<PAGE> 1
This ruling is made pursuant
to rule 424(b)(3) under the
Securities Act of 1933 in
connection with Registration
No. 333-40263.
PROSPECTUS
DECEMBER 18, 1997
JEFFERIES GROUP, INC.
OFFER TO EXCHANGE ITS
7 1/2% SERIES B SENIOR NOTES
DUE 2007
FOR
ANY AND ALL OF ITS OUTSTANDING
7 1/2% SENIOR NOTES
DUE 2007
------------------------
THE EXCHANGE OFFER
WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON FEBRUARY 16, 1998, UNLESS EXTENDED
------------------------
Jefferies Group, Inc., a Delaware corporation (the "Company"), hereby
offers, upon the terms and subject to the conditions set forth in this
Prospectus and the accompanying Letter of Transmittal (which together constitute
the "Exchange Offer"), to exchange up to an aggregate $100,000,000 principal
amount of its 7 1/2% Series B Senior Notes due 2007 (the "New Notes") for an
equal principal amount of its issued and outstanding 7 1/2% Senior Notes due
2007 (the "Old Notes"). The Old Notes and the New Notes are collectively
referred to herein as the "Notes."
The New Notes are being offered hereunder in order to satisfy certain
obligations of the Company contained in the Registration Rights Agreement, dated
August 18, 1997 between the Company and purchasers of the Old Notes (the
"Registration Rights Agreement"). Based on interpretations by the staff of the
Securities and Exchange Commission (the "Commission"), New Notes issued pursuant
to the Exchange Offer in exchange for Old Notes may be offered for resale,
resold and otherwise transferred by any Holder thereof (other than any such
Holder which is (i) an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act of 1933, as amended (the "Securities Act") or (ii) a
Broker-Dealer, except as provided below), without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that such New Notes are acquired in the ordinary course of such Holder's
business and such Holder has no arrangement with any person to participate in
the distribution of such New Notes. Notwithstanding the foregoing, each
broker-dealer that receives New Notes for its own account pursuant to the
Exchange Offer must acknowledge that it will deliver a prospectus in connection
with any resale of such New Notes. The Letter of Transmittal states that by so
acknowledging and delivering a prospectus, a broker-dealer will not be deemed to
admit that it is an "underwriter" within the meaning of the Securities Act. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with any resale of New Notes received in
exchange for Old Notes where such Old Notes were acquired by such broker-dealer
as a result of market-making activities or other trading activities. The Company
has agreed that, for a period of 180 days after the Expiration Date (as defined
herein), it will make this Prospectus, as amended or supplemented, available to
any broker-dealer for use in connection with any such resale. See "Plan of
Distribution."
The Company will not receive any proceeds from the Exchange Offer. The
Company will pay all the expenses incident to the Exchange Offer (which shall
not include the expenses of any Holder in connection with resales of the New
Notes). Tenders of Old Notes pursuant to the Exchange Offer may be withdrawn at
any time prior to the Expiration Date. In the event the Company terminates the
Exchange Offer and does not accept for exchange any Old Notes, the Company will
promptly return the Old Notes to the Holders thereof. See "The Exchange Offer."
Prior to this Exchange Offer, there has been no public market for the
Notes. If a market for the New Notes should develop, the New Notes could trade
at a discount from their principal amount. The Company does not currently intend
to list the New Notes on any securities exchange or to seek approval for
quotation through any automated quotation system. Accordingly, there can be no
assurance as to the development or liquidity of any public market for the New
Notes.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE 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.
<PAGE> 2
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed with the Commission can be inspected and
copied during normal business hours at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at its regional offices at Seven World Trade
Center, Suite 1300, New York, New York 10048; and Northwest Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