAN BROTHERS HOLDINGS INC.
------------
Lehman Brothers Holdings Inc. ("Holdings") may offer from time to time (i)
unsecured debt securities (the "Debt
Securities") consisting of debentures, notes and/or other evidences of
indebtedness, or (ii) shares of preferred stock, par value $1.00 per share (the
"Offered Preferred Stock"), which may be issued in the form of depositary shares
evidenced by depositary receipts (the "Depositary Shares") in one or more
series, in each case at prices and on terms to be determined at the time of
sale.
Lehman Brothers Holdings Capital Trust I, Lehman Brothers Holdings Capital
Trust II and Lehman Brothers Holdings Capital Trust III (each, an "LBH Trust"
and together, the "LBH Trusts"), each a statutory business trust formed under
the laws of the State of Delaware, may offer from time to time, in each case at
prices and on terms to be determined at the time of sale, trust preferred
securities, representing undivided beneficial ownership interests in the assets
of the respective LBH Trust ("Preferred Securities") with the payment of
periodic cash distributions ("Distributions") and payments on liquidation,
redemption or otherwise of such Preferred Securities guaranteed (each a
"Guarantee" and together, the "Guarantees", and together with the Debt
Securities, the Offered Preferred Stock, the Depositary Shares and the Preferred
Securities, the "Securities") on a subordinated basis by Holdings to the extent
described herein. Holdings' obligations under the Guarantees will rank on a
parity with the most senior preferred or preference stock now or hereafter
issued by Holdings. Subordinated Debt (as defined herein) may be issued and sold
from time to time in one or more series by Holdings to an LBH Trust, or a
trustee of such trust, in connection with the investment of the proceeds from
the offering of Preferred Securities and Common Securities (as defined herein)
of such LBH Trust. Subordinated Debt purchased by an LBH Trust may be
subsequently distributed pro rata to holders of Preferred Securities and Common
Securities in connection with the dissolution of such LBH Trust upon the
occurrence of certain events as may be described in an accompanying Prospectus
Supplement. Each Guarantee, when taken together with Holdings' obligations under
the related Subordinated Debt, the Subordinated Indenture (as defined herein)
and the Declaration (as defined herein) of the related LBH Trust, including
Holdings' obligations to pay costs, expenses, debts and liabilities of such LBH
Trust (other than with respect to the Preferred Securities and the Common
Securities of such LBH Trust), will provide a full and unconditional guarantee
on a subordinated basis by Holdings of payments due on such Preferred
Securities.
The aggregate initial public offering price of all Securities shall not
exceed $2,026,520,712 (or, if any Securities are issued (i) with an initial
offering price denominated in a foreign currency or currency unit, such amount
as shall result in aggregate gross proceeds equivalent to $2,026,520,712 at the
time of initial offering or (ii) at an original issue discount, such greater
amount as shall result in aggregate gross proceeds of $2,026,520,712).
(COVER CONTINUED ON NEXT PAGE)
------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
------------------------
This Prospectus may not be used to consummate sales of Securities unless
accompanied or, to the extent permitted by applicable law, preceded by a
Prospectus Supplement.
The Securities will be sold either through underwriters, dealers or agents,
or directly by Holdings or any of the LBH Trusts. The applicable Prospectus
Supplement sets forth the names of any underwriters or agents (which may include
Lehman Brothers Inc., a subsidiary of Holdings and an affiliate of the LBH
Trusts ("Lehman Brothers")) involved in the sale of the Securities in respect of
which this Prospectus is being delivered, the proposed amounts or number of
shares, if any, to be purchased by underwriters and the compensation, if any, of
such underwriters or agents.
This Prospectus together with the applicable Prospectus Supplement may also
be used by Lehman Brothers in connection with offers and sales of Securities
related to market-making transactions, by and through Lehman Brothers, at
negotiated prices related to prevailing market prices at the time of sale or
otherwise. Lehman Brothers may act as principal or agent in such transactions.
------------------------
March 23, 1999
<PAGE>
(CONTINUED FROM PRIOR PAGE)
Specific terms of the Securities in respect of which this Prospectus is
being delivered will be set forth in an applicable Prospectus Supplement
("Prospectus Supplement"), together with the terms of the offering of the
Securities, the initial offering price, the net proceeds to Holdings or an LBH
Trust, as applicable, from the sale thereof and any listing on a securities
exchange. The Prospectus Supplement will also set forth, among other matters,
the following with respect to the particular Securities: (i) in the case of Debt
Securities, the title, priority, aggregate principal amount, the currency or
currency unit for which the Debt Securities may be purchased, the currency or
currency unit in which the principal and interest, if any, is payable, the rate
(or method of calculation) and time of payment of interest, if any, authorized
denominations, maturity, any redemption or sinking fund provisions and any
conversion or exchange rights, (ii) in the case of Offered Preferred Stock, the
designation, number of shares, liquidation preference, dividend rate (or method
of calculation thereof), dates on which dividends shall be payable and dates
from which dividends shall accrue, any redemption or sinking fund provisions and
any conversion or exchange rights and whether interests in the Offered Preferred
Stock will be represented by Depositary Shares and (iii) in the case of
Preferred Securities, the designation, number of securities, liquidation
preference per security, initial public offering price, any listing on a
securities exchange, distribution rate (or method of calculation thereof), dates
on which Distributions shall be payable and dates from which Distributions shall
accrue, any voting rights, any redemption or sinking fund provisions, any other
rights, preferences, privileges, limitations or restrictions relating to the
Preferred Securities and the terms upon which the proceeds of the sale of the
Preferred Securities shall be used to purchase a specific series of Subordinated
Debt.
AVAILABLE INFORMATION
Holdings is subject to the informational reporting requirements of the
Securities Exchange Act of 1934 (the "Exchange Act") and in accordance therewith
files reports and other information with the Securities and Exchange Commission
(the "SEC"). Such reports and information may be inspected and copied at the
public reference facilities maintained by the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the following Regional Offices of the SEC: New
York Regional Office, 7 World Trade Center, New York, New York 10048; and
Chicago Regional Office, Suite 1400, 500 W. Madison Street, Chicago, Illinois
60661-2511; and copies of such material can be obtained from the Public
Reference Section of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. The SEC also maintains a Web site at http://www.sec.gov that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the SEC. Holdings' Common
Stock is listed on the New York Stock Exchange, Inc. (the "NYSE") and the
Pacific Stock Exchange Inc. (the "PSE"). Two series of depositary shares are
listed on the NYSE: one series with each depository share representing 1/10th of
a share of Holdings' 5.94% Cumulative Preferred Stock, Series C, and one series
with each depository share representing 1/100th of a share of Holdings' 5.67%
Cumulative Preferred Stock, Series D. Lehman Brothers Holdings Capital Trust I
8.00% Preferred Securities, Series I are also listed on the NYSE as are
Holdings' 8 3/4% Notes Due 2002 and 8.30% Quarterly Income Capital Securities
Due December 31, 2035. Holdings' Global Telecommunications Stock Upside Note
Securities(SM) Due 2000 and 5% Cisco Systems Yield Enhanced Equity Linked Debt
Securities Due 2001 are listed on the American Stock Exchange, Inc. (the "ASE").
Reports and other information concerning Holdings may also be inspected at the
offices of the NYSE at 20 Broad Street, New York, New York 10005, at the offices
of the ASE, 86 Trinity Place, New York, New York 10006 and at the offices of the
PSE, 301 Pine Street, San Francisco, California 94104.
Holdings and the LBH Trusts have filed with the SEC a registration statement
on Form S-3 (herein, together with all amendments and exhibits, referred to as
the "Registration Statement") under the Securities Act of 1933 (the "Securities
Act"). This Prospectus does not contain all of the information set
2
<PAGE>
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the SEC. For further information,
reference is hereby made to the Registration Statement.
No separate financial statements of the LBH Trusts have been included or
incorporated by reference herein. Holdings does not believe that such financial
statements would be material to holders of the Preferred Securities because (i)
all of the voting securities of the LBH Trusts will be owned, directly or
indirectly, by Holdings, a reporting company under the Exchange Act, (ii) the
LBH Trusts have no independent operations but exist for the sole purpose of
issuing securities representing undivided beneficial ownership interests in
their assets and investing the proceeds thereof in Subordinated Debt issued by
Holdings and (iii) the obligations of the LBH Trusts under the Preferred
Securities are guaranteed by Holdings to the extent described herein. See
"Description of Subordinated Debt" and "Description of Guarantees."
The LBH Trusts are not currently subject to the informational reporting
requirements of the Exchange Act. The LBH Trusts will become subject to such
requirements upon the effectiveness of the Registration Statement, although they
intend to seek and expect to receive exemptions therefrom.
------------------------
DOCUMENTS INCORPORATED BY REFERENCE
The following documents previously filed by Holdings with the SEC pursuant
to the Exchange Act are hereby incorporated by reference in this Prospectus:
(1) Holdings' Annual Report on Form 10-K for the fiscal year ended
November 30, 1998, filed with the SEC on March 5, 1999; and
(2) Holdings' Current Reports on Form 8-K, filed with the SEC on January
7, 1999, January 27, 1999 and March 19, 1999.
Each document filed by Holdings pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering of the Securities offered by an applicable
Prospectus Supplement shall be deemed to be incorporated by reference into this
Prospectus from the date of filing of such document. Any statement contained in
a document incorporated or deemed to be incorporated by reference herein shall
be deemed to be modified or superseded for purposes of the Registration
Statement and this Prospectus to the extent that a statement contained herein,
in an applicable Prospectus Supplement or in any subsequently filed document
which also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of the
Registration Statement or this Prospectus.
Holdings will provide without charge to each person, including any
beneficial owner of any of the Securities, to whom a copy of this Prospectus is
delivered, upon the written or oral request of any such person, a copy of any or
all of the documents which are incorporated herein by reference, other than
exhibits to such documents (unless such exhibits are specifically incorporated
by reference into such documents). Requests should be directed to the
Controller's Office, Lehman Brothers Holdings Inc., 3 World Financial Center,
8th Floor, New York, New York 10285 (telephone (212) 526-0660).
3
<PAGE>
THE COMPANY
Lehman Brothers Holdings Inc. (together with its consolidated subsidiaries,
hereinafter referred to as the "Company" unless the context otherwise requires)
is one of the leading global investment banks serving institutional, corporate,
government and high net worth individual clients and customers. The Company's
worldwide headquarters in New York and regional headquarters in London and Tokyo
are complemented by offices in additional locations in the United States,
Europe, the Middle East, Latin America and the Asia Pacific region.
The Company's business includes capital raising for clients through
securities underwriting and direct placements; corporate finance and strategic
advisory services; merchant banking; securities sales and trading; asset
management; research; and the trading of foreign exchange, derivative products
and certain commodities. The Company acts as a market marker in all major equity
and fixed income products in both the domestic and international markets. The
Company is a member of all principal securities and commodities exchanges in the
United States, as well as the National Association of Securities Dealers, Inc.
("NASD"), and holds memberships or associate memberships on several principal
international securities and commodities exchanges, including the London, Tokyo,
Hong Kong, Frankfurt and Milan stock exchanges.
Holdings was incorporated in Delaware on December 29, 1983. Holdings'
principal executive offices are located at 3 World Financial Center, New York,
New York 10285 (telephone (212) 526-7000).
THE LBH TRUSTS
Each of the LBH Trusts is a statutory business trust formed under the
Delaware Business Trust Act, as amended (the "Trust Act"), pursuant to (i) a
declaration of trust, dated as of January 16, 1998 executed by Holdings, as
sponsor (the "Sponsor"), and the trustees of such LBH Trust and (ii) a
certificate of trust, dated as of January 16, 1998, filed with the Secretary of
State of the State of Delaware. Each such declaration will be amended and
restated in its entirety (as so amended and restated, each a "Declaration")
substantially in the form filed as an exhibit to the Registration Statement of
which this Prospectus forms a part. Holdings will acquire common securities
representing undivided beneficial ownership interests in the assets of each LBH
Trust (the "Common Securities," and together with the Preferred Securities, the
"Trust Securities") in an aggregate liquidation amount equal to at least 3% of
the total capital of such LBH Trust, at the same time as the Preferred
Securities are sold. Each LBH Trust will use all the proceeds derived from the
issuance of its Trust Securities to purchase Subordinated Debt and, accordingly,
the assets of each LBH Trust will consist solely of Subordinated Debt. Each LBH
Trust exists for the exclusive purposes of (i) issuing and selling the Trust
Securities, (ii) investing the gross proceeds from such sales in Subordinated
Debt and (iii) engaging in only those other activities necessary or incidental
thereto.
Each LBH Trust's business and affairs will be conducted by the trustees of
such LBH Trust (the "LBH Trustees") appointed by Holdings as holder of all the
Common Securities. Pursuant to the Declaration, there will initially be five
trustees (the "Trustees") for each LBH Trust. For each LBH Trust, three of the
LBH Trustees (the "Regular Trustees") will be individuals who are employees or
officers of or who are affiliated with Holdings. An additional trustee will be a
financial institution that is unaffiliated with Holdings, has a combined capital
and surplus of at least $50,000,000 and is subject to supervision or examination
by federal or state authorities (the "Property Trustee"). Such trustee, or a
fifth trustee, must be an entity that maintains its principal place of business
in the State of Delaware (the "Delaware Trustee"). Initially for each LBH Trust,
The Chase Manhattan Bank will act as Property Trustee and Chase Manhattan Bank
Delaware will act as Delaware Trustee, in each case, until removed or replaced
by Holdings as the holder of the Common Securities.
4
<PAGE>
The Property Trustee will hold title to the applicable Subordinated Debt for
the benefit of the holders of the Trust Securities and, as the holder of
Subordinated Debt, the Property Trustee will have the power to exercise all
rights, powers and privileges of a holder of Subordinated Debt under the
Subordinated Indenture. In addition, the Property Trustee will maintain
exclusive control of a segregated non-interest bearing bank account (the
"Property Account") to hold all payments made in respect of Subordinated Debt
for the benefit of the holders of the Trust Securities. Holdings, as the holder
of all the Common Securities, will have the right to appoint, remove or replace
any of the LBH Trustees and to increase or decrease the number of LBH Trustees,
provided that the number of LBH Trustees will be at least three; provided
further that at least one LBH Trustee will be a Delaware Trustee, at least one
LBH Trustee will be the Property Trustee and at least one LBH Trustee will be a
Regular Trustee. Holdings, as issuer of the Subordinated Debt to be held by the
LBH Trusts, will pay all fees and expenses related to the organization and
operations of the LBH Trusts (including any taxes, duties, assessments or
governmental charges of whatever nature (other than United States withholding
taxes) imposed by the United States or any other domestic taxing authority upon
the LBH Trusts) and the offering of the Trust Securities and be responsible for
all debts and obligations of the LBH Trusts (other than with respect to the
Trust Securities).
For each LBH Trust, for so long as the Preferred Securities of such LBH
Trust remain outstanding, Holdings will covenant, among other things, to
maintain 100% ownership of the Common Securities of such LBH Trust, to cause
such LBH Trust to remain a statutory business trust and to use its commercially
reasonable efforts to ensure that such LBH Trust will not be an "investment
company" for purposes of the Investment Company Act of 1940 (the "Investment
Company Act"). See "Description of Debt Securities-- Certain Provisions
Applicable to LBH Trusts."
The rights of the holders of the Preferred Securities of an LBH Trust,
including economic rights, rights to information and voting rights, are set
forth in the Declaration of such LBH Trust and the Trust Indenture Act. See
"Description of Preferred Securities." Declarations and Guarantees also
incorporate by reference the terms of the Trust Indenture Act.
The office of the Delaware Trustee for each LBH Trust is Chase Manhattan
Bank Delaware, 1201 Market Street, Wilmington, Delaware 19802. The location of
the principal executive office of each LBH Trust is c/o Lehman Brothers Holdings
Inc., 3 World Financial Center, New York, New York 10285 (telephone number (212)
526-7000).
USE OF PROCEEDS
Except as otherwise may be set forth in an applicable Prospectus Supplement
accompanying this Prospectus, Holdings intends to apply the net proceeds from
the sale of Subordinated Debt to the LBH Trusts, and the net proceeds from the
sale of any other Debt Securities, Preferred Stock or Depositary Shares, for
general corporate purposes. Each LBH Trust will invest all of its net proceeds
from the sale of any Preferred Securities in Subordinated Debt.
5
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to fixed charges of the
Company for the eleven months ended November 30, 1994 and the years ended
November 30, 1995, 1996, 1997 and 1998:
<TABLE>
<CAPTION>
ELEVEN MONTHS
ENDED YEAR ENDED NOVEMBER 30
NOVEMBER 30, --------------------------------------------------------------------
1994 1995 1996 1997 1998
----------------- --------------- --------------- --------------- -----------------
<S> <C> <C> <C> <C> <C>
1.03 1.03 1.06 1.07 1.07
</TABLE>
In computing the ratio of earnings to fixed charges, "earnings" consist of
earnings from continuing operations before income taxes and fixed charges.
"Fixed charges" consist principally of interest expense and one-third of office
rentals and one-fifth of equipment rentals, which are deemed to be
representative of the interest factor.
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
The following table sets forth the ratio of earnings to combined fixed
charges and preferred stock dividends of the Company for the eleven months ended
November 30, 1994 and the years ended November 30, 1995, 1996, 1997 and 1998:
<TABLE>
<CAPTION>
ELEVEN MONTHS
ENDED YEAR ENDED NOVEMBER 30
NOVEMBER 30, --------------------------------------------------------------------
1994 1995 1996 1997 1998
----------------- --------------- --------------- --------------- -----------------
<S> <C> <C> <C> <C> <C>
1.02 1.03 1.05 1.06 1.06
</TABLE>
In computing the ratio of earnings to combined fixed charges and preferred
stock dividends, "earnings" consist of earnings from continuing operations
before income taxes and fixed charges. "Fixed charges" consist principally of
interest expense and one-third of office rentals and one-fifth of equipment
rentals, which are deemed to be representative of the interest factor.
6
<PAGE>
DESCRIPTION OF DEBT SECURITIES
The Debt Securities will constitute either Senior Debt (as defined below) or
Subordinated Debt (as defined below) of Holdings. The Debt Securities
constituting Senior Debt will be issued under an indenture, dated as of
September 1, 1987, between Holdings and Citibank, N.A., Trustee, as supplemented
and amended by Supplemental Indentures dated as of November 25, 1987, as of
November 27, 1990, as of September 13, 1991, as of October 4, 1993, as of
October 1, 1995 and as of June 26, 1997 (the "Senior Indenture"), and the Debt
Securities constituting Subordinated Debt will be issued under an indenture,
dated as of February 1, 1996, between Holdings and The Chase Manhattan Bank,
formerly known as Chemical Bank, as Trustee, as amended and supplemented by the
Supplemental Indenture dated as of February 1, 1996 (the "Subordinated
Indenture"). The Senior Indenture and the Subordinated Indenture are hereinafter
collectively referred to as the "Indentures" and, individually, as an
"Indenture". Each Indenture will incorporate by reference certain Standard
Multiple-Series Indenture Provisions, as filed with the SEC on July 30, 1987 and
as amended and refiled with the SEC on November 16, 1987. This Prospectus
contains descriptions of all material provisions of the Indentures. The summary
of such provisions of the Indentures does not purport to be complete; copies of
such Indentures are filed as exhibits to the Registration Statement of which
this Prospectus is a part. All articles and sections of the applicable
Indenture, and all capitalized terms set forth below, have the meanings
specified in the applicable Indenture. Particular provisions of Subordinated
Debt held by any LBH Trust will be contained in the certificates evidencing such
Subordinated Debt and described in the applicable Prospectus Supple-
ment accompanying this Prospectus; a copy of the form of such Subordinated Debt
to be held by any LBH Trust is filed as an exhibit to the Registration Statement
of which this Prospectus forms a part.
GENERAL
Neither Indenture limits the amount of debentures, notes or other evidences
of indebtedness which may be issued thereunder. Each Indenture provides that
Debt Securities may be issued from time to time in one or more series. Since, as
a holding company, Holdings' assets primarily consist of the equity securities
of its subsidiaries, its cash flow and consequent ability to service its debt,
including the Debt Securities, are dependent upon the earnings of its
subsidiaries and the distribution of those earnings to Holdings, or upon loans
or other payments of funds by those subsidiaries to Holdings. Holdings'
subsidiaries, including Lehman Brothers, are separate and distinct legal
entities and will have no obligation, contingent or otherwise, to pay any
interest or principal on the Debt Securities or to make any funds available
therefor, whether by dividends, loans or other payments. Dividends, loans and
other payments by Lehman Brothers are restricted by net capital and other rules
of various regulatory bodies. See "Capital Requirements." The payment of
dividends by Holdings' subsidiaries is contingent upon the earnings of those
subsidiaries and is subject to various business considerations in addition to
net capital requirements and contractual restrictions. Except as described under
"Limitations on Liens" and "Consolidation, Merger and Sale of Assets", neither
Indenture affords holders of Debt Securities protection in the event of a highly
leveraged transaction, reorganization, restructuring, merger or other similar
transaction involving the Company that may adversely affect holders of Debt
Securities.
Since the Debt Securities will be obligations of a holding company, the
ability of holders of the Debt Securities to benefit from any distribution of
assets of any subsidiary upon the liquidation or reorganization of such
subsidiary is subordinate to the prior claims of present and future creditors of
such subsidiary.
Reference is made to the applicable Prospectus Supplement for the following
terms and other information with respect to the Debt Securities being offered
thereby: (1) the title of such Debt Securities and whether such Debt Securities
will be Senior Debt or Subordinated Debt; (2) any limit on the aggregate
principal amount of such Debt Securities; (3) whether the Debt Securities are to
be issuable as Registered Securities or Bearer Securities or both, and if Bearer
Securities are issued, whether Bearer Securities may be exchanged for Registered
Securities and the circumstances and places for such exchange, if permitted; (4)
whether the Debt Securities are to be issued in whole or in part in the form of
one or more temporary or permanent global Debt Securities ("Global Securities")
in registered or bearer form and, if so, the identity of the depositary, if any,
for such Global Security or Securities; (5) the date or dates (or manner of
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<PAGE>
determining the same) on which such Debt Securities will mature; (6) the rate or
rates (or manner of determining the same) at which such Debt Securities will
bear interest, if any, and the date or dates from which such interest will
accrue; (7) the dates (or manner of determining the same) on which such interest
will be payable and the Regular Record Dates for such Interest Payment Dates for
Debt Securities which are Registered Securities, and the extent to which, or the
manner in which, any interest payable on a temporary or permanent global Debt
Security on an Interest Payment Date will be paid if other than in the manner
described under "Global Securities" below; (8) any mandatory or optional sinking
fund or analogous provisions; (9) each office or agency where, subject to the
terms of the applicable Indenture as described below under "Payment and Paying
Agents", the principal of and premium, if any, and interest, if any, on the Debt
Securities will be payable and each office or agency where, subject to the terms
of the applicable Indenture as described below under "Denominations,
Registration and Transfer," the Debt Securities may be presented for
registration of transfer or exchange; (10) the date, if any, after which, and
the price or prices in the currency or currency unit in which, such Debt
Securities are payable pursuant to any optional or mandatory redemption
provision; (11) any provisions for payment of additional amounts for taxes and
any provision for redemption, in the event Holdings must comply with reporting
requirements in respect of a Debt Security or must pay such additional amounts
in respect of any Debt Security; (12) the terms and conditions, if any, upon
which the Debt Securities of such series may be repayable prior to maturity at
the option of the holder thereof (which option may be conditional) and the price
or prices in the currency or currency unit in which such Debt Securities are
payable; (13) the denominations in which any Debt Securities which are
Registered Securities will be issuable if other than denominations of $1,000 and
any integral multiple thereof, and the denomination or denominations in which
any Debt Securities which are Bearer Securities will be issuable if other than
the denomination of $5,000; (14) the currency, currencies or currency units for
which such Debt Securities may be purchased and the currency, currencies or
currency units in which the principal of and interest, if any, on such Debt
Securities may be payable; (15) any index used to determine the amount of
payments of principal of and premium, if any, and interest, if any, on such Debt
Securities; (16) the terms and conditions, if any, pursuant to which such Debt
Securities may be converted or exchanged for other securities of Holdings or any
other person; (17) the terms and conditions, if any, pursuant to which the
principal of and premium, if any, and interest, if any, on such Debt Securities
are payable at the election of Holdings or the holder thereof, in securities or
other property; and (18) other terms of the Debt Securities.
If any of the Debt Securities are sold for foreign currencies or foreign
currency units or if the principal of or interest, if any, on any series of Debt
Securities is payable in foreign currencies or foreign currency units, the
restrictions, elections, tax consequences, specific terms and other information
with respect to such issue of Debt Securities and such currencies or currency
units will be set forth in an applicable Prospectus Supplement relating thereto.
One or more series of Debt Securities may be sold at a substantial discount
below their stated principal amount, bearing no interest or interest at a rate
which at the time of issuance is below market rates. Federal income tax
consequences and special considerations applicable to any such series are
described under "United States Taxation" and may be further described in an
applicable Prospectus Supplement.
SENIOR DEBT
The Debt Securities constituting part of the senior debt of Holdings (the
"Senior Debt") will rank equally with all other unsecured debt of Holdings
except Subordinated Debt.
SUBORDINATED DEBT
The Debt Securities constituting part of the subordinated debt of Holdings
(the "Subordinated Debt") will be subordinate and junior in the right of
payment, to the extent and in the manner set forth in the Subordinated
Indenture, to all present or future Senior Debt. "Senior Debt" is defined to
mean (a) any indebtedness for money borrowed or evidenced by bonds, notes,
debentures or similar instruments, (b) indebtedness under capitalized leases,
(c) any indebtedness representing the deferred and unpaid
8
<PAGE>
purchase price of any property or business, and (d) all deferrals, renewals,
extensions and refundings of any such indebtedness or obligation; except that
the following does not constitute Senior Debt: (i) indebtedness evidenced by the
Subordinated Debt, (ii) indebtedness which is expressly made equal in right of
payment with the Subordinated Debt or subordinate and subject in right of
payment to the Subordinated Debt, (iii) indebtedness for goods or materials
purchased in the ordinary course of business or for services obtained in the
ordinary course of business or indebtedness consisting of trade payables or (iv)
indebtedness which is subordinated to any obligation of Holdings of the type
specified in clauses (a) through (d) above. The effect of clause (iv) is that
Holdings may not issue, assume or guaranty any indebtedness for money borrowed
which is junior to the Senior Debt and senior to the Subordinated Debt.
(Subordinated Indenture Section 1401). The Prospectus Supplement related to a
particular series of Subordinated Debt will set forth the amount of Senior Debt
then outstanding. The Subordinated Indenture does not limit the amount of Senior
Debt or other indebtedness that may be issued.
In the event (a) of any insolvency or bankruptcy proceedings, or any
receivership, liquidation, reorganization or other similar proceedings in
respect of Holdings or a substantial part of its property, (b) that (i) a
default shall have occurred with respect to the payment of principal of or
interest on or other monetary amounts due and payable on any Senior Debt or (ii)
there shall have occurred an event of default (other than a default in the
payment of principal of or interest or other monetary amounts due and payable)
with respect to any Senior Debt, as defined therein or in the instrument under
which the same is outstanding, permitting the holder or holders thereof to
accelerate the maturity thereof (with notice or lapse of time, or both), and
such event of default shall have continued beyond the period of grace, if any,
in respect thereof, and such default or event of default shall not have been
cured or waived or shall not have ceased to exist, or (c) that the principal of
and accrued interest on the Subordinated Debt shall have been declared due and
payable upon an Event of Default under the Subordinated Indenture and such
declaration shall not have been rescinded and annulled as provided therein, then
the holders of all Senior Debt shall first be entitled to receive payment of the
full amount unpaid thereon in cash before the holders of any of the Subordinated
Debt are entitled to receive a payment on account of the principal, premium, if
any, or interest, if any, on such Subordinated Debt.
DENOMINATIONS, REGISTRATION AND TRANSFER
The Debt Securities will be issuable as Registered Securities without
coupons and in denominations of $1,000 or any integral multiple thereof, unless
an applicable Prospectus Supplement provides with respect to a series of Debt
Securities that such series of Debt Securities will be issued in whole or in
part as Bearer Securities and/or in different denominations. Debt Securities of
a series may be issuable in whole or in part in the form of one or more Global
Securities, as described below under "Global Securities." One or more Global
Securities will be issued in a denomination or aggregate denominations equal to
the aggregate principal amount of Debt Securities of the series to be
represented by such Global Security or Securities. If so provided with respect
to a series of Debt Securities, Debt Securities of such series will be issuable
solely as Bearer Securities with coupons attached or as both Registered
Securities and Bearer Securities. (Section 201).
In connection with the sale during the "restricted period" as defined in
Section 1.163-5(c)(2)(i)(D)(7) of the United States Treasury Regulations
(generally, the first 40 days after the closing date and, with respect to unsold
allotments, until sold) no Bearer Security shall be mailed or otherwise
delivered to any location in the United States (as defined under "Limitations on
Issuance of Bearer Securities"). A Bearer Security in definitive form (including
interests in a permanent Global Security) may be delivered only if the Person
entitled to receive such Bearer Security furnishes written certification, in the
form required by the applicable Indenture, to the effect that such Bearer
Security is not owned by or on behalf of a United States person (as defined
under "Limitations on Issuance of Bearer Securities"), or, if a beneficial
interest in such Bearer Security is owned by or on behalf of a United States
person, that such United States person (i) acquired and holds the Bearer
Security through a foreign branch of a United States financial institution, (ii)
is a foreign branch of a United States financial institution
9
<PAGE>
purchasing for its own account or resale (and in either case, (i) or (ii), such
financial institution agrees to comply with the requirements of Section
165(j)(3)(A), (B) or (C) of the Internal Revenue Code of 1986, as amended (the
"Code"), and the regulations thereunder) or (iii) is a financial institution
purchasing for resale during the restricted period only to non-United States
persons outside the United States. (Sections 303, 304). See "Global
Securities--Bearer Debt Securities" and "Limitations on Issuance of Bearer
Securities."
Registered Securities of any series (other than a Global Security) will be
exchangeable for other Registered Securities of the same series and of a like
aggregate principal amount and tenor of different authorized denominations. In
addition, if Debt Securities of any series are issuable as both Registered
Securities and as Bearer Securities, at the option of the Holder upon request
confirmed in writing, and subject to the terms of the applicable Indenture,
definitive Bearer Securities (with all unmatured coupons, except as provided
below, and all matured coupons in default) of such series will be exchangeable
into definitive Registered Securities of the same series of any authorized
denominations and of a like aggregate principal amount and tenor. Any definitive
Bearer Security surrendered in exchange for a definitive Registered Security
between a Regular Record Date or a Special Record Date and the relevant date for
payment of interest shall be surrendered without the coupon relating to such
date for payment of interest and interest will not be payable in respect of the
definitive Registered Security issued in exchange for such definitive Bearer
Security, but will be payable only to the Holder of such coupon when due in
accordance with the terms of the applicable Indenture. (Section 305). Except as
provided in an applicable Prospectus Supplement, Bearer Securities will not be
issued in exchange for Registered Securities.
Debt Securities may be presented for exchange as provided above, and
Registered Securities (other than a Global Security) may be presented for
registration of transfer (with the form of transfer endorsed thereon duly
executed), at the office of the Security Registrar or at the office of any
transfer agent designated by Holdings for such purpose with respect to any
series of Debt Securities and referred to in an applicable Prospectus
Supplement, without service charge and upon payment of any taxes and other
governmental charges as described in each Indenture. Such transfer or exchange
will be effected upon the Security Registrar or such transfer agent, as the case
may be, being satisfied with the documents of title and identity of the person
making the request. Holdings has appointed each Trustee as Security Registrar
under the applicable Indenture. (Section 305). If a Prospectus Supplement refers
to any transfer agents (in addition to the Security Registrar) initially
designated by Holdings with respect to any series of Debt Securities, Holdings
may at any time rescind the designation of any such transfer agent or approve a
change in the location through which any such transfer agent acts, except that,
if Debt Securities of a series are issuable only as Registered Securities,
Holdings will be required to maintain a transfer agent in each Place of Payment
for such series and, if Debt Securities of a series are issuable as Bearer
Securities, Holdings will be required to maintain (in addition to the Security
Registrar) a transfer agent in a Place of Payment for such series located
outside the United States. Holdings may at any time designate additional
transfer agents with respect to any series of Debt Securities. (Section 1002).
In the event of any redemption in part, Holdings shall not be required to
(i) issue, register the transfer of or exchange Debt Securities of any series
during a period beginning at the opening of business 15 days before any
selection of Debt Securities of that series to be redeemed and ending at the
close of business on (A) if Debt Securities of the series are issuable only as
Registered Securities, the day of mailing of the relevant notice of redemption
and (B) if Debt Securities of the series are issuable as Bearer Securities, the
day of the first publication of the relevant notice of redemption or, if Debt
Securities of the series are also issuable as Registered Securities and there is
no publication, the mailing of the relevant notice of redemption; (ii) register
the transfer of or exchange any Registered Security, or portion thereof, called
for redemption, except the unredeemed portion of any Registered Security being
redeemed in part; or (iii) exchange any Bearer Security called for redemption,
except to exchange such Bearer Security for a Registered Security of that series
and like tenor which is immediately surrendered for redemption. (Section 305).
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<PAGE>
PAYMENT AND PAYING AGENTS
Unless otherwise indicated in an applicable Prospectus Supplement, payment
of principal of (and premium, if any) and any interest on Bearer Securities will
be payable, subject to any applicable laws and regulations, at the offices of
such Paying Agents outside the United States as Holdings may designate from time
to time, at the option of the Holder, by check or by transfer to an account
maintained by the payee with a bank located outside the United States. (Sections
307 and 1002). Unless otherwise indicated in an applicable Prospectus
Supplement, payment of interest on Bearer Securities on any Interest Payment
Date will be made only against surrender of the coupon relating to such Interest
Payment Date. (Section 1001). No payment of interest on a Bearer Security will
be made unless on the earlier of the date of the first such payment by Holdings
or the delivery by Holdings of the Bearer Security in definitive form (including
interests in a permanent Global Security) (the "Certification Date"), a written
certificate in the form and to the effect described under "Denominations,
Registration and Transfer" is provided to Holdings. No payment with respect to
any Bearer Security will be made at any office or agency of Holdings in the
United States or by check mailed to any address in the United States or by
transfer to an account maintained with a bank located in the United States.
Notwithstanding the foregoing, payment of principal of (and premium, if any) and
interest on Bearer Securities denominated and payable in U.S. dollars will be
made at the office of Holdings' Paying Agent in the Borough of Manhattan, The
City of New York if, and only if, payment of the full amount thereof in U.S.
dollars at all offices or agencies outside the United States is illegal or
effectively precluded by exchange controls or other similar restrictions.
(Section 1002).
Unless otherwise indicated in an applicable Prospectus Supplement, as
contemplated under "Description of Securities--General", payment of principal of
(and premium, if any) and any interest on Registered Securities (other than a
Global Security) will be made in U.S. dollars at the office of such Paying Agent
or Paying Agents as Holdings may designate from time to time, except that at the
option of Holdings payment of any interest may be made (i) by check mailed to
the address of the Person entitled thereto as such address shall appear in the
Security Register or (ii) by wire transfer to an account maintained by the
Person entitled thereto as specified in the Security Register. (Sections 307,
1002). Unless otherwise indicated in an applicable Prospectus Supplement,
payment of any installment of interest on Registered Securities will be made to
the Person in whose name such Registered Security is registered at the close of
business on the Regular Record Date for such interest payment. (Section 307).
The principal office of each Trustee under the applicable Indenture in The
City of New York will be designated as Holdings' sole Paying Agent for payments
with respect to Debt Securities which are issuable solely as Registered
Securities and as Holdings' Paying Agent in the Borough of Manhattan, The City
of New York, for payments with respect to Debt Securities (subject to the
limitations described above in the case of Bearer Securities) which may be
issuable as Bearer Securities. Any Paying Agents outside the United States and
any other Paying Agents in the United States initially designated by Holdings
for the Debt Securities will be named in an applicable Prospectus Supplement.
Holdings may at any time designate additional Paying Agents or rescind the
designation of any Paying Agents or approve a change in the office through which
any Paying Agent acts, except that, if Debt Securities of a series are issuable
only as Registered Securities, Holdings will be required to maintain a Paying
Agent in each Place of Payment for such series, and if Debt Securities of a
series may be issuable as Bearer Securities, Holdings will be required to
maintain (i) a Paying Agent in the Borough of Manhattan, The City of New York
for payments with respect to any Registered Securities of the series (and for
payments with respect to Bearer Securities of the series in the circumstances
described above, but not otherwise), and (ii) a Paying Agent in a Place of
Payment located outside the United States where Debt Securities of such series
and any coupons appertaining thereto may be presented and surrendered for
payment; provided that if the Debt Securities of such series are listed on The
Luxembourg Stock Exchange (the "Stock Exchange") or any other stock exchange
located outside the United States and such stock exchange shall so require,
Holdings will maintain a Paying Agent in Luxembourg or any other required city
located outside the United States, as the case may be, for the Debt Securities
of such series. (Section 1002).
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All moneys paid by Holdings to a Paying Agent for the payment of principal
of (and premium, if any) or interest on any Debt Security which remain unclaimed
at the end of two years after such principal, premium or interest shall have
become due and payable will be repaid to Holdings and the Holder of such Debt
Security or any coupon will thereafter look only to Holdings for payment
thereof. (Section 1003).
GLOBAL SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more Global Securities that will be deposited with or on behalf
of a depositary (a "Depositary") identified in the Prospectus Supplement
relating to such series. Global Securities may be issued in either registered or
bearer form and in either temporary or permanent form.
The specific terms of the depositary arrangement with respect to any Debt
Securities of a series will be described in the Prospectus Supplement relating
to such series. The Company anticipates that the following provisions will apply
to all depositary arrangements.
Debt Securities which are to be represented by a Global Security in
registered form to be deposited with or on behalf of a Depositary will be
registered in the name of such Depositary or its nominee. Upon the issuance of a
Global Security in registered form, the Depositary for such Global Security will
credit the respective principal amounts of the Debt Securities represented by
such Global Security to the accounts of institutions that have accounts with
such Depositary or its nominee ("participants"). The accounts to be credited
shall be designated by the underwriters or agents of such Debt Securities or by
Holdings, if such Debt Securities are offered and sold directly by Holdings.
Ownership of beneficial interests in such Global Securities will be limited to
participants or persons that may hold interests through participants. Ownership
of beneficial interests by participants in such Global Securities will be shown
on, and the transfer of that ownership interest will be effected only through,
records maintained by the Depositary or its nominee for such Global Security.
Ownership of beneficial interests in Global Securities by persons that hold
through participants will be shown on, and the transfer of that ownership
interest within such participant will be effected only through, records
maintained by such participant. The laws of some jurisdictions require that
certain purchasers of securities take physical delivery of such securities in
definitive form. Such limits and such laws may impair the ability to transfer
beneficial interests in a Global Security.
So long as the Depositary for a Global Security in registered form, or its
nominee, is the registered owner of such Global Security, such depository or
such nominee, as the case may be, will be considered the sole owner or holder of
the Debt Securities represented by such Global Security for all purposes under
the Indenture governing such Debt Securities. Except as set forth below, owners
of beneficial interests in such Global Securities will not be entitled to have
Debt Securities of the series represented by such Global Security registered in
their names, will not receive or be entitled to receive physical delivery of
Debt Securities of such series in definitive form and will not be considered the
owners or holders thereof under the Indenture.
Payment of principal of, premium, if any, and any interest on Debt
Securities registered in the name of or held by a Depositary or its nominee will
be made to the Depositary or its nominee, as the case may be, as the registered
owner or the holder of the Global Security. None of the Company, the Trustee,
any Paying Agent or the Security Registrar for such Debt Securities will have
any responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in a Global Security
or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests. (Section 308).
The Company expects that the Depositary for a permanent Global Security in
registered form, upon receipt of any payment of principal, premium or interest
in respect of a permanent Global Security, will credit immediately participants'
accounts with payments in amounts proportionate to their respective beneficial
interests in the principal amount of such Global Security as shown on the
records of such Depositary. The Company also expects that payments by
participants to owners of beneficial interests in
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such Global Security held through such participants will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers in bearer form or registered in "street name," and
will be the responsibility of such participants.
A Global Security in registered form may not be transferred except as a
whole by the Depositary for such Global Security to a nominee of such Depositary
or by a nominee of such Depositary to such Depositary or another nominee of such
Depositary or by such Depositary or any such nominee to a successor of such
Depositary or a nominee of such successor. If a Depositary for a permanent
Global Security in registered form is at any time unwilling or unable to
continue as Depositary and a successor Depositary is not appointed by the
Company within 90 days, the Company will issue Debt Securities in definitive
registered form in exchange for all of the Global Securities representing such
Debt Securities. In addition, the Company may at any time and in its sole
discretion determine not to have any Debt Securities in registered form
represented by one or more Global Securities and, in such event, will issue Debt
Securities in definitive form in exchange for all of the Global Securities
representing such Debt Securities. (Section 305). Further, if the Company so
specifies with respect to the Debt Securities of a series in registered form, an
owner of a beneficial interest in a Global Security representing Debt Securities
of such series may, on terms acceptable to the Company and the Depositary for
such Global Security, receive Registered Debt Securities of such series in
definitive form. In any such instance, an owner of a beneficial interest in a
Global Security will be entitled to physical delivery in definitive form of
Registered Securities of the series represented by such Global Security equal in
principal amount to such beneficial interest and to have such Debt Securities
registered in its name. (Section 305). Debt Securities of such series so issued
in definitive form will be issued (a) as Registered Securities in denominations,
unless otherwise specified by the Company, of $1,000 and integral multiples
thereof if the Debt Securities of such series are issuable as Registered
Securities, (b) as Bearer Securities in the denomination, unless otherwise
specified by the Company, of $5,000 if the Debt Securities of such series are
issuable as Bearer Securities or (c) as either Registered or Bearer Securities
if the Debt Securities of such series are issuable in either form. See, however,
"Limitations on Issuance of Bearer Securities" below for a description of
certain restrictions on the issuance of a Bearer Security in definitive form in
exchange for an interest in a Global Security.
BEARER DEBT SECURITIES
If so specified in an applicable Prospectus Supplement, pending the
availability of a permanent Global Security, all or any portion of the Debt
Securities of a series which may be issuable as Bearer Securities will initially
be represented by one or more temporary Global Securities, without interest
coupons, to be deposited with a common depositary in London for Morgan Guaranty
Trust Company of New York, Brussels Office, as operator of the Euroclear System
("Euroclear") and Cedel Bank, societe anonyme ("Cedel") for credit to the
designated accounts. The interests of the beneficial owner or owners in a
temporary Global Security in bearer form will be exchangeable for: (i) in whole,
definitive Bearer Securities, (ii) in whole, Senior Debt Securities to be
represented thereafter by one or more permanent Global Securities in bearer
form, without interest coupons, and/or (iii) in whole or in part, definitive
Registered Securities, (the date of such exchange, the "Exchange Date");
provided, however, that if definitive Bearer Securities have previously been
issued in exchange for an interest in a permanent Global Security in bearer form
representing Senior Debt Securities of the same series, then interests in such
Senior Debt Securities (with certain exceptions) shall only thereafter be
exchangeable, in whole, for definitive Bearer Securities, definitive Registered
Securities, or any combination thereof (with certain exceptions) representing
Debt Securities having the same interest rate and Stated Maturity, but only upon
written certification in the form and to the effect described under
"Denominations, Registration and Transfer" unless such certification has been
provided on an earlier interest payment date. The beneficial owner of a Debt
Security represented by a permanent Global Security in bearer form may, on the
applicable Exchange Date and upon 30 days' notice to the applicable Trustee
given through Euroclear or Cedel, exchange its interest in whole for definitive
Bearer Securities or, if specified in an applicable Prospectus Supplement, in
whole or in part, for definitive Registered Securities of any authorized
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denomination, provided, however, that if definitive Bearer Securities are issued
in partial exchange for Senior Debt Securities represented by such permanent
Global Security or by a temporary Global Security in bearer form of the same
series, such issuance (with certain exceptions) shall give rise to the exchange
of such permanent Global Security in whole for, at the option of the Holders,
definitive Bearer Securities, definitive Registered Securities, or any
combination thereof. No Bearer Security delivered in exchange for a portion of a
permanent Global Security shall be mailed or otherwise delivered to any location
in the United States in connection with such exchange. (Sections 303 and 304).
Unless otherwise specified in an applicable Prospectus Supplement, interest
in respect of any portion of a temporary Global Security in bearer form payable
in respect of an Interest Payment Date occurring prior to the issuance of a
permanent Global Security in bearer form will be paid to each of Euroclear and
Cedel with respect to the portion of the temporary Global Security in bearer
form held for its account. Each of Euroclear and Cedel will undertake in such
circumstances to credit such interest received by it in respect of a temporary
Global Security in bearer form to the respective accounts for which it holds
such temporary Global Security in bearer form as of the relevant Interest
Payment Date, but only upon receipt in each case of written certification, in
the form and to the effect described under "Denomination, Registration and
Transfer."
LIMITATION ON LIENS
So long as any Debt Securities remain outstanding, unless an applicable
Prospectus Supplement relating thereto provides otherwise, Holdings will not,
and will not permit any Designated Subsidiary (as defined below), directly or
indirectly, to create, issue, assume, incur or guarantee any indebtedness for
money borrowed which is secured by a mortgage, pledge, lien, security interest
or other encumbrance of any nature on any of the present or future common stock
of a Designated Subsidiary unless the Debt Securities and, if Holdings so
elects, any other indebtedness of Holdings ranking at least PARI PASSU with the
Debt Securities, shall be secured equally and ratably with (or prior to) such
other secured indebtedness for money borrowed so long as it is outstanding.
(Section 1005).
The term "Designated Subsidiary" means any present or future consolidated
subsidiary of Holdings, the consolidated net worth of which constitutes at least
5% of the consolidated net worth of Holdings. As of January 31, 1999, Holdings'
Designated Subsidiaries were Global Thai Property Fund, Lehman Brothers, Lehman
Brothers Holdings Plc, Lehman Brothers International (Europe), Lehman Brothers
Japan Inc., Lehman Brothers U.K. Holdings (Delaware) Inc., Lehman Brothers UK
Holdings Ltd., Lehman Commercial Paper Inc., Lehman Re Ltd. and Structured Asset
Securities Corp.
EVENTS OF DEFAULT
The following are Events of Default under each Indenture: (a) failure to pay
principal of or premium, if any, on any Debt Security of that series when due;
(b) failure to pay interest, if any, on any Debt Security of that series and any
related coupons when due, continued for 30 days; (c) failure to deposit any
sinking fund payment or analogous obligation, when due, continued for 30 days,
in respect of any Debt Security of that series; (d) failure to perform any other
covenant of Holdings in the Indenture (other than a covenant included in the
applicable Indenture solely for the benefit of a series of Debt Securities other
than that series), continued for 90 days after written notice as provided in the
Indenture; and (e) certain events in bankruptcy, insolvency or reorganization in
respect of Holdings. (Section 501). In the event Subordinated Debt of a series
is issued and sold to an LBH Trust or a trustee of such trust in connection with
the issuance of Preferred Securities and Common Securities by such LBH Trust,
the following is an additional Event of Default under the Subordinated Indenture
with respect to such series of Subordinated Debt: the LBH Trust shall have
voluntarily or involuntarily dissolved, wound-up its business or otherwise
terminated its existence except in connection with the (i) distribution of
Subordinated Debt to holders of Preferred Securities and Common Securities in
liquidation of their interests in the LBH Trust, (ii) the redemption of
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all of the outstanding Preferred Securities and Common Securities of such LBH
Trust, or (iii) certain mergers, consolidations or amalgamations, each as
permitted by such LBH Trust's Declaration. Each Indenture may be amended without
the consent of Holders to provide for additional Events of Default with respect
to any series of Debt Securities then outstanding. In addition, prior to the
issuance of any series of Debt Securities, there may be additions to or
modifications or deletions of the Events of Default described above with respect
to such series of Debt Securities. Any such additions, modifications or
deletions will be specified in an applicable Prospectus Supplement. An Event of
Default with respect to a particular series of Debt Securities does not
necessarily constitute an Event of Default with respect to any other series of
Debt Securities issued under the same or another Indenture. The Trustee may
withhold notice to the Holders of any series of Debt Securities of any default
with respect to such series (except in the payment of principal, premium, if
any, or interest) if it considers such withholding to be in the interest of such
Holders. (Section 602).
If an Event of Default with respect to Debt Securities of any series at the
time outstanding occurs and is continuing, unless the principal of all of the
Debt Securities of such series shall have already become due and payable, either
the Trustee or the Holders of at least 25% in principal amount of the
outstanding Debt Securities of that series may declare the principal amount (or,
if the Debt Securities of that series are (i) Original Issue Discount
Securities, such portion of the principal amount as may be specified in the
terms of the series, or (ii) Indexed Securities or Dual Currency Securities, the
amount determined in accordance with the specified terms of the series) of all
the Debt Securities of that series to be due and payable immediately. At any
time after a declaration of acceleration with respect to Debt Securities of any
series has been made, but before a judgment or decree based on acceleration has
been obtained and entered, the Holders of a majority in principal amount of the
outstanding Debt Securities of that series may, under certain circumstances,
rescind and annul such acceleration. (Section 502). For information as to waiver
of defaults, see "Meetings, Modification and Waiver." Each Indenture provides
that the Trustee will be under no obligation, subject to the duty of the Trustee
during default to act with the required standard of care, to exercise any of its
rights or powers under such Indenture at the request or direction of any of the
Holders, unless such Holders shall have offered to the Trustee reasonable
indemnity. (Section 603). Subject to such provisions for indemnification of the
Trustee, the Holders of a majority in principal amount of the outstanding Debt
Securities of any series will have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred on the Trustee, with respect to the Debt
Securities of that series. (Section 512). Holdings will be required to furnish
to each Trustee annually a statement as to the performance by Holdings of
certain of its obligations under the applicable Indenture and as to any default
in such performance. (Section 1006).
SATISFACTION AND DISCHARGE
Except as may otherwise be set forth in an applicable Prospectus Supplement
relating to a series of Debt Securities, each Indenture provides that Holdings
shall be discharged from its obligations under the Debt Securities of such
series (with certain exceptions) at any time prior to the Stated Maturity or
redemption thereof when (a) Holdings has irrevocably deposited with the
applicable Trustee, in trust, (i) sufficient funds in the currency or currency
unit in which the Debt Securities of such series are payable to pay the
principal of (and premium, if any), and interest, if any, to Stated Maturity (or
redemption) on, the Debt Securities of such series, or (ii) such amount of
direct obligations of, or obligations the principal of and interest, if any, on
which are fully guaranteed by, the government which issued the currency in which
the Debt Securities of such series are payable, and which are not subject to
prepayment, redemption or call, as will, together with the predetermined and
certain income to accrue thereon without consideration of any reinvestment
thereof, be sufficient to pay when due the principal of (and premium, if any),
and interest, if any, to Stated Maturity (or redemption) on, the Debt Securities
of such series, or (iii) such combination of such funds and securities as
described in (i) and (ii), respectively, as will, together with the
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predetermined and certain income to accrue on any such securities as described
in (ii), be sufficient to pay when due the principal of (and premium, if any),
and interest, if any, to Stated Maturity (or redemption) on, the Debt Securities
of such series and (b) Holdings has paid all other sums payable with respect to
the Debt Securities of such series and (c) certain other conditions are met.
Upon such discharge, the Holders of the Debt Securities of such series shall no
longer be entitled to the benefits of the Indenture, except for certain rights,
including registration of transfer and exchange of the Debt Securities of such
series and replacement of lost, stolen or mutilated Debt Securities, and shall
look only to such deposited funds or obligations for payment. (Sections 401 and
403).
DEFEASANCE OF CERTAIN OBLIGATIONS
If the terms of the Debt Securities of any series so provide, Holdings may
omit to comply with the restrictive covenants in Section 801 ("Company May
Consolidate, Etc., Only on Certain Terms"), Section 1005 ("Limitations on Liens
on Common Stock of Designated Subsidiaries") and any other specified covenant
and any such omission with respect to such Sections shall not be an Event of
Default with respect to the Debt Securities of such series, if (a) Holdings has
irrevocably deposited with the applicable Trustee, in trust, (i) sufficient
funds in the currency or currency unit in which the Debt Securities of such
series are payable to pay the principal of (and premium, if any), and interest,
if any, to Stated Maturity (or redemption) on, the Debt Securities of such
series, or (ii) such amount of direct obligations of, or obligations the
principal of and interest, if any, on which are fully guaranteed by, the
government which issued the currency in which the Debt Securities of such series
are payable and which are not subject to prepayment, redemption or call, as
will, together with the predetermined and certain income to accrue thereon
without consideration of any reinvestment thereof, be sufficient to pay when due
the principal of (and premium, if any), and interest, if any, to Stated Maturity
(or redemption) on, the Debt Securities of such series or, (iii) such
combination of such funds and securities as described in (i) and (ii),
respectively, as will, together with the predetermined and certain income to
accrue on any such securities as described in (ii), be sufficient to pay when
due the principal of (and premium, if any), and interest, if any, to Stated
Maturity (or redemption) on, the Debt Securities of such series and (b) certain
other conditions are met. The obligations of Holdings under the Indenture with
respect to the Debt Securities of such series, other than with respect to the
covenants referred to above shall remain in full force and effect. (Section
1009).
MEETINGS, MODIFICATION AND WAIVER
Modifications and amendments of either Indenture may be made by Holdings and
the applicable Trustee with the consent of the Holders of not less than 66 2/3%
in principal amount of the Outstanding Debt Securities of each series issued
under such Indenture affected by such modification or amendment; provided,
however, that no such modification or amendment may, without the consent of the
Holder of each Outstanding Debt Security affected thereby, (a) change the Stated
Maturity of the principal of, or any installment of principal of or interest, if
any, on, any Debt Security, (b) reduce the principal amount of, or the premium,
if any, or interest, if any, on, any Debt Security, (c) change any obligation of
Holdings to pay additional amounts, (d) reduce the amount of principal of an
Original Issue Discount Security payable upon acceleration of the Maturity
thereof, (e) adversely affect the right of repayment or repurchase, if any, at
the option of the Holder, (f) reduce the amount, or postpone the date fixed for,
any payment under any sinking fund or analogous provision, (g) change the place
or currency or currency unit of payment of principal of or premium, if any, or
interest, if any, on any Debt Security, (h) change or eliminate the right, if
any, to elect payment in a coin or currency or currency unit other than that in
which Debt Securities which are Registered Securities are denominated or stated
to be payable, (i) impair the right to institute suit for the enforcement of any
payment on or with respect to any Debt Security, (j) reduce the percentage in
principal amount of Outstanding Debt Securities of any series, the consent of
the Holders of which is required for modification or amendment of the applicable
Indenture or for waiver of compliance with certain provisions of the applicable
Indenture or for waiver of certain defaults, (k) reduce the requirements
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contained in either Indenture for quorum or voting, or (l) change any obligation
of Holdings to maintain an office or agency in the places and for the purposes
required in the applicable Indenture. (Section 902); provided, further, that if
Subordinated Debt of a series is held by an LBH Trust or a trustee of such
trust, no such modification or amendment shall be effective until the holders of
not less than 66 2/3% of the aggregate liquidation amount of the Trust
Securities of the applicable LBH Trust shall have consented to such modification
or amendment; provided, further, that where a consent under the Subordinated
Indenture would require the consent of the holders of more than 66 2/3% of the
principal amount of such series of Subordinated Debt, such modification or
amendment shall not be effective until the holders of at least the same
proportion in aggregate stated liquidation amount of the Trust Securities of the
applicable LBH Trust shall have consented to such modification or amendment.
The Holders of not less than a majority in principal amount of the
Outstanding Debt Securities of any series may on behalf of the Holders of all
Debt Securities of that series waive, insofar as that series is concerned,
compliance by Holdings with certain restrictive provisions of the applicable
Indenture. (Section 1007). The Holders of not less than a majority in principal
amount of the Outstanding Debt Securities of any series may on behalf of the
Holders of all Debt Securities of that series and any coupons appertaining
thereto waive any past default under the applicable Indenture with respect to
that series, except a default in the payment of the principal of or premium, if
any, or interest, if any, on any Debt Security of that series or in the payment
of any sinking fund installment or analogous obligation or in respect of a
provision which under the applicable Indenture cannot be modified or amended
without the consent of the Holder of each Outstanding Debt Security of that
series affected. (Section 513). If Subordinated Debt of a series is held by an
LBH Trust or a trustee of such trust, such waiver shall not be effective until
the holders of a majority in aggregate liquidation amount of Trust Securities of
the applicable LBH Trust shall have consented to such waiver; provided, further,
that where a consent under the Subordinated Indenture would require the consent
of the holders of more than a majority in principal amount of such series of
Subordinated Debt, such waiver shall not be effective until the holders of at
least the same proportion in aggregate stated liquidation amount of the Trust
Securities of the applicable LBH Trust shall have consented to such waiver.
Each Indenture contains provisions for convening meetings of the Holders of
Debt Securities of a series if Debt Securities of that series are issuable as
Bearer Securities. A meeting may be called at any time by the applicable
Trustee, and also, upon request, by Holdings or Holders of at least 10% in
principal amount of the Outstanding Debt Securities of such series, in any such
case upon notice given in accordance with "Notices" below. (Section 1302).
Except as limited by the proviso in the second preceding paragraph, any
resolution presented at a meeting or adjourned meeting at which a quorum is
present may be adopted by the affirmative vote of the Holders of a majority in
principal amount of the Outstanding Debt Securities of that series; provided,
however, that, except as limited by the proviso in the second preceding
paragraph, any resolution with respect to any consent or waiver which may be
given by the Holders of not less than 66 2/3% in principal amount of the
Outstanding Debt Securities of a series may be adopted at a meeting or an
adjourned meeting at which a quorum is present only by the affirmative vote of
66 2/3% in principal amount of the Outstanding Debt Securities of that series;
and provided, further, that, except as limited by the proviso in the second
preceding paragraph, any resolution with respect to any request, demand,
authorization, direction, notice, consent, waiver or other action which may be
made, given or taken by the Holders of a specified percentage, which is less
than a majority, in principal amount of Outstanding Debt Securities of a series
may be adopted at a meeting or adjourned meeting duly reconvened at which a
quorum is present by the affirmative vote of the Holders of such specified
percentage in principal amount of the Outstanding Debt Securities of that
series. Any resolution passed or decision taken at any meeting of Holders of
Debt Securities of any series duly held in accordance with the applicable
Indenture will be binding on all Holders of Debt Securities of that series and
the related coupons. The quorum at any meeting called to adopt a resolution, and
at any reconvened meeting, will be persons holding or representing a majority in
principal amount of the Outstanding Debt Securities of a series; provided,
however, that if any action is to be taken at such meeting with respect to a
consent or waiver which may be given by the Holders of not less than 66 2/3% in
principal amount of the Outstanding Debt Securities of a
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series, the persons holding or representing 66 2/3% in principal amount of the
Outstanding Debt Securities of such series will constitute a quorum (Section
1304).
CONSOLIDATION, MERGER AND SALE OF ASSETS
Holdings may, without the consent of any Holders of Outstanding Debt
Securities, consolidate or merge with or into, or transfer or lease its assets
substantially as an entirety to, any Person, and any other Person may
consolidate or merge with or into, or transfer or lease its assets substantially
as an entirety to, Holdings, provided that (i) the Person (if other than
Holdings) formed by such consolidation or into which Holdings is merged or which
acquires or leases the assets of Holdings substantially as an entirety is
organized under the laws of any United States jurisdiction and assumes Holdings'
obligations on the Debt Securities and under the Indenture, (ii) after giving
effect to the transaction, no Event of Default, and no event which, after notice
or lapse of time or both, would become an Event of Default, shall have happened
and be continuing, and (iii) certain other conditions are met. (Section 801).
NOTICES
Except as may otherwise be set forth in an applicable Prospectus Supplement
relating to a series of Debt Securities, notices to Holders of Bearer Securities
will be given by publication in a daily newspaper in the English language of
general circulation in The City of New York and in London, and so long as such
Bearer Securities are listed on the Stock Exchange and the Stock Exchange shall
so require, in a daily newspaper of general circulation in Luxembourg or, if not
practical, elsewhere in Western Europe. Such publication is expected to be made
in THE WALL STREET JOURNAL, the FINANCIAL TIMES and the LUXEMBURGER WORT.
Notices to Holders of Registered Securities will be given by mail to the
addresses of such Holders as they appear in the Security Register. (Sections 101
and 106).
TITLE
Title to any temporary global Debt Security, any permanent global Debt
Security, any Bearer Securities and any coupons appertaining thereto will pass
by delivery. Holdings, each Trustee and any agent of Holdings or the applicable
Trustee may treat the bearer of any Bearer Security and the bearer of any coupon
and the registered owner of any Registered Security as the absolute owner
thereof (whether or not such Debt Security or coupon shall be overdue and
notwithstanding any notice to the contrary) for the purpose of making payment
and for all other purposes. (Section 308).
REPLACEMENT OF DEBT SECURITIES AND COUPONS
Any mutilated Debt Security or a Debt Security with a mutilated coupon
appertaining thereto will be replaced by Holdings at the expense of the Holder
upon surrender of such Debt Security to the applicable Trustee. Debt Securities
or coupons that become destroyed, stolen or lost will be replaced by Holdings at
the expense of the Holder upon delivery to the applicable Trustee of the Debt
Security and coupons or evidence of the destruction, loss or theft thereof
satisfactory to Holdings and the applicable Trustee; in the case of any coupon
which becomes destroyed, stolen or lost, such coupon will be replaced by
issuance of a new Debt Security in exchange for the Debt Security to which such
coupon appertains. In the case of a destroyed, lost or stolen Debt Security or
coupon an indemnity satisfactory to the applicable Trustee and Holdings may be
required at the expense of the Holder of such Debt Security or coupon before a
replacement Debt Security will be issued. (Section 306).
CONCERNING THE TRUSTEES
Business and other relationships (including other trusteeships) between, on
the one hand, Holdings and its affiliates and, on the other hand, the Trustee
under the Indenture pursuant to which any of the
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Debt Securities to which an applicable Prospectus Supplement accompanying this
Prospectus relates are described in such Prospectus Supplement.
CERTAIN PROVISIONS APPLICABLE TO LBH TRUSTS
In the event Subordinated Debt of a series is issued and sold to an LBH
Trust or a trustee of such trust in connection with the issuance of Trust
Securities by such LBH Trust, such Subordinated Debt subsequently may be
distributed pro rata to the holders of such Trust Securities in connection with
the dissolution of such LBH Trust upon the occurrence of certain events
described in the Prospectus Supplement relating to such Trust Securities. Only
one series of Subordinated Debt will be issued to an LBH Trust or a trustee of
such trust in connection with the issuance of Trust Securities by such LBH
Trust. In each certificate evidencing Subordinated Debt of a series held by an
LBH Trust or a trustee of such trust, Holdings will covenant that, so long as
any Trust Securities issued by such LBH Trust remain outstanding, if (i) there
shall have occurred any Event of Default under the Subordinated Indenture with
respect to such series of Subordinated Debt, (ii) Holdings shall be in default
with respect to its payment of any obligations under its Guarantee with respect
to such LBH Trust or (iii) Holdings shall have given notice of its election of
an Extension Period as provided in the certificate evidencing such Subordinated
Debt and shall not have rescinded such notice, or such Extension Period or any
extension thereof shall be continuing, then Holdings will not, and will not
permit any subsidiary to, (x) declare or pay any dividends or distributions on,
or redeem, purchase, acquire or make a liquidation payment with respect to, any
of Holdings' capital stock or (y) make any payment of principal, interest or
premium, if any, on or repay, repurchase or redeem any debt securities of
Holdings that rank on a parity with or junior in interest to such Subordinated
Debt or make any guarantee payments with respect to any guarantee by Holdings of
the debt securities of any subsidiary of Holdings if such guarantee ranks on a
parity with or junior in interest to such Subordinated Debt (other than (a)
dividends or distributions in common stock of Holdings, (b) payments under the
applicable Guarantee made by Holdings in respect of the Trust Securities of such
LBH Trust, (c) any declaration of a dividend in connection with the
implementation of a shareholders' rights plan, or the issuance of stock under
any such plan in the future, or the redemption or repurchase of any such rights
pursuant thereto, and (d) purchases of common stock related to the issuance of
common stock or rights under any of Holdings' benefit plans).
In the event Subordinated Debt of a series is issued to an LBH Trust or a
trustee of such trust in connection with the issuance of Trust Securities of
such LBH Trust, for so long as such Trust Securities remain outstanding,
Holdings will covenant (i) to maintain directly or indirectly 100% ownership of
the Common Securities of such LBH Trust, (ii) to cause such LBH Trust to remain
a statutory business trust and not to voluntarily dissolve, wind-up, liquidate
or be terminated, except as permitted by such LBH Trust's Declaration, (iii) to
use its commercially reasonable efforts to ensure that such LBH Trust will not
be an "investment company" for purposes of the Investment Company Act and (iv)
to take no action that would be reasonably likely to cause such LBH Trust to be
classified as an association or a publicly traded partnership taxable as a
corporation for United States federal income tax purposes.
DESCRIPTION OF PREFERRED SECURITIES
Each LBH Trust may issue only one series of Preferred Securities having
terms described in the Prospectus Supplement relating thereto. The Declaration
of each LBH Trust will be qualified as an indenture under the Trust Indenture
Act. The Chase Manhattan Bank will act as indenture trustee under each
Declaration. The Preferred Securities will represent undivided beneficial
ownership interests in the assets of the LBH Trusts and the holders thereof will
be entitled to a preference in certain circumstances with respect to
Distributions and amounts payable on redemption or liquidation over the Common
Securities, as well as other benefits as described in the Declaration. This
Prospectus contains a description of all material provisions of each
Declaration. The summary of such provisions does not purport to be complete; a
copy of the form of such Declarations is filed as an exhibit to the Registration
Statement of
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which this Prospectus forms a part. All capitalized terms set forth below have
the meanings specified in the form of Declaration.
The Preferred Securities will have such terms, including as to
Distributions, redemption, voting, liquidation rights and such other preferred,
deferred or other special rights or such restrictions as shall be set forth in
the Declaration of the LBH Trust issuing such Preferred Securities or made part
of such Declaration by the Trust Indenture Act. Reference is made to any
Prospectus Supplement relating to the Preferred Securities of an LBH Trust for
specific terms, including (i) the distinctive designation of such Preferred
Securities, (ii) the number of Preferred Securities issued by such LBH Trust,
(iii) the annual Distribution rate (or method of determining such rate) for
Preferred Securities issued by such LBH Trust and the date or dates upon which
such Distributions shall be payable, (iv) whether Distributions on Preferred
Securities issued by such LBH Trust shall be cumulative, and, in the case of
Preferred Securities having such cumulative distribution rights, the date or
dates or method of determining the date or dates form which distributions on
Preferred Securities issued by such LBH Trust shall be cumulative, (v) the
amount or amounts which shall be paid out of the assets of such LBH Trust to the
Holders of Preferred Securities of such LBH Trust upon voluntary or involuntary
dissolution, winding-up or termination of such LBH Trust, (vi) the obligation,
if any, of such LBH Trust to purchase or redeem Preferred Securities issued by
such LBH Trust and the price or prices at which, the period or periods within
which and the terms and conditions upon which Preferred Securities issued by
such LBH Trust shall be purchased or redeemed, in whole or in part, pursuant to
such obligation, (vii) the voting rights, if any, of Preferred Securities issued
by such LBH Trust in addition to those required by law, including the number of
votes per Preferred Security and any requirement for the approval by the holders
of Preferred Securities as a condition to specified action or amendments to the
Declaration of such LBH Trust, and (viii) any other relevant rights,
preferences, privileges, limitations or restrictions of Preferred Securities
issued by such LBH Trust, consistent with the Declaration of such LBH Trust and
with applicable law. All Preferred Securities offered hereby will be guaranteed
by the Company to the extent set forth below under "Description of Guarantees."
Certain United States federal income tax considerations applicable to any
offering of Preferred Securities will be described in the Prospectus Supplement
relating thereto.
In connection with the issuance of Preferred Securities, each LBH Trust will
issue one series of Common Securities, having such terms, including as to
Distributions, redemption, voting, liquidation rights or such restrictions, as
shall be set forth in the Declaration of the LBH Trust issuing such Common
Securities or made part of such Declaration by the Trust Indenture Act. The
terms of the Common Securities issued by such LBH Trust will be substantially
identical to the terms of the Preferred Securities issued by such LBH Trust. The
Common Securities will rank on a parity, and payments will be made thereon pro
rata, with such Preferred Securities except that upon a Trust Enforcement Event
under the Declaration of such LBH Trust, the rights of the holders of such
Common Securities to payment in respect of Distributions and payments upon
liquidation, redemption and otherwise will be subordinated to the rights of the
holders of such Preferred Securities. Except in certain limited circumstances,
the holders of Common Securities of an LBH Trust will also be entitled to vote
and appoint, remove or replace any of the LBH Trustees of such LBH Trust. All of
the Common Securities of an LBH Trust will be directly or indirectly owned by
Holdings.
If a Trust Enforcement Event with respect to a Declaration of any LBH Trust
occurs and is continuing, then the holders of Preferred Securities of such LBH
Trust would rely on the enforcement by the Property Trustee of its rights as a
holder of Subordinated Debt against the Company. In addition, the Holders of a
majority in liquidation amount of such Preferred Securities will have the right
to direct the time, method, and place of conducting any proceeding for any
remedy available to the Property Trustee or to direct the exercise of any trust
or power conferred upon the Property Trustee under such Declaration, including
the right to direct the Property Trustee to exercise the remedies available to
it as a holder of Subordinated Debt.
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An Event of Default under the Subordinated Indenture that has occurred and
is continuing constitutes a "Trust Enforcement Event" under the Declaration with
respect to any LBH Trust, provided that pursuant to such Declaration, the holder
of the Common Securities will be deemed to have waived any Trust Enforcement
Event with respect to the Common Securities until all Trust Enforcement Events
with respect to the Preferred Securities have been cured, waived or otherwise
eliminated. Until such Trust Enforcement Event with respect to the Preferred
Securities has been so cured, waived or otherwise eliminated, the Property
Trustee will be deemed to be acting solely on behalf of the Holders of the
Preferred Securities and only the Holders of the Preferred Securities will have
the right to direct the Property Trustee with respect to certain matters under
such Declaration, and therefore the Subordinated Indenture.
Upon the occurrence of a Trust Enforcement Event, the Property Trustee, as
the holder of Subordinated Debt, will have the right under the Subordinated
Indenture to declare the principal of and premium, if any, and interest on such
Subordinated Debt to be immediately due and payable.
If the Property Trustee fails to enforce its rights with respect to
Subordinated Debt, any Holder of Preferred Securities may, to the extent
permitted by applicable law, institute a legal proceeding directly against
Holdings to enforce the Property Trustee's rights under such Subordinated Debt
without first instituting any legal proceeding against the Property Trustee or
any other person or entity. In addition, if a Trust Enforcement Event has
occurred and is continuing and such event is attributable to the failure of
Holdings to pay principal of and premium, if any, and interest or other required
payments on Subordinated Debt on the date such interest, principal or other
payment is otherwise payable, then a Holder of Preferred Securities of such LBH
Trust may, on or after the respective due dates specified in such Subordinated
Debt, institute a proceeding directly against Holdings under the Subordinated
Indenture for enforcement of payment on such Subordinated Debt having a
principal amount equal to the aggregate liquidation amount of the Preferred
Securities held by such Holder (a "Direct Action"). In connection with such
Direct Action, the rights of Holdings will be subrogated to the rights of such
Holder of Preferred Securities under such Declaration to the extent of any
payment made by Holdings to such Holder of Preferred Securities in such Direct
Action. Consequently, Holdings will be entitled to payment of amounts that a
Holder of Preferred Securities receives in respect of an unpaid distribution
that resulted in the bringing of a Direct Action to the extent that such Holder
receives or has already received full payment with respect to such unpaid
distribution from an LBH Trust. The Holders of Preferred Securities of an LBH
Trust will not be able to exercise directly any other remedy available to the
holders of Subordinated Debt.
DESCRIPTION OF GUARANTEES
A Guarantee will be executed and delivered by Holdings concurrently with the
issuance by an LBH Trust of Preferred Securities for the benefit of the Holders
from time to time of such Preferred Securities. Each Guarantee will be qualified
as an indenture under the Trust Indenture Act. The Chase Manhattan Bank will act
as indenture trustee under each Guarantee (the "Guarantee Trustee"). This
Prospectus contains a description of all material provisions of each Guarantee.
The summary of such provisions does not purport to be complete; a copy of the
form of such Guarantees is filed as an exhibit to the Registration Statement of
which this Prospectus forms a part. All capitalized terms set forth below have
the meanings specified in the form of Guarantee. The Guarantee Trustee will hold
each Guarantee for the benefit of the Holders of the Preferred Securities of an
LBH Trust.
GENERAL
Pursuant to and to the extent set forth in each Guarantee, and except as
otherwise set forth in the applicable Prospectus Supplement, Holdings will
irrevocably and unconditionally agree to pay in full the Guarantee Payments (as
defined below) to the Holders of the Preferred Securities, as and when due,
regardless of any defense, right of set-off or counterclaim that such LBH Trust
may have or assert. The
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following payments or Distributions with respect to the Preferred Securities, to
the extent not paid by or on behalf of such LBH Trust (the "Guarantee
Payments"), will be subject to such Guarantee: (i) any accumulated and unpaid
Distributions required to be paid on such Preferred Securities, to the extent
that such LBH Trust has sufficient funds available therefor at the time, (ii)
the Redemption Price with respect to any Preferred Securities called for
redemption, to the extent that such LBH Trust has sufficient funds available
therefor at such time, and (iii) upon a voluntary or involuntary dissolution,
winding up or liquidation of such LBH Trust (unless Subordinated Debt are
distributed to Holders of the Preferred Securities), the lesser of (a) the
aggregate liquidation amount of the Preferred Securities and all accumulated and
unpaid Distributions thereon to the date of payment and (b) the amount of assets
of such LBH Trust remaining available for distribution to Holders of such
Preferred Securities. Holdings' obligation to make a Guarantee Payment may be
satisfied by direct payment of the required amounts by Holdings to the Holders
of the applicable Preferred Securities or by causing such LBH Trust to pay such
amounts to such Holders.
Each Guarantee will apply only to the extent that the applicable LBH Trust
has sufficient funds available to make such payments. If Holdings does not make
interest payments on Subordinated Debt held by an LBH Trust, such LBH Trust will
not be able to pay Distributions on the Preferred Securities issued by such LBH
Trust and will not have funds legally available therefor.
Holdings will also irrevocably and unconditionally guarantee the obligations
of any LBH Trust with respect to such LBH Trust's Common Securities to the same
extent as the Guarantee of the Preferred Securities of such LBH Trust, except
that upon the occurrence and the continuation of a Trust Enforcement Event with
respect to such LBH Trust, holders of such Preferred Securities shall have a
priority over holders of such Common Securities with respect to Distributions
and payments on liquidation, redemption or otherwise.
Holdings will, through the Declaration, the Guarantee, the Subordinated Debt
and the Subordinated Indenture, taken together, fully and unconditionally
guarantee each LBH Trust's obligations under the Preferred Securities of such
LBH Trust. No single document standing alone or operating in conjunction with
fewer than all of the other documents constitutes such guarantee. It is only the
combined operation of these documents that has the effect of providing a full
and unconditional guarantee of each LBH Trust's obligations under the Preferred
Securities of such LBH Trust.
STATUS OF THE GUARANTEES
Each Guarantee will constitute an unsecured obligation of Holdings and will
rank (i) subordinate and junior in right of payment to all other liabilities of
Holdings, (ii) on a parity with the most senior preferred or preference stock
now or hereafter issued by Holdings and with any guarantee now or hereafter
entered into by Holdings in respect of any preferred securities of any affiliate
of Holdings and (iii) senior to Holding's common stock. The Guarantees will not
place a limitation on the amount of additional Senior Debt that may be incurred
by Holdings.
Each Guarantee will constitute a guarantee of payment and not of collection
(that is, the guaranteed party may institute a legal proceeding directly against
Holdings to enforce its rights under a Guarantee without first instituting a
legal proceeding against any other person or entity). Each such Guarantee will
not be discharged except by payment of the Guarantee Payments in full to the
extent not paid by the applicable LBH Trust or upon distribution of Subordinated
Debt to the holders of the applicable Preferred Securities in exchange for all
such Preferred Securities.
CERTAIN COVENANTS OF HOLDINGS
In each Guarantee, Holdings will covenant that, so long as any Trust
Securities issued by the applicable LBH Trust remain outstanding, if (i) there
shall have occurred any Event of Default under the
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Subordinated Indenture with respect to the applicable series of Subordinated
Debt held by such LBH Trust, (ii) Holdings shall be in default with respect to
its payment of any obligations under such Guarantee or (iii) Holdings shall have
given notice of its election of an Extension Period as provided in the
certificate evidencing such Subordinated Debt and shall not have rescinded such
notice, or such Extension Period or any extension thereof shall be continuing,
then Holdings will not, and will not permit any subsidiary to, (x) declare or
pay any dividends or distributions on, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of Holdings' capital stock or (y) make
any payment of principal, interest or premium, if any, on or repay, repurchase
or redeem any debt securities of Holdings that rank on a parity with or junior
in interest to Subordinated Debt or make any guarantee payments with respect to
any guarantee by Holdings of the debt securities of any subsidiary of Holdings
if such guarantee ranks on a parity with or junior in interest to such
Subordinated Debt (other than (a) dividends or distributions in common stock of
Holdings, (b) payments under the applicable Guarantee made by Holdings in
respect of the Trust Securities of such LBH Trust, (c) any declaration of a
dividend in connection with the implementation of a shareholders' rights plan,
or the issuance of stock under any such plan in the future, or the redemption or
repurchase of any such rights pursuant thereto, and (d) purchases of common
stock related to the issuance of common stock or rights under any of Holdings'
benefit plans).
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes that do not materially adversely affect
the rights of holders of Preferred Securities to which a Guarantee relates (in
which case no consent of such holders will be required), a Guarantee may not be
amended without the prior approval of the holders of not less than 66 2/3% of
the aggregate liquidation amount of the outstanding Preferred Securities to
which a Guarantee relates. The manner of obtaining any such approval will be as
set forth in an accompanying Prospectus Supplement. All guarantees and
agreements contained in a Guarantee shall bind the successors, assigns,
receivers, trustees and representatives of Holdings and shall inure to the
benefit of the Holders of the related Preferred Securities then outstanding.
EVENTS OF DEFAULT
An event of default under a Guarantee will occur upon the failure of
Holdings to perform any of its payment or other obligations thereunder. The
Holders of not less than a majority in aggregate liquidation amount of the
Preferred Securities to which a Guarantee relates 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 such Guarantee.
If the Guarantee Trustee fails to enforce a Guarantee, then any Holder of
Preferred Securities to which such Guarantee relates may institute a legal
proceeding directly against Holdings to enforce the Guarantee Trustee's rights
under such Guarantee, without first instituting a legal proceeding against the
LBH Trust that issued such Preferred Securities, the Guarantee Trustee or any
other person or entity.
Holdings, as guarantor, will be required to file annually with the Guarantee
Trustee a certificate as to whether or not Holdings is in compliance with all
the conditions and covenants applicable to it under any outstanding Guarantees.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, other than during the occurrence and continuance of a
default by Holdings in performance of a Guarantee, undertakes to perform only
such duties as are specifically set forth in the Guarantee and, after default
with respect to a Guarantee (that has not been cured or waived) that is actually
known to a responsible officer of the Guarantee Trustee, must exercise the same
degree of care
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and skill as a prudent person would exercise or use under the circumstances in
the conduct of his or her own affairs. Subject to this provision, the Guarantee
Trustee is under no obligation to exercise any of the powers vested in it by a
Guarantee at the request of any Holder of Preferred Securities to which such
Guarantee relates unless it is offered reasonable indemnity against the costs,
expenses and liabilities that might be incurred thereby.
TERMINATION OF THE GUARANTEES
Each Guarantee will terminate as to the Preferred Securities issued by an
LBH Trust and be of no further force and effect upon full payment of the
Redemption Price of all Preferred Securities of such LBH Trust, upon full
payment of the amounts payable upon liquidation of such LBH Trust or upon
distribution of Subordinated Debt held by such LBH Trust to the holders of the
Preferred Securities of such LBH Trust in exchange for all of the Preferred
Securities of such LBH Trust. Each Guarantee will continue to be effective or
will be reinstated, as the case may be, if at any time any Holder of related
Preferred Securities issued by an LBH Trust must restore payment of any sums
paid under such Preferred Securities or such Guarantee.
GOVERNING LAW
The Guarantees will be governed by and construed and interpreted in
accordance with the laws of the State of New York.
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DESCRIPTION OF OFFERED PREFERRED STOCK
The following is a description of certain general terms and provisions of
the Offered Preferred Stock. The particular terms of any series of any such
Offered Preferred Stock will be described in an applicable Prospectus
Supplement. If so indicated in such a Prospectus Supplement, the terms of any
such series may differ from the terms set forth below.
The summary of terms of any Offered Preferred Stock contained in this
Prospectus and in an applicable Prospectus Supplement does not purport to be
complete and is subject to, and qualified in its entirety by, the provisions of
Holdings' Restated Certificate of Incorporation (the "Restated Certificate of
Incorporation"), filed as an exhibit to the Registration Statements of which
this Prospectus is a part, and the certificate of designations relating to such
series of Preferred Stock (the "Certificate of Designation"), the form of which
is filed as an exhibit to the Registration Statement and which will be filed
with the Secretary of State of Delaware, at or prior to the time of issuance of
such series of Preferred Stock.
GENERAL
The Restated Certificate of Incorporation authorizes the issuance of
38,000,000 shares of Preferred Stock, $1.00 par value per share. As of May 31,
1998, there were 32,100 shares of Cumulative Convertible Voting Preferred Stock,
Series A (the "Series A Preferred Stock"), 12,967,900 shares of Cumulative
Convertible Voting Preferred Stock, Series B (the "Series B Preferred Stock"),
500,000 shares of 5.94% Cumulative Preferred Stock, Series C (the "Series C
Preferred Stock") and 1,000 shares of Redeemable Voting Preferred Stock (the
"Redeemable Preferred Stock") issued and outstanding.
SERIES A PREFERRED STOCK. The shares of Series A Preferred Stock are
entitled to receive preferential dividends, as and when declared by the Board of
Directors out of funds legally available therefor, in an amount equal to $1.955
per share per annum, payable quarterly on a cumulative basis. The liquidation
preference of the Series A Preferred Stock is equal to $39.10 plus accumulated
and unpaid dividends. Holdings may redeem the Series A Preferred Stock at any
time in whole or in part, at a price per share equal to $39.10, but only if
there is a public market for the Holdings' common stock and the average market
price of shares of Holdings' common stock exceeds the conversion price on the
date notice of redemption is given.
Each share of Series A Preferred Stock is convertible, at any time prior to
the date of redemption, into 0.3178313 of a share of Holdings' common stock,
subject to adjustment, provided that at least 250,000 shares of Series A
Preferred Stock (or such lesser number of shares then outstanding) must be
converted each time. Holders of Series A Preferred Stock are entitled to vote,
together with the holders of Holdings' common stock as one class (except as
otherwise required by law), on all matters to be voted on by stockholders of
Holdings. Each share of Series A Preferred Stock is entitled to the number of
votes per share equal to the quotient obtained by dividing $39.10 by the
conversion price then in effect. In addition, the holders of the Series A
Preferred Stock have voting rights in certain other circumstances.
SERIES B PREFERRED STOCK. The terms of the Series B Preferred Stock
(including dividend rate, voting rights and liquidation preference) are
identical in all material respects to the terms of the Series A Preferred Stock,
except that conversion of the Series B Preferred Stock is not subject to the
restriction in the terms of the Series A Preferred Stock requiring that at least
250,000 shares thereof be converted at any one time.
SERIES C PREFERRED STOCK. The Company issued depositary receipts for
5,000,000 Depositary Shares, each of which represents 1/10th of a share of
Series C Preferred Stock. The shares of Series C Preferred Stock are entitled to
receive preferential dividends, as and when declared by the Board of Directors
out of funds legally available therefor, in an amount equal to $29.70 per share
per annum (equivalent to $2.97 per Depositary Share), payable quarterly on a
cumulative basis. The amount of dividends payable in respect of the Series C
Preferred Stock will be adjusted in the event of certain amendments to the
Internal Revenue
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Code of 1986, as amended. The liquidation preference of the Series C Preferred
Stock is equal to $500.00 per share (equivalent to $50.00 per Depositary Share)
plus accumulated and unpaid dividends. On and after May 31, 2008, Holdings may
redeem shares of Series C Preferred Stock at a price per share equal to $500.00
(equivalent to $50.00 per Depositary Share) plus accumulated and unpaid
dividends. The Series C Preferred Stock has no voting rights except as required
by law, in the event that dividends are in arrears for six calendar quarters and
in certain other limited circumstances. If the holders of Series C Preferred
Stock are entitled to vote, each share has one vote per share.
REDEEMABLE PREFERRED STOCK. As of the date of this Prospectus, American
Express Company and Nippon Life Insurance Company together own all of the issued
and outstanding shares of Redeemable Preferred Stock.
The shares of Redeemable Preferred Stock are entitled to receive
preferential dividends, as and when declared by the Board of Directors out of
funds legally available therefor, on a cumulative basis. Beginning on December
1, 1994, the holders of Redeemable Preferred Stock are entitled to receive
annual dividends in an amount equal to, in the aggregate, 50% of the amount, if
any, by which the Company's net income for the applicable dividend period for
the fiscal year exceeds $400 million, up to a maximum of $50 million for any
such period (pro rated for the last dividend period which runs from December 1,
2001 to May 31, 2002) (the "Dividend Formula"). The liquidation preference per
share of the Redeemable Preferred Stock is $1.00 plus accumulated and unpaid
dividends and accrued interest, if any, thereon at a specified rate.
Subject to funds being legally available therefor, Holdings is required to
redeem all of the Redeemable Preferred Stock on the final dividend payment date
therefor, or as soon as practicable thereafter when funds become legally
available, at a price per share equal to the liquidation preference referred to
above. In addition, if a Designated Event (as defined in the Restated
Certificate of Incorporation) occurs, the holders of the Redeemable Preferred
Stock have the right to require Holdings to redeem, out of funds legally
available therefor, all of the Redeemable Preferred Stock for an aggregate
redemption price equal to $200 million if such Designated Event takes place
prior to November 30, 1998, declining $50 million per year thereafter.
Holders of Redeemable Preferred Stock are entitled to vote, together with
the holders of Holdings' common stock as one class, on all matters to be voted
on by stockholders of Holdings. Notwithstanding the foregoing, American Express
has agreed that so long as it or any of its subsidiaries holds any shares of the
Redeemable Preferred Stock, it will vote such shares in the same proportion as
the votes cast by the holders of shares of Holdings' common stock on matters to
be voted on by stockholders of Holdings generally. Each share of Redeemable
Preferred Stock is entitled to 1,059 votes. In addition, if the equivalent of
six quarterly dividends (whether or not consecutive) to which the holders of the
Redeemable Preferred Stock are entitled in accordance with the Dividend Formula,
or to which the holders of any Parity Preferred Stock are entitled pursuant to
the terms of such Parity Preferred Stock, are in arrears, then the authorized
number of directors of Holdings shall be increased by two and the holders of the
Redeemable Preferred Stock will have the right (voting as a class with the
holders of any other Parity Preferred Stock of Holdings upon which like voting
rights have been conferred and are exercisable) to elect such two directors
until such time as all accumulated dividends have been paid. In addition, the
holders of Redeemable Preferred Stock have voting rights in certain other
circumstances.
------------------------
Subject to the Restated Certificate of Incorporation and to any limitations
contained in then outstanding Preferred Stock, Holdings may issue additional
classes or series of Preferred Stock, at any time or from time to time, with
such powers, preferences and relative, participating, optional or other special
rights and qualifications, limitations or restrictions thereof, as the Board of
Directors or any duly authorized committee thereof shall determine, all without
further action of the stockholders, including holders of then outstanding
Preferred Stock, of Holdings.
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The Offered Preferred Stock will have the dividend, liquidation, redemption
and voting rights set forth below unless otherwise provided in an applicable
Prospectus Supplement. Reference is made to such Prospectus Supplement for
specific terms, including (1) the designation of such Offered Preferred Stock;
(2) the number of shares of such Offered Preferred Stock, the liquidation
preference per share and the initial offering price of such Offered Preferred
Stock; (3) the dividend rate(s), period(s) and/or payment date(s) or method(s)
of calculation thereof applicable to such Offered Preferred Stock; (4) the date
from which dividends on such Offered Preferred Stock shall accumulate, if
applicable; (5) the procedures for any auction and remarketing, if any, of such
Offered Preferred Stock; (6) the provision of a sinking fund, if any, for such
Offered Preferred Stock; (7) the provision for redemption, if applicable, of
such Offered Preferred Stock; (8) any listing of such Offered Preferred Stock on
any securities exchange; (9) the terms and conditions, if applicable, upon which
such Offered Preferred Stock will be convertible into or exchangeable for
Holdings' common stock or other securities, and whether at the option of the
holder thereof or the Company; (10) whether such Offered Preferred Stock will
rank senior or junior to or on a parity with any other class or series of
Offered Preferred Stock; (11) the voting rights, if any, of such Offered
Preferred Stock; (12) any conversion or exchange rights of such Offered
Preferred Stock; (13) whether Holdings has elected to offer Depositary Shares
with respect to such Offered Preferred Stock as described below under
"Depositary Shares"; (14) any other specific terms, preferences, rights
limitations or restrictions of such Offered Preferred Stock; and (15) a
discussion of Federal income tax considerations applicable to such Offered
Preferred Stock.
The Offered Preferred Stock will, when issued, be fully paid and
non-assessable.
RANK
Each series of Offered Preferred Stock will, with respect to dividends or
upon liquidation, dissolution or winding up, rank (i) senior to all common stock
of Holdings, and to all equity securities issued by Holdings the terms of which
specifically provide that such equity securities rank junior to such Offered
Preferred Stock (collectively referred to as "Junior Securities"); (ii) on a
parity with equity securities issued by Holdings if the terms of such Offerred
Preferred Stock provide that it shall rank on a parity with such equity
securities (collectively referred to as "Parity Preferred Stock"); and (iii)
junior to all equity securities issued by Holdings the terms of which
specifically provide that such equity securities rank senior to such Offered
Preferred Stock (collectively referred to as "Senior Securities").
Each series of Offered Preferred Stock will rank on a parity with the Series
A Preferred Stock, the Series B Preferred Stock and the Redeemable Preferred
Stock as to dividends and upon liquidation, dissolution or winding up.
DIVIDENDS
Holders of shares of Offered Preferred Stock shall be entitled to receive,
when, as and if declared by the Board of Directors out of funds legally
available therefor, dividends payable on such dates and at such rates per share
per annum as set forth in an applicable Prospectus Supplement. Each such
dividend will be payable to the holders of record as they appear on the stock
books of Holdings (or, if applicable, the records of the Depositary referred to
below under "Depositary Shares") on such record dates as will be fixed by the
Board of Directors or a duly authorized committee thereof, or specified in such
Prospectus Supplement. No dividends may be declared or paid or set apart for
payment on any Parity Preferred Stock with regard to the payment of dividends
unless there shall also be or have been declared and paid or set apart for
payment on the Offered Preferred Stock, dividends for all dividend payment
periods of such Offered Preferred Stock ending on or before the dividend payment
date of such Parity Preferred Stock, ratably in proportion to the respective
amounts of dividends (x) accumulated and unpaid or payable on such Parity
Preferred Stock, on the one hand, and (y) accumulated and unpaid through the
dividend payment period or periods of Offered Preferred Stock next preceding
such dividend payment date, on the other hand.
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Except as set forth in the preceding sentence, unless full cumulative
dividends on the Offered Preferred Stock have been paid through the most
recently completed dividend period for such Offered Preferred Stock, no
dividends (other than in Holdings' common stock) may be paid or declared and set
aside for payment or other distribution made upon such common stock or on any
other stock of Holdings that are Junior Securities or Parity Preferred Stock as
to dividends, nor may any Holdings' common stock or shares of any other stock of
Holdings that are Junior Securities or Parity Preferred Stock as to dividends be
redeemed, purchased or otherwise acquired for any consideration (or any payment
be made to or available for a sinking fund for the redemption of any shares of
such stock; provided, however, that any moneys theretofore deposited in any
sinking fund with respect to any preferred stock of Holdings in compliance with
the provisions of such sinking fund may thereafter be applied to the purchase or
redemption of such preferred stock in accordance with the terms of such sinking
fund, regardless of whether at the time of such application full cumulative
dividends upon shares of such Offered Preferred Stock outstanding to the last
dividend payment date shall have been paid or declared and set apart for
payment), provided that any such Junior Securities or Parity Preferred Stock or
Holdings' common stock may be converted into or exchanged for shares of stock
that are Junior Securities as to dividends.
Payment of dividends on any series of Offered Preferred Stock may be
restricted by loan agreements, indentures or other transactions entered into by
Holdings.
CONVERTIBILITY
No series of Offered Preferred Stock offered hereby will be convertible
into, or exchangeable for, other securities or property except as set forth in
an applicable Prospectus Supplement.
REDEMPTION AND SINKING FUND
No series of Offered Preferred Stock offered hereby will be redeemable or
receive the benefit of a sinking fund except as set forth in an applicable
Prospectus Supplement.
LIQUIDATION
Upon any voluntary or involuntary liquidation, dissolution or winding up of
Holdings, holders of any series of Offered Preferred Stock then outstanding
shall be entitled to receive out of the assets of Holdings available for
distribution to its stockholders, after any distribution is made to or set aside
for holders of Senior Securities and before any distribution is made to holders
of Junior Securities, the liquidation preference per share specified in an
applicable Prospectus Supplement, if any, in each case together with any
accumulated and unpaid dividends. After payment of the full amount of the
liquidation preference and such dividends, the holders of shares of Offered
Preferred Stock will not be entitled to any further participation in any
distribution of assets by Holdings. If, upon any liquidation, dissolution or
winding up of the assets of Holdings, the assets of Holdings, or proceeds
thereof, distributable among the holders of shares of Parity Preferred Stock
shall be insufficient to pay in full the preferential amount aforesaid, then
such assets, or the proceeds thereof, shall be distributable among such holders
ratably in accordance with the respective amounts which would be payable on such
shares if all amounts payable thereon were paid in full. Neither a consolidation
or merger of Holdings with or into any other corporation, nor a merger of any
other corporation with or into Holdings, nor a sale or transfer of all or any
part of Holdings' assets shall be considered a liquidation, dissolution or
winding up of Holdings.
The Restated Certificate of Incorporation does not contain any language
requiring funds to be set aside to protect the liquidation preference of the
Offered Preferred Stock, although such liquidation preference may be
substantially in excess of the par value of the Offered Preferred Stock. In
addition, Holdings is not aware of any provision of Delaware law or any
controlling decision of the courts of the State of Delaware (the state of
incorporation of Holdings) that requires a restriction upon the surplus of
Holdings solely because the liquidation preference of Offered Preferred Stock
will exceed its par value.
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Consequently, there will be no restriction upon surplus of Holdings solely
because the liquidation preference of Offered Preferred Stock will exceed the
par value and there will be no remedies available to holders of Offered
Preferred Stock before or after the payment of any dividend, other than in
connection with the liquidation of Holdings, solely by reason of the fact that
such dividend would reduce the surplus of Holdings to an amount less than the
difference between the liquidation preference of Offered Preferred Stock and its
par value.
VOTING
Except as provided by Delaware law, no series of Offered Preferred Stock
will be entitled to vote except as provided in an applicable Prospectus
Supplement.
MISCELLANEOUS
The holders of Offered Preferred Stock will have no preemptive rights.
Shares of Offered Preferred Stock redeemed or otherwise reacquired by Holdings
shall be retired and, upon the taking of any action required by applicable law,
resume the status of authorized and unissued shares of Offered Preferred Stock
undesignated as to series, and shall be available for subsequent issuance. The
shares of a series of Offered Preferred Stock will not have any preferences,
voting powers or relative, participating, optional or other special rights
except as set forth above or in an applicable Prospectus Supplement, the
Restated Certificate of Incorporation or the related Certificate of Designation
or as otherwise required by law. Neither the par value nor the liquidation
preference is indicative of the price at which the Offered Preferred Stock will
actually trade on or after the date of issuance.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for each series of Offered Preferred Stock
will be described in an applicable Prospectus Supplement.
DEPOSITARY SHARES
GENERAL. Holdings may, at its option, elect to offer fractional shares of
Offered Preferred Stock, rather than full shares of Offered Preferred Stock. In
the event such option is exercised, Holdings will issue to the public receipts
for Depositary Shares, each of which will represent a fraction (to be set forth
in the Prospectus Supplement relating to a particular series of Offered
Preferred Stock) of a share of a particular series of Offered Preferred Stock as
described below.
The shares of any series of Offered Preferred Stock represented by
Depositary Shares will be deposited under a Deposit Agreement (the "Deposit
Agreement") between Holdings and a bank or trust company selected by Holdings
having its principal office in the United States and having a combined capital
and surplus of at least $50,000,000 (the "Depositary"). Subject to the terms of
the Deposit Agreement, each owner of a Depositary Share will be entitled, in
proportion to the applicable fraction of a share of Offered Preferred Stock
represented by such Depositary Share, to all the rights and preferences of the
Offered Preferred Stock represented thereby (including dividend, voting,
redemption and liquidation rights).
The Depositary Shares will be evidenced by depositary receipts issued
pursuant to the Deposit Agreement ("Depositary Receipts"). Depositary Receipts
will be distributed to those persons purchasing the fractional shares of Offered
Preferred Stock in accordance with the terms of the offering. Copies of the
forms of Deposit Agreement and Depositary Receipt are filed as exhibits to the
Registration Statement of which this Prospectus is a part, and the following
summary is qualified in its entirety by reference to such exhibits.
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Pending the preparation of definitive engraved Depositary Receipts, the
Depositary may, upon the written order of Holdings, issue temporary Depositary
Receipts substantially identical to (and entitling the holders thereof to all
the rights pertaining to) the definitive Depositary Receipts but not in
definitive form. Definitive Depositary Receipts will be prepared thereafter
without unreasonable delay, and temporary Depositary Receipts will be
exchangeable for definitive Depositary Receipts at Holdings' expense. In
addition, subject to the terms of the Deposit Agreement, holders of Depositary
Shares are entitled to withdraw and receive, upon surrender of Depositary
Receipts, certificates evidencing the fractional number of shares of Offered
Preferred Stock represented by such Depositary Receipts.
DIVIDENDS AND OTHER DISTRIBUTIONS. The Depositary will distribute all cash
dividends or other cash distributions received in respect of the Offered
Preferred Stock to the record holders of Depositary Shares relating to such
Offered Preferred Stock in proportion to the number of such Depositary Shares
owned by such holders.
In the event of a distribution other than in cash, the Depositary will
distribute property received by it to the record holders of Depositary Shares
entitled thereto, unless the Depositary determines that it is not feasible to
make such distribution, in which case the Depositary may, with the approval of
Holdings, sell such property and distribute the net proceeds from such sale to
such holders.
REDEMPTION OF DEPOSITARY SHARES. If a series of Offered Preferred Stock
represented by Depositary Shares is subject to redemption, the Depositary Shares
will be redeemed from the proceeds received by the Depositary resulting from the
redemption, in whole or in part, of such series of Offered Preferred Stock held
by the Depositary. The redemption price per Depositary Share will be equal to
the applicable fraction of the redemption price per share payable with respect
to such series of the Offered Preferred Stock. Whenever Holdings redeems shares
of Offered Preferred Stock held by the Depositary, the Depositary will redeem as
of the same redemption date the number of Depositary Shares representing the
shares of Offered Preferred Stock so redeemed. If fewer than all the Depositary
Shares are to be redeemed, the Depositary Shares to be redeemed will be selected
by lot or pro rata as may be determined by the Depositary.
VOTING THE OFFERED PREFERRED STOCK. Upon receipt of notice of any meeting
at which the holders of the Offered Preferred Stock are entitled to vote, the
Depositary will mail the information contained in such notice of meeting to the
record holders of the Depositary Shares relating to such Offered Preferred
Stock. Each record holder of such Depositary Shares on the record date (which
will be the same date as the record date for the Offered Preferred Stock) will
be entitled to instruct the Depositary as to the exercise of the voting rights
pertaining to the amount of the Offered Preferred Stock represented by such
holder's Depositary Shares. The Depositary will endeavor, insofar as
practicable, to vote the amount of the Offered Preferred Stock represented by
such Depositary Shares in accordance with such instructions, and Holdings will
agree to take all action which may be deemed necessary by the Depositary in
order to enable the Depositary to do so. The Depositary will abstain from voting
shares of the Offered Preferred Stock to the extent it does not receive specific
instructions from the holders of Depositary Shares representing such Offered
Preferred Stock.
AMENDMENT AND TERMINATION OF THE DEPOSITARY AGREEMENT. The form of
Depositary Receipt evidencing the Depositary Shares and any provision of the
Deposit Agreement may at any time be amended by agreement between Holdings and
the Depositary. However, any amendment that materially and adversely alters the
rights of the holders of Depositary Shares will not be effective unless such
amendment has been approved by the holders of at least a majority of the
Depositary Shares then outstanding. The Deposit Agreement may be terminated by
Holdings or the Depositary only if (i) all outstanding Depositary Shares have
been redeemed or (ii) there has been a final distribution in respect of the
Offered Preferred Stock in connection with any liquidation, dissolution or
winding up of Holdings and such distribution has been distributed to the holders
of Depositary Receipts.
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CHARGES OF DEPOSITARY. Holdings will pay all transfer and other taxes and
governmental charges arising solely from the existence of the depositary
arrangements. Holdings will pay charges of the Depositary in connection with the
initial deposit of the Offered Preferred Stock and any redemption of the Offered
Preferred Stock. Holders of Depositary Receipts will pay other transfer and
other taxes and governmental charges and such other charges, including a fee for
the withdrawal of shares of Offered Preferred Stock upon surrender of Depositary
Receipts, as are expressly provided in the Deposit Agreement to be for their
accounts.
MISCELLANEOUS. The Depositary will forward to holders of Depositary
Receipts all reports and communications from Holdings that are delivered to the
Depositary and which Holdings is required to furnish to the holders of the
Offered Preferred Stock.
Neither the Depositary nor Holdings will be liable if it is prevented or
delayed by law or any circumstance beyond its control in performing its
obligations under the Deposit Agreement. The obligations of Holdings and the
Depositary under the Deposit Agreement will be limited to performance in good
faith of their duties thereunder and they will not be obligated to prosecute or
defend any legal proceeding in respect of any Depositary Shares or Offered
Preferred Stock unless satisfactory indemnity is furnished. They may rely upon
written advice of counsel or accountants, or upon information provided by
persons presenting Offered Preferred Stock for deposit, holders of Depositary
Receipts or other persons believed to be competent and on documents believed to
be genuine.
RESIGNATION AND REMOVAL OF DEPOSITARY. The Depositary may resign at any
time by delivering to Holdings notice of its election to do so, and Holdings may
at any time remove the Depositary, any such resignation or removal to take
effect upon the appointment of a successor Depositary and its acceptance of such
appointment. Such successor Depositary must be appointed within 60 days after
delivery of the notice of resignation or removal and must be a bank or trust
company having its principal office in the United States and having a combined
capital and surplus of at least $50,000,000.
LIMITATIONS ON ISSUANCE OF BEARER SECURITIES
In compliance with United States federal tax laws and regulations, Bearer
Securities may not be offered or sold during the restricted period (as defined
under "Description of Debt Securities--Denominations, Registration and
Transfer"), or delivered in definitive form in connection with a sale during the
restricted period, in the United States or to United States persons other than
to (a) the United States office of (i) an international organization (as defined
in Section 7701(a)(18) of the Code), (ii) a foreign central bank (as defined in
Section 895 of the Code), or (iii) any underwriter, agent, or dealer offering or
selling Bearer Securities during the restricted period (a "Distributor")
pursuant to a written contract with the issuer or with another Distributor, that
purchases Bearer Securities for resale or for its own account and agrees to
comply with the requirements of Section 165(j)(3)(A), (B), or (C) of the Code,
or (b) the foreign branch of a United States financial institution purchasing
for its own account or for resale, which institution agrees to comply with the
requirements of Section 165(j)(3)(A), (B), or (C) of the Code. In addition, a
sale of a Bearer Security may be made during the restricted period to a United
States person who acquired and holds the Bearer Security on the Certification
Date through a foreign branch of a United States financial institution that
agrees to comply with the requirements of Section 165(j)(3)(A), (B) or (C) of
the Code. Any Distributor (including an affiliate of a Distributor) offering or
selling Bearer Securities during the restricted period must agree not to offer
or sell Bearer Securities in the United States or to United States persons
(except as discussed above) and must employ procedures reasonably designed to
ensure that its employees or agents directly engaged in selling Bearer
Securities are aware of these restrictions.
Bearer Securities and their interest coupons will bear a legend
substantially to the following effect: "Any United States person who holds this
obligation will be subject to limitations under the United States
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income tax laws, including the limitations provided in Section 165(j) and
1287(a) of the Internal Revenue Code."
Purchasers of Bearer Securities may be affected by certain limitations under
United States tax laws. See "United States Taxation--Backup Withholding and
Information Reporting." As used herein, a "United States person" means a citizen
or resident of the United States, a corporation or partnership created or
organized in or under the laws of the United States or any political subdivision
thereof, an estate the income of which is subject to United States federal
income taxation regardless of its source or a trust that is subject to the
supervision of a court within the United States and the control of a United
States person as described in section 7701(a)(30) of the Code, and "United
States" means the United States of America (including the States and the
District of Columbia) and its possessions including Puerto Rico, the U.S. Virgin
Islands, Guam, American Samoa, Wake Island and the Northern Mariana Islands. The
term "Non-United States Holder" means any Holder which is not a United States
person.
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UNITED STATES TAXATION
In the opinion of Simpson Thacher & Bartlett, special United States tax
counsel to the Company, the following discussion is an accurate summary of the
material United States federal income tax consequences of the purchase,
ownership and disposition of Debt Securities as of the date hereof. Except where
noted, it deals only with Debt Securities held as capital assets by United
States Holders and does not deal with special situations, such as those of
dealers in securities or currencies, financial institutions, tax-exempt
entities, life insurance companies, persons holding Debt Securities or
Depositary Shares as a part of a hedging, integrated or conversion transaction,
constructive sale or a straddle or United States Holders whose "functional
currency" is not the U.S. dollar. Furthermore, the discussion below is based
upon the provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), and regulations, rulings and judicial decisions thereunder as of the
date hereof, and such authorities may be repealed, revoked or modified so as to
result in federal income tax consequences different from those discussed below.
This summary deals only with Debt Securities that are classified as debt for
United States federal income tax purposes. Any special United States federal
income tax considerations relevant to a particular issue of Debt Securities or
Depositary Shares will be provided in the applicable Prospectus Supplement.
PERSONS CONSIDERING THE PURCHASE, OWNERSHIP OR DISPOSITION OF DEBT SECURITIES OR
DEPOSITARY SHARES SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE FEDERAL
INCOME TAX CONSEQUENCES IN LIGHT OF THEIR PARTICULAR SITUATIONS AS WELL AS ANY
CONSEQUENCES ARISING UNDER THE LAWS OF ANY OTHER TAXING JURISDICTION.
Certain United States federal income tax considerations applicable to any
offering of Preferred Securities will be described in the Prospectus Supplement
relating thereto.
PAYMENTS OF INTEREST
Except as set forth below, interest on a Debt Security will generally be
taxable to a United States Holder as ordinary income at the time it is paid or
accrued in accordance with the United States Holder's method of accounting for
tax purposes. As used herein, a "United States Holder" of a Debt Security means
a holder that is a citizen or resident of the United States, a corporation or
partnership created or organized in or under the laws of the United States or
any political subdivision thereof, an estate the income of which is subject to
United States federal income taxation regardless of its source or a trust (x)
that is subject to the supervision of a court within the United States and the
control of a United States person as described in section 7701(a)(30) of the
Code or (y) that has a valid election in effect under applicable U.S. Treasury
regulations to be treated as a United States person. A "Non-United States
Holder" is a holder that is not a United States Holder.
ORIGINAL ISSUE DISCOUNT
United States Holders of Debt Securities issued with original issue discount
("OID") will be subject to special tax accounting rules, as described in greater
detail below. United States Holders of such Debt Securities should be aware that
they generally must include OID in gross income in advance of the receipt of
cash attributable to that income. However, United States Holders of such Debt
Securities generally will not be required to include separately in income cash
payments received on the Debt Securities, even if denominated as interest, to
the extent such payments do not constitute qualified stated interest (as defined
below). Debt Securities issued with OID will be referred to as "Original Issue
Discount Debt Securities." Notice will be given in the applicable Prospectus
Supplement when the Company determines that a particular Debt Security will be
an Original Issue Discount Debt Security. This summary is based upon Treasury
regulations applicable to debt instruments issued with OID (the "OID
Regulations").
A Debt Security with an "issue price" that is less than its stated
redemption price at maturity (the sum of all payments to be made on the Debt
Security other than "qualified stated interest") will be issued with OID if such
difference is at least 0.25 percent of the stated redemption price at maturity
multiplied by the number of complete years to maturity. The "issue price" of
each Debt Security in a particular offering will be the first price at which a
substantial amount of that particular offering is sold (other than to an
underwriter, placement agent or wholesaler). The term "qualified stated
interest" means stated interest
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that is unconditionally payable in cash or in property (other than debt
instruments of the issuer) at least annually at a single fixed rate or, subject
to certain conditions, based on one or more indices. Interest is payable at a
single fixed rate only if the rate appropriately takes into account the length
of the interval between payments. Notice will be given in the applicable
Prospectus Supplement when the Company determines that a particular Debt
Security will bear interest that is not qualified stated interest.
In the case of a Debt Security issued with de minimis OID (I.E., discount
that is not OID because it is less than 0.25 percent of the stated redemption
price at maturity multiplied by the number of complete years to maturity), the
United States Holder generally must include such de minimis OID in income as
principal payments on the Debt Securities are made in proportion to the stated
principal amount of the Debt Security. Any amount of de minimis OID that has
been included in income shall be treated as capital gain.
Original Issue Discount Debt Securities that may be redeemed prior to their
stated maturity at the option of the Company and/or at the option of the Holder
may be subject to rules that differ from the general rules discussed herein.
Persons considering the purchase of Original Issue Discount Debt Securities with
such features should carefully examine the applicable Prospectus Supplement and
should consult their own tax advisors with respect to such features since the
tax consequences with respect to OID will depend, in part, on the particular
terms and features of the Debt Securities.
United States Holders of Original Issue Discount Debt Securities with a
maturity upon issuance of more than one year must, in general, include OID in
income in advance of the receipt of some or all of the related cash payments.
The amount of OID includible in income by the initial United States Holder of an
Original Issue Discount Debt Security is the sum of the "daily portions" of OID
with respect to the Debt Security for each day during the taxable year or
portion of the taxable year in which such United States Holder held such Debt
Security ("accrued OID"). The daily portion is determined by allocating to each
day in any "accrual period" a pro rata portion of the OID allocable to that
accrual period. The "accrual period" for an Original Issue Discount Debt
Security may be of any length and may vary in length over the term of the Debt
Security, provided that each accrual period is no longer than one year and each
scheduled payment of principal or interest occurs on the first day or the final
day of an accrual period. The amount of OID allocable to any accrual period is
an amount equal to the excess, if any, of (a) the product of the Debt Security's
adjusted issue price at the beginning of such accrual period and its yield to
maturity (determined on the basis of compounding at the close of each accrual
period and properly adjusted for the length of the accrual period) over (b) the
sum of any qualified stated interest allocable to the accrual period. OID
allocable to a final accrual period is the difference between the amount payable
at maturity (other than a payment of qualified stated interest) and the adjusted
issue price at the beginning of the final accrual period. Special rules will
apply for calculating OID for an initial short accrual period. The "adjusted
issue price" of a Debt Security at the beginning of any accrual period is equal
to its issue price increased by the accrued OID for each prior accrual period
(determined without regard to the amortization of any acquisition or bond
premium, as described below) and reduced by any payments made on such Debt
Security (other than qualified stated interest) on or before the first day of
the accrual period. Under these rules, a United States Holder will have to
include in income increasingly greater amounts of OID in successive accrual
periods. The Company is required to provide information returns stating the
amount of OID accrued on Debt Securities held of record by persons other than
corporations and other exempt holders.
In the case of certain Original Issue Discount Debt Securities that are
floating rate Debt Securities, both the "yield to maturity" and "qualified
stated interest" will be determined solely for purposes of calculating the
accrual of OID as though the Debt Security will bear interest in all periods at
a fixed rate generally equal to the rate that would be applicable to interest
payments on the Debt Security on its date of issue or, in the case of certain
floating rate Debt Securities, the rate that reflects the yield to maturity that
is reasonably expected for the Debt Security. Additional rules may apply if
interest on a floating rate Debt Security is based on more than one interest
index. Persons considering the purchase of floating rate Debt Securities should
carefully examine the applicable Prospectus Supplement and should consult their
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own tax advisors regarding the United States federal income tax consequences of
the holding and disposition of such Debt Securities.
United States Holders may elect to treat all interest on any Debt Security
as OID and calculate the amount includible in gross income under the constant
yield method described above. For the purposes of this election, interest
includes stated interest, acquisition discount, OID, de minimis OID, market
discount, de minimis market discount and unstated interest, as adjusted by any
amortizable bond premium or acquisition premium. The election is to be made for
the taxable year in which the United States Holder acquired the Debt Security,
and may not be revoked without the consent of the IRS. UNITED STATES HOLDERS
SHOULD CONSULT WITH THEIR OWN TAX ADVISORS ABOUT THIS ELECTION.
SHORT-TERM DEBT SECURITIES
In the case of Original Issue Discount Debt Securities having a term of one
year or less ("Short-Term Debt Securities"), under the OID Regulations all
payments (including all stated interest) will be included in the stated
redemption price at maturity and, thus, United States Holders will generally be
taxable on the discount in lieu of stated interest. The discount will be equal
to the excess of the stated redemption price at maturity over the issue price of
a Short-Term Debt Security, unless the United States Holder elects to compute
this discount using tax basis instead of issue price. In general, individuals
and certain other cash method United States Holders of a Short-Term Debt
Security are not required to include accrued discount in their income currently
unless they elect to do so (but may be required to include any stated interest
in income as it is received). United States Holders that report income for
federal income tax purposes on the accrual method and certain other United
States Holders are required to accrue discount on such Short-Term Debt
Securities (as ordinary income) on a straight-line basis, unless an election is
made to accrue the discount according to a constant yield method based on daily
compounding. In the case of a United States Holder that is not required, and
does not elect, to include discount in income currently, any gain realized on
the sale, exchange or retirement of the Short-Term Debt Security will generally
be ordinary income to the extent of the discount accrued through the date of
sale, exchange or retirement. In addition, a United States Holder that does not
elect to include currently accrued discount in income may be required to defer
deductions for a portion of the United States Holder's interest expense with
respect to any indebtedness incurred or continued to purchase or carry such Debt
Securities.
MARKET DISCOUNT
If a United States Holder purchases a Debt Security (other than an Original
Issue Discount Debt Security) for an amount that is less than its stated
redemption price at maturity or, in the case of an Original Issue Discount Debt
Security, its adjusted issue price, the amount of the difference will be treated
as "market discount" for United States federal income tax purposes, unless such
difference is less than a specified de minimis amount. Under the market discount
rules, a United States Holder will be required to treat any principal payment
on, or any gain on the sale, exchange, retirement or other disposition of, a
Debt Security as ordinary income to the extent of the market discount which has
not previously been included in income and is treated as having accrued on such
Debt Security at the time of such payment or disposition. In addition, the
United States Holder may be required to defer, until the maturity of the Debt
Security or its earlier disposition in a taxable transaction, the deduction of
all or a portion of the interest expense on any indebtedness incurred or
continued to purchase or carry such Debt Security.
Any market discount will be considered to accrue ratably during the period
from the date of acquisition to the maturity date of the Debt Security, unless
the United States Holder elects to accrue on a constant interest method. A
United States Holder of a Debt Security may elect to include market discount in
income currently as it accrues (on either a ratable or constant interest
method), in which case the rule described above regarding deferral of interest
deductions will not apply. This election to include market discount in income
currently, once made, applies to all market discount obligations acquired on or
after the first taxable year to which the election applies and may not be
revoked without the consent of the IRS.
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ACQUISITION PREMIUM; AMORTIZABLE BOND PREMIUM
A United States Holder that purchases a Debt Security for an amount that is
greater than its adjusted issue price but equal to or less than the sum of all
amounts payable on the Debt Security after the purchase date other than payments
of qualified stated interest will be considered to have purchased such Debt
Security at an "acquisition premium." Under the acquisition premium rules, the
amount of OID which such holder must include in its gross income with respect to
such Debt Security for any taxable year will be reduced by the portion of such
acquisition premium properly allocable to such year.
A United States Holder that purchases a Debt Security for an amount in
excess of the sum of all amounts payable on the Debt Security after the purchase
date other than qualified stated interest will be considered to have purchased
such Debt Security at a "premium" and will not be required to include any OID in
income. A United States Holder generally may elect to amortize the premium over
the remaining term of the Debt Security (or over a shorter period in certain
instances) on a constant yield method. The amount amortized in any year will be
treated as a reduction of the United States Holder's interest income from the
Debt Security. Bond premium on a Debt Security held by a United States Holder
that does not make such an election will decrease the gain or increase the loss
otherwise recognized on disposition of the Debt Security. The election to
amortize premium on a constant yield method once made applies to all debt
obligations held or subsequently acquired by the electing United States Holder
on or after the first day of the first taxable year to which the election
applies and may not be revoked without the consent of the IRS.
Final Treasury regulations issued on December 30, 1997 provide that, at a
holder's election, premium may be amortized to offset interest income only as a
United States Holder takes the qualified stated interest into account under the
United States Holder's regular accounting method. In the case of instruments
that provide for alternative payment schedules, bond premium is calculated by
assuming that (i) the holder will exercise or not exercise options in a manner
that maximizes the holder's yield and (ii) the issuer will exercise or not
exercise options in a manner that minimizes the holder's yield, except with
respect to call options for which the issuer is assumed to exercise such call
options in a manner that maximizes the holder's yield. To the extent the
assumptions prove incorrect, adjustments may then be made to the holder's bond
premium amortization. The final regulations are effective for debt instruments
acquired on or after March 2, 1998. However, if a United States Holder elects to
amortize bond premium for the taxable year containing March 2, 1998 or for any
subsequent taxable year, the final Treasury regulations would apply to all the
United States Holder's debt instruments held on or after the first day of that
taxable year. Once made, the election cannot be revoked without the consent of
the IRS.
SALE, EXCHANGE AND RETIREMENT OF DEBT SECURITIES
A United States Holder's tax basis in a Debt Security will, in general, be
the United States Holder's cost therefor, increased by OID, market discount or
any discount with respect to a Short-Term Debt Security previously included in
income by the United States Holder and reduced by any amortized premium and any
cash payments on the Debt Security other than qualified stated interest. Upon
the sale, exchange or retirement of a Debt Security, a United States Holder will
recognize gain or loss equal to the difference between the amount realized upon
the sale, exchange or retirement (less any accrued qualified stated interest,
which will be taxable as such) and the adjusted tax basis of the Debt Security.
Except as described above with respect to certain Short-Term Debt Securities or
with respect to market discount, such gain or loss will be capital gain or loss
and will be long-term capital gain or loss if at the time of sale, exchange or
retirement the Debt Security has been held for more than one year. Long-term
capital gains of individuals are eligible for reduced rates of taxation. The
deductibility of capital losses is subject to limitations. Prospective investors
should consult their own tax advisors with respect to the treatment of capital
gains and losses.
TAX CONSEQUENCES OF SATISFACTION AND DISCHARGE
The Company may discharge its obligations under the Debt Securities as more
fully described under "Description of Debt Securities--Satisfaction and
Discharge" above. Such a discharge would generally for
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federal income tax purposes constitute the retirement of the Debt Securities and
the issuance of new obligations with the result that Holders of the Debt
Securities would realize gain or loss (if any) on such exchange, which would be
recognized depending upon, for example, whether the exchange qualified as a
tax-free recapitalization for federal income tax purposes or whether the wash
sale loss disallowance rules applied. Any such gain would generally not be
taxable to Non-United States Holders under the circumstances outlined below.
Furthermore, following discharge, the Debt Securities might be subject to
withholding, backup withholding and/or information reporting and might be issued
with OID. Similar results might occur if the Company defeases certain
obligations as described under "Description of Debt Securities--Defeasance of
Certain Obligations".
EXTENDIBLE DEBT SECURITIES, RENEWABLE DEBT SECURITIES AND RESET DEBT SECURITIES
If so specified in an applicable Prospectus Supplement relating to a Debt
Security, the Company may have the option to extend the maturity of a Debt
Security (an "Extendible Debt Security" or a "Renewable Debt Security"). In
addition, the Company may have the option to reset the interest rate, the Spread
or the Spread Multiplier (a "Reset Debt Security"). The treatment of a United
States Holder of Debt Securities with respect to which such an option has been
exercised is unclear and will depend, in part, on the terms established for such
Debt Securities by the Company pursuant to the exercise of such option (the
"Revised Terms"). Such United States Holder may be treated for federal income
tax purposes as having exchanged such Debt Securities (the "Old Debt
Securities") for new Debt Securities with Revised Terms (the "New Debt
Securities"). If the exercise of the option by the Company is not treated as an
exchange of Old Debt Securities for New Debt Securities, no gain or loss will be
recognized by a United States Holder as a result thereof. If the exercise of the
option is treated as a taxable exchange of Old Debt Securities for New Debt
Securities, a United States Holder would recognize gain or loss equal to the
difference between the issue price of the New Debt Securities and the United
States Holder's tax basis in the Old Debt Securities.
The presence of such options may also affect the calculation of OID, among
other things. The OID Regulations provide that, solely for purposes of the
accrual of OID, an issuer of a debt instrument having an option or combination
of options to extend the term of the debt instrument will be presumed to
exercise such option or options in a manner that minimizes the yield on the debt
instrument. Conversely, if a holder is treated as having a put option, such an
option will be presumed to be exercised in a manner that maximizes the yield on
the debt instrument. If the exercise of such option or options to extend the
term of the debt instrument actually occurs or the option to put does not occur,
contrary to the presumption made under the OID Regulations (a "change in
circumstances"), then, solely for purposes of the accrual of OID, the debt
instrument is treated as reissued on the date of the change in circumstances for
an amount equal to its adjusted issue price on the date. Persons considering the
purchase of Extendible Debt Securities, Renewable Debt Securities or Reset Debt
Securities should carefully examine the applicable Prospectus Supplement and
should consult their own tax advisors regarding the United States federal income
tax consequences of the holding and disposition of such Debt Securities.
FOREIGN CURRENCY DEBT SECURITIES
The following is a summary of the principal United States federal income tax
consequences to a United States Holder of the ownership of a Debt Security
denominated in a Specified Currency other than the U.S. dollar (a "Foreign
Currency Debt Security"). If interest payments are made in a Foreign Currency to
a United States Holder that is not required to accrue such interest prior to its
receipt, such holder will be required to include in income the U.S. dollar value
of the amount received (determined by translating the Foreign Currency received
at the "spot rate" for such Foreign Currency on the date such payment is
received), regardless of whether the payment is in fact converted into U.S.
dollars. No exchange gain or loss is recognized with respect to the receipt of
such payment.
A United States Holder that is required to accrue interest on a Foreign
Currency Debt Security prior to the receipt of such interest will be required to
include in income for each taxable year the U.S. dollar value of the interest
that has accrued during such year, determined by translating such interest at
the
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average rate of exchange for the period or periods during which such interest
accrued. The average rate of exchange for an interest accrual period is the
simple average of the exchange rates for each business day of such period (or
such other average that is reasonably derived and consistently applied by the
holder). An accrual basis holder may elect to translate interest income at the
spot rate on the last day of the accrual period (or last day of the taxable year
in the case of an accrual period that straddles the holder's taxable year) or on
the date the interest payment is received if such date is within five days of
the end of the accrual period. Upon receipt of an interest payment on such Debt
Security, such United States Holder will recognize ordinary income or loss in an
amount equal to the difference between the U.S. dollar value of such payment
(determined by translating any Foreign Currency received at the "spot rate" for
such Foreign Currency on the date received) and the U.S. dollar value of the
interest income that such United States Holder has previously included in income
with respect to such payment.
OID on a Debt Security that is also a Foreign Currency Debt Security will be
determined for any accrual period in the applicable Foreign Currency and then
translated into U.S. dollars in the same manner as interest income accrued by a
holder on the accrual basis, as described above. Likewise, a United States
Holder will recognize exchange gain or loss when the OID is paid to the extent
of the difference between the U.S. dollar value of the accrued OID (determined
in the same manner as for accrued interest) and the U.S. dollar value of such
payment (determined by translating any Foreign Currency received at the spot
rate for such Foreign Currency on the date of payment). For this purpose, all
receipts on a Debt Security will be viewed first as the receipt of any stated
interest payments called for under the terms of the Debt Security, second as
receipts of previously accrued OID (to the extent thereof), with payments
considered made for the earliest accrual periods first, and thereafter as the
receipt of principal.
The amount of market discount on Foreign Currency Debt Securities includible
in income will generally be determined by translating the market discount
determined in the Foreign Currency into U.S. dollars at the spot rate on the
date the Foreign Currency Debt Security is retired or otherwise disposed of. If
the United States Holder has elected to accrue market discount currently, then
the amount which accrues is determined in the Foreign Currency and then
translated into U.S. dollars on the basis of the average exchange rate in effect
during such accrual period. A United States Holder will recognize exchange gain
or loss with respect to market discount which is accrued currently using the
approach applicable to the accrual of interest income as described above.
Bond premium on a Foreign Currency Debt Security will be computed in the
applicable Foreign Currency. With respect to a United States Holder that elects
to amortize the premium, the amortizable bond premium will reduce interest
income in the applicable Foreign Currency. At the time bond premium is
amortized, exchange gain or loss (which is generally ordinary income or loss)
will be realized based on the difference between spot rates at such time and at
the time of acquisition of the Foreign Currency Debt Security. A United States
Holder that does not elect to amortize bond premium will translate the bond
premium, computed in the applicable Foreign Currency, into U.S. dollars at the
spot rate on the maturity date and such bond premium will constitute a capital
loss which may be offset or eliminated by exchange gain.
A United States Holder's tax basis in a Foreign Currency Debt Security will
be the U.S. dollar value of the Foreign Currency amount paid for such Foreign
Currency Debt Security determined at the time of such purchase. A United States
Holder that purchases a Debt Security with previously owned Foreign Currency
will recognize exchange gain or loss at the time of purchase attributable to the
difference at the time of purchase, if any, between his tax basis in such
Foreign Currency and the fair market value of the Debt Security in U.S. dollars
on the date of purchase. Such gain or loss will be ordinary income or loss.
For purposes of determining the amount of any gain or loss recognized by a
United States Holder on the sale, exchange, retirement or other disposition of a
Foreign Currency Debt Security, the amount realized upon such sale, exchange,
retirement or other disposition will be the U.S. dollar value of the amount
realized in Foreign Currency (other than amounts attributable to accrued but
unpaid interest not
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previously included in the holder's income), determined at the time of the sale,
exchange, retirement or other disposition.
A United States Holder will recognize exchange gain or loss attributable to
the movement in exchange rates between the time of purchase and the time of
disposition (including the sale, exchange, retirement or other disposition) of a
Foreign Currency Debt Security. Such gain or loss will be treated as ordinary
income or loss. The realization of such gain or loss will be limited to the
amount of overall gain or loss realized on the disposition of a Foreign Currency
Debt Security. Under proposed Treasury Regulations issued on March 17, 1992, if
a Foreign Currency Debt Security is denominated in one of certain
hyperinflationary currencies, generally (i) exchange gain or loss would be
realized with respect to movements in the exchange rate between the beginning
and end of each taxable year (or such shorter period) that such Debt Security
was held and (ii) such exchange gain or loss would be treated as an addition or
offset, respectively, to the accrued interest income on (and an adjustment to
the holder's tax basis in) the Foreign Currency Debt Security.
A United States Holder's tax basis in Foreign Currency received as interest
on (or OID with respect to), or received on the sale, exchange, retirement or
other disposition of, a Foreign Currency Debt Security will be the U.S. dollar
value thereof at the spot rate at the time the holder received such Foreign
Currency. Any gain or loss recognized by a United States Holder on a sale,
exchange, retirement or other disposition of Foreign Currency will be ordinary
income or loss and will not be treated as interest income or expense, except to
the extent provided in Treasury Regulations or administrative pronouncements of
the IRS.
DUAL CURRENCY DEBT SECURITIES
If so specified in an applicable Prospectus Supplement relating to a Foreign
Currency Debt Security, the Company may have the option to make all payments of
principal and interest scheduled after the exercise of such option in a currency
(the "Optional Payment Currency") other than the Specified Currency. The United
States federal income tax treatment of Dual Currency Debt Securities is
uncertain. Treasury Regulations currently in effect do not address the tax
treatment of Dual Currency Debt Securities. Under the approach of proposed
Treasury Regulations issued on March 17, 1992, a Dual Currency Debt Security
would be bifurcated into two hypothetical instruments: (i) a zero coupon bond
denominated in the currency of the stated redemption price at maturity, and (ii)
an installment obligation denominated in the currency of the qualified stated
interest payments. The proposed regulations are effective only for Debt
Securities issued or transactions occurring after final regulations are
published. Persons considering the purchase of Dual Currency Debt Securities
should carefully examine the applicable Prospectus Supplement and should consult
their own tax advisors regarding the United States federal income tax
consequences of the holding and disposition of such Debt Securities.
A United States Holder of a Dual Currency Debt Security with respect to
which the Company's option has been exercised may be considered to have
exchanged a Debt Security denominated in the Specified Currency for a Debt
Security denominated in the Optional Payment Currency. If the exercise of the
option by the Company is not treated as a deemed exchange, a United States
Holder of a Dual Currency Debt Security will not recognize gain or loss and the
Holder's basis in the Debt Security will be unchanged. If the exercise of the
option is treated as a taxable exchange, a United States Holder will recognize
gain or loss, if any, equal to the difference between the holder's basis in the
Debt Security denominated in the Specified Currency and the value of the Debt
Security denominated in the Optional Payment Currency.
CONTINGENT PAYMENT DEBT SECURITIES
The OID Regulations contain special rules for determining the timing and
amount of OID to be accrued with respect to certain Debt Securities providing
for one or more contingent payments ("Contingent Payment Debt Security"). Under
these rules, United States Holders will accrue OID each year based on the
"comparable yield" of the Debt Securities. The comparable yield of the Debt
Securities will generally be the rate at which the Company would issue a fixed
rate debt instrument with terms and conditions similar to the Debt Securities.
The Company is required to provide the comparable yield to the
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United States Holders and, solely for tax purposes, is also required to provide
a projected payment schedule that includes the actual interest payments on the
Debt Securities and estimates the amount and timing of contingent payments on
the Debt Securities. Notice will be given in the applicable Prospectus
Supplement when the Company determines that a particular Debt Security will be
treated as a Contingent Payment Debt Security.
The amount of OID on a Contingent Payment Debt Security for each accrual
period will be determined by multiplying the comparable yield of the Contingent
Payment Debt Security (adjusted for the length of the accrual period) by the
Debt Security's adjusted issue price at the beginning of the accrual period
(determined in accordance with the rules set forth in the OID Regulations
relating to contingent payment debt instruments). The amount of OID so
determined will then be allocated on a ratable basis to each day in the accrual
period that the United States Holder holds the Contingent Payment Debt Security.
If the actual payments made on the Contingent Payment Debt Securities in a
taxable year differ from the projected contingent payments, the OID Regulations
require that adjustments be made for such differences. A positive adjustment
(i.e., the amount by which an actual payment exceeds a projected contingent
payment) will be treated as additional interest. A negative adjustment will
first reduce the amount of interest required to be accrued in the current year.
Any negative adjustments that exceed the amount of interest accrued in the
current year will be treated as ordinary loss to the extent that the United
States Holder's total interest inclusions on the Contingent Payment Debt
Security exceed the total amount of the United States Holder's net negative
adjustments treated as ordinary loss on the Contingent Payment Debt Security in
prior taxable years. Any excess negative adjustments will be carried forward to
offset future income or amount realized on disposition of the Contingent Payment
Debt Securities.
Gain on the sale, exchange, or retirement of a Contingent Payment Debt
Security generally will be treated as ordinary income. Loss from the disposition
of a Contingent Payment Debt Security will be treated as ordinary loss to the
extent of the United States Holder's prior net interest inclusions (reduced by
the total net negative adjustments previously allowed to the United States
Holder as ordinary loss). Any loss in excess of such amount will be treated as
capital loss.
A United States Holder is generally bound by the comparable yield and
projected payment schedule provided by the Company. However, if a United States
Holder believes that the Company's projected payment schedule is unreasonable, a
United States Holder may set its own projected payment schedule so long as such
United States Holder explicitly discloses the use of such schedule and the
reason therefor. Unless otherwise prescribed by the Commissioner of the IRS,
such disclosure must be made in a statement attached to the United States
Holder's timely filed federal income tax return for the taxable year in which
the Debt Security is acquired.
For special treatment of Foreign Currency Debt Securities or Dual Currency
Debt Securities that are also Contingent Payment Debt Securities see the
applicable Prospectus Supplement.
The rules regarding Contingent Payment Debt Securities are complex.
Investors considering the purchase of Debt Securities providing for one or more
contingent payments should carefully examine the applicable Prospectus
Supplement and consult their own tax advisors regarding the United States
federal income tax consequences of the holding and disposition of such Debt
Securities.
NON-UNITED STATES HOLDERS
Under present United States federal income and estate tax law, and subject
to the discussion below concerning backup withholding:
(a) no withholding of United States federal income tax will be required
with respect to the payment by the Company or any Paying Agent of principal,
premium, if any, or interest (which for purposes of this discussion includes
OID) on a Debt Security owned by a Non-United States Holder, provided (i)
that the beneficial owner does not actually or constructively own 10% or
more of the total combined voting power of all classes of stock of the
Company entitled to vote within the meaning of section 871(h)(3) of the Code
and the regulations thereunder, (ii) the beneficial owner is not a
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controlled foreign corporation that is related to the Company through stock
ownership, (iii) the beneficial owner is not a bank whose receipt of
interest on a Debt Security is described in section 881(c)(3)(A) of the
Code, (iv) in the case of a Registered Security, the beneficial owner
satisfies the statement requirement (described generally below) set forth in
section 871(h) and section 881(c) of the Code and the regulations thereunder
and (v) such interest is not considered contingent interest under Section
871(h)(4) of the Code and the regulations thereunder;
(b) no withholding of United States federal income tax will be required
with respect to any gain or income realized by a Non-United States Holder
upon the sale, exchange or retirement of a Debt Security; and
(c) a Debt Security beneficially owned by an individual who at the time
of death is a Non-United States Holder will not be subject to United States
federal estate tax as a result of such individual's death, provided that
such individual does not actually or constructively own 10% or more of the
total combined voting power of all classes of stock of the Company entitled
to vote within the meaning of section 871(h)(3) of the Code and provided
that the interest payments with respect to such Debt Security would not have
been, if received at the time of such individual's death, effectively
connected with the conduct of a United States trade or business by such
individual.
To satisfy the requirement referred to in (a)(iv) above, the beneficial
owner of such Debt Security, or a financial institution holding the Debt
Security on behalf of such owner, must provide, in accordance with specified
procedures, a paying agent of the Company with a statement to the effect that
the beneficial owner is not a U.S. person, citizen or resident. Currently, these
requirements will be met if (1) the beneficial owner provides his name and
address, and certifies, under penalties of perjury, that he is not a U.S.
person, citizen or resident (which certification may be made on an Internal
Revenue Service Form W-8 (or successor form)) or (2) a financial institution
holding the Debt Security on behalf of the beneficial owner certifies, under
penalties of perjury, that such statement has been received by it and furnishes
a paying agent with a copy thereof. Under Treasury regulations (the "Final
Regulations") finalized in 1997, the statement requirement referred to in
(a)(iv) above may be satisfied with other documentary evidence for interest paid
after December 31, 1999 with respect to an offshore account or through certain
foreign intermediaries.
If a Non-United States Holder cannot satisfy the requirements of the
"portfolio interest" exception described in (a) above, as might be the case with
a Contingent Payment Debt Security, payments of premium, if any, and interest
(including OID) made to such Non-United States Holder will be subject to a 30%
withholding tax unless the beneficial owner of the Debt Security provides the
Company or its paying agent, as the case may be, with a properly executed (1)
Internal Revenue Service Form 1001 (or successor form) claiming an exemption or
reduced rate from withholding under the benefit of a tax treaty or (2) Internal
Revenue Service Form 4224 (or successor form) stating that interest paid on the
Note is not subject to withholding tax because it is effectively connected with
the beneficial owner's conduct of a trade or business in the United States.
Under the Final Regulations, Non-United States Holders will generally be
required to provide IRS Form W-8 in lieu of IRS Form 1001 and IRS Form 4224,
although alternative documentation may be applicable in certain situations.
If a Non-United States Holder is engaged in a trade or business in the
United States and premium, if any, or interest (including OID) on the Debt
Security is effectively connected with the conduct of such trade or business,
the Non-United States Holder, although exempt from the withholding tax discussed
above, will be subject to United States federal income tax on such premium, if
any, and interest (including OID) on a net income basis in the same manner as if
it were a United States Holder. In addition, if such holder is a foreign
corporation, it may be subject to a branch profits tax equal to 30% of its
effectively connected earnings and profits for the taxable year, subject to
adjustments. For this purpose, such premium, if any, and interest (including
OID) on a Debt Security will be included in such foreign corporation's earnings
and profits.
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Any gain or income realized upon the sale, exchange or retirement of a Debt
Security will generally not be subject to United States federal income tax if
(i) such gain or income is not effectively connected with a trade or business in
the United States of the Non-United States Holder, and (ii) in the case of a
Non-United States Holder who is an individual, such individual is not present in
the United States for 183 days or more in the taxable year of such sale,
exchange or retirement, and certain other conditions are not met.
BACKUP WITHHOLDING AND INFORMATION REPORTING
In general, information reporting requirements will apply to certain
payments of principal, interest, OID and premium paid on Debt Securities and to
the proceeds of sale of a Debt Security made to United States Holders other than
certain exempt recipients (such as corporations). A 31% backup withholding tax
will apply to such payments if the United States Holder fails to provide a
taxpayer identification number or certification of foreign or other exempt
status or fails to report in full dividend and interest income.
No information reporting on IRS Form 1099 or backup withholding will be
required with respect to payments made by the Company or any paying agent to
Non-United States Holders (1) if those payments are made outside of the United
States on Bearer Securities or (2) on Registered Securities with respect to
which a statement described in (a)(iv) under "Non-United States Holders" has
been received and the payor does not have actual knowledge that the beneficial
owner is a United States person. However, interest (including OID) paid to a
Non-United States Holder on a Registered Security will be required to be
reported annually on IRS Form 1042-S.
In addition, backup withholding and information reporting will not apply if
payments of the principal, interest, OID or premium on a Debt Security are paid
or collected by a foreign office of a custodian, nominee or other foreign agent
on behalf of the beneficial owner of such Debt Security, or if a foreign office
of a broker (as defined in applicable Treasury regulations) pays the proceeds of
the sale of a Debt Security to the owner thereof. If, however, such nominee,
custodian, agent or broker is, for United States federal income tax purposes, a
United States person, a controlled foreign corporation or a foreign person that
derives 50% or more of its gross income for certain periods from the conduct of
a trade or business in the United States, or, after December 31, 1999, if such
nominee, custodian, agent or broker is a foreign partnership in which one or
more United States persons, in the aggregate, own more than 50% of the income or
capital interests in the partnership or if the partnership is engaged in a trade
or business in the United States, such payments will not be subject to backup
withholding but will be subject to information reporting, unless (1) such
custodian, nominee, agent or broker has documentary evidence in its records that
the beneficial owner is not a U.S. person and certain other conditions are met
or (2) the beneficial owner otherwise establishes an exemption.
Payments of principal, interest, OID and premium on a Debt Security paid to
the beneficial owner of a Debt Security by a United States office of a
custodian, nominee or agent, or the payment by the United States office of a
broker of the proceeds of sale of a Debt Security, will be subject to both
backup withholding and information reporting unless the beneficial owner
provides the statement referred to in (a)(iv) above and the payor does not have
actual knowledge that the beneficial owner is a United States person or
otherwise establishes an exemption.
Any amounts withheld under the backup withholding rules will be allowed as a
refund or a credit against such holder's United States federal income tax
liability provided the required information is furnished to the IRS.
PREFERRED STOCK AND DEPOSITARY SHARES
Persons considering the purchase of Offered Preferred Stock or Depositary
Shares should carefully examine the applicable Prospectus Supplement regarding
the United States federal income tax consequences of the holding and disposition
of such Offered Preferred Stock and Depositary Shares.
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CAPITAL REQUIREMENTS
As a registered broker-dealer, Lehman Brothers is subject to the SEC's net
capital rule (Rule 15c3-1, the "Net Capital Rule"), promulgated under the
Exchange Act. The Exchange monitors the application of the Net Capital Rule by
Lehman Brothers. Lehman Brothers computes net capital under the alternative
method of the Net Capital Rule which requires the maintenance of minimum net
capital, as defined. A broker-dealer may be required to reduce its business if
its net capital is less than 4% of aggregate debit balances and may also be
prohibited from expanding its business or paying cash dividends if resulting net
capital would be less than 5% of aggregate debit balances. In addition, the Net
Capital Rule does not allow withdrawal of subordinated capital if net capital
would be less than 5% of such debit balances.
The Net Capital Rule also limits the ability of broker-dealers to transfer
large amounts of capital to parent companies and other affiliates. Under the Net
Capital Rule equity capital cannot be withdrawn from a broker-dealer without the
prior approval of the SEC when net capital after the withdrawal would be less
than 25% of its securities positions haircuts (which are deductions from capital
of certain specified percentages of the market value of securities to reflect
the possibility of a market decline prior to disposition). In addition, the Net
Capital Rule requires broker-dealers to notify the SEC and the appropriate
self-regulatory organization two business days before a withdrawal of excess net
capital if the withdrawal would exceed the greater of $500,000 or 30% of the
broker-dealer's excess net capital, and two business days after a withdrawal
that exceeds the greater of $500,000 or 20% of excess net capital. Finally, the
Net Capital Rule authorizes the SEC to order a freeze on the transfer of capital
if a broker-dealer plans a withdrawal of more than 30% of its excess net capital
and the SEC believes that such a withdrawal would be detrimental to the
financial integrity of the firm or would jeopardize the broker-dealer's ability
to pay its customers.
Compliance with the Net Capital Rule could limit those operations of Lehman
Brothers that require the intensive use of capital, such as underwriting and
trading activities and the financing of customer account balances, and also
could restrict Holdings' ability to withdraw capital from Lehman Brothers which
in turn could limit Holdings' ability to pay dividends, repay debt and redeem or
purchase shares of its outstanding capital stock. The Company is subject to
other domestic and international regulatory requirements with which it is
required to comply.
43
<PAGE>
PLAN OF DISTRIBUTION
Holdings may sell any series of Debt Securities, Offered Preferred Stock or
Depositary Shares and any LBH Trust may sell Preferred Securities in any one or
more of the following ways: (i) through, or through underwriting syndicates
managed by, Lehman Brothers alone or with one or more other underwriters; (ii)
through one or more dealers or agents (which may include Lehman Brothers); or
(iii) directly to one or more purchasers. The specific managing underwriter or
underwriters or agent or agents with respect to the offer and sale of Securities
are set forth on the cover of the Prospectus Supplement relating to such
Securities and the members of the underwriting syndicate, if any, are named in
such Prospectus Supplement. Only the underwriters or agents so named in such
Prospectus Supplement are underwriters or agents, respectively, in connection
with such Securities. The applicable Prospectus Supplement also describes the
discounts and commissions to be allowed or paid to the underwriters or agents,
all other items constituting underwriting or agency compensation, the discounts
and commissions to be allowed or paid to dealers, if any, and the exchanges, if
any, on which such Securities will be listed. Securities acquired by any
underwriter will be acquired for its own account and may be resold from time to
time in one or more transactions, including negotiated transactions, at a fixed
public offering price or at varying prices determined at the time of sale. The
obligations of the underwriters to purchase such Securities will be subject to
certain conditions precedent, and the underwriters will be obligated to purchase
all such Securities if any of such Securities are purchased. Any initial public
offering price and any discounts or concessions allowed or reallowed or paid to
dealers may be changed from time to time. To the extent, if any, that Securities
to be purchased by Lehman Brothers, as underwriter, are not resold by it or are
not resold at the public offering price set forth in an applicable Prospectus
Supplement, the funds derived from such offering by the Company on a
consolidated basis may be reduced.
If so indicated in an applicable Prospectus Supplement, Holdings will
authorize the underwriters named therein to solicit offers by certain
institutional investors to purchase Debt Securities providing for payment and
delivery on a future date specified in such Prospectus Supplement. There may be
limitations on the minimum amount which may be purchased by any such
institutional investor or on the portion of the aggregate principal amount of
the particular Debt Securities which may be sold pursuant to such arrangements.
Institutional investors to which such offers may be made, when authorized,
include commercial and savings banks, insurance companies, pension funds,
educational charitable institutions and such other institutions as may be
approved by Holdings. The obligations of any such purchasers pursuant to such
delayed delivery and payment arrangements will not be subject to any conditions
except (i) the purchase by an institution of the particular Debt Securities
shall not at the time of delivery be prohibited under the laws of any
jurisdiction in the United States to which such institution is subject and (ii)
Holdings shall have sold to such underwriters the total principal amount of such
Debt Securities less the principal amount thereof covered by such arrangements.
Underwriters named therein will not have any responsibility in respect of the
validity of such arrangements or the performance of Holdings or such
institutional investors thereunder.
Each distributor of Bearer Securities will agree that it will not offer or
sell during the restricted period, directly or indirectly, Bearer Securities in
the United States or to United States persons (other than as discussed under
"Limitations on Issuance of Bearer Securities") and in connection with the sale
of Bearer Securities during the restricted period, will not deliver definitive
Bearer Securities within the United States. See "Limitations on Issuance of
Bearer Securities."
Securities may also be offered and sold, if so indicated in an applicable
Prospectus Supplement, in connection with a remarketing upon their purchase, in
accordance with a redemption or repayment pursuant to their terms, or otherwise,
by one or more firms ("remarketing firms"), acting as principals for their own
accounts or as agents for Holdings. Any remarketing firm will be identified and
the terms of its agreement, if any, with Holdings and its compensation will be
described in such Prospectus Supplement. Remarketing firms may be deemed to be
underwriters, as that term is defined in the Securities Act, in connection with
the Securities remarketed thereby.
44
<PAGE>
Each underwriter, agent or remarketing firm will represent and agree that
(i) it has not offered or sold and, prior to the expiration of six months from
the issue date thereof, will not offer or sell any Securities to persons in the
United Kingdom except to persons whose ordinary activities involve them in
acquiring, holding, managing or disposing of investments (as principal or agent)
for the purpose of their businesses or otherwise in circumstances which have not
resulted and will not result in an offer to the public in the United Kingdom
within the meaning of the Public Offers of Securities Regulations 1995 (the
"Regulations"); (ii) it complied and will comply with all applicable provisions
of the Financial Services Act 1986 and the Regulations with respect to anything
done by it in relation to the Securities in, from or otherwise involving the
United Kingdom; and (iii) it has only issued or passed on and will only issue or
pass on to any person in the United Kingdom any document received by it in
connection with the issue of the Securities if that person is of a kind
described in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1997 or is a person to whom such document may
otherwise lawfully be issued or passed on.
This Prospectus together with an applicable Prospectus Supplement may also
be used by Lehman Brothers in connection with offers and sales of Securities
related to market making transactions, by and through Lehman Brothers, at
negotiated prices related to prevailing market prices at the time of sale or
otherwise. Lehman Brothers may act as principal or agent in such transactions.
The underwriting and agency arrangements for any offering of the Securities
will comply with the requirements of Rule 2720 of the National Association of
Securities Dealers, Inc. (the "NASD") regarding an NASD member firm's
participating in distributing its affiliate's securities.
ERISA MATTERS
Each of Holdings and Lehman Brothers may be considered a "party in interest"
within the meaning of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and a "disqualified person" under corresponding provisions of
the Code, with respect to certain employee benefit plans. Certain transactions
between an employee benefit plan and a party in interest or disqualified person
may result in "prohibited transactions" within the meaning of ERISA and the
Code. ANY EMPLOYEE BENEFIT PLAN PROPOSING TO INVEST IN THE DEBT SECURITIES OR
THE PREFERRED SECURITIES SHOULD CONSULT WITH ITS LEGAL COUNSEL.
LEGAL OPINIONS
Unless otherwise indicated in an applicable Prospectus Supplement, the
validity of the Debt Securities, Preferred Stock, Depositary Shares and
Guarantees offered hereby will be passed upon for Holdings by Karen M. Muller,
Esq., Deputy General Counsel of Holdings, for the LBH Trusts by Richards, Layton
& Finger, One Rodney Square, Wilmington, Delaware 19899, and for the
underwriters or agents by Simpson Thacher & Bartlett, 425 Lexington Avenue, New
York, New York 10017. Simpson Thacher & Bartlett acts as counsel in various
matters for Holdings, Lehman Brothers and certain of their subsidiaries.
INDEPENDENT ACCOUNTANTS
The consolidated financial statements and financial statement schedule of
the Company for each of the three years in the period ended November 30, 1998
appearing in the Company's Annual Report on Form 10-K for the year ended
November 30, 1998, have been audited by Ernst & Young LLP, independent auditors,
as set forth in their report thereon included therein and incorporated herein by
reference. Such consolidated financial statements and financial statement
schedule are incorporated herein by reference in reliance upon the reports of
Ernst & Young LLP pertaining to such financial statements (to the extent covered
by consents filed with the Securities and Exchange Commission) given upon the
authority of such firm as experts in accounting and auditing.
45
<PAGE>
PRINCIPAL EXECUTIVE OFFICE OF HOLDINGS
Lehman Brothers Holdings Inc.
3 World Financial Center
New York, New York 10285
INDENTURE TRUSTEE AND PROPERTY TRUSTEE
The Chase Manhattan Bank
450 West 33rd Street
New York, New York 10001
DELAWARE TRUSTEE
Chase Manhattan Bank Delaware
1201 Market Street
Wilmington, Delaware 19801
LUXEMBOURG STOCK EXCHANGE LISTING, TRANSFER AGENT
AND PAYING AGENT
Kredietbank S.A. Luxembourgeoise
43, Boulevard Royal
L-2955 Luxembourg
LEGAL ADVISERS TO THE UNDERWRITERS
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
INDEPENDENT AUDITORS
Ernest & Young LLP
787 Seventh Avenue
New York, New York 10019
<PAGE>
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You should rely only on the information contained in this document or that
we have referred you to. We have not authorized anyone to provide you with any
other information.
This prospectus supplement and the accompanying prospectus may be delivered
to you after the date of this prospectus supplement. However, you should realize
that the affairs of Holdings or the trust may have changed since the date of
this prospectus supplement. This prospectus supplement will not reflect such
changes.
You should not consider this prospectus supplement or the accompanying
prospectus to be an offer or solicitation relating to the preferred securities
in any jurisdiction in which such an offer or solicitation is not authorized.
Furthermore, you should not consider this prospectus supplement or the
accompanying prospectus to be an offer or solicitation relating to the preferred
securities if the person making the offer or solicitation is not qualified to do
so, or if it is unlawful for you to receive such an offer or solicitation.
--------------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Documents Incorporated by Reference............ S-2
Summary Information--Q&A....................... S-3
Consolidated Capitalization.................... S-6
Selected Financial Data........................ S-7
Ratio of Earnings to Fixed Charges............. S-8
Directors and Principal Executive Officers..... S-9
Risk Factors................................... S-10
Lehman Brothers Holdings Capital Trust II...... S-13
Use of Proceeds................................ S-14
Accounting Treatment........................... S-14
Description of Securities...................... S-14
Certain Terms of the Preferred Securities...... S-14
Certain Terms of the Subordinated Debentures... S-19
Relationship Among the Preferred Securities,
the Subordinated Debentures and the
Guarantee.................................... S-21
Certain United States Federal Income Tax
Consequences................................. S-22
Book-Entry Issuance............................ S-26
ERISA Considerations........................... S-29
Underwriting................................... S-32
General Information............................ S-35
PROSPECTUS
Available Information.......................... 2
Documents Incorporated by Reference............ 3
The Company.................................... 4
The LBH Trusts................................. 4
Use of Proceeds................................ 5
Ratio of Earnings to Fixed Charges............. 6
Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividends.................... 6
Description of Debt Securities................. 7
Description of Preferred Securities............ 19
Description of Guarantees...................... 21
Description of Offered Preferred Stock......... 25
Limitations on Issuance of Bearer Securities... 31
United States Taxation......................... 33
Capital Requirements........................... 43
Plan of Distribution........................... 44
ERISA Matters.................................. 45
Legal Opinions................................. 45
Independent Accountants........................ 45
</TABLE>
14,400,000 PREFERRED SECURITIES
LEHMAN BROTHERS HOLDINGS
CAPITAL TRUST II
7.875% PREFERRED SECURITIES, SERIES J
(LIQUIDATION AMOUNT $25
PER PREFERRED SECURITY)
FULLY AND UNCONDITIONALLY GUARANTEED, TO THE EXTENT SET FORTH HEREIN, BY
LEHMAN BROTHERS HOLDINGS INC.
--------------
PROSPECTUS SUPPLEMENT
APRIL 15, 1999
------------------
LEHMAN BROTHERS
BEAR, STEARNS & CO. INC.
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
MORGAN STANLEY DEAN WITTER
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
SALOMON SMITH BARNEY
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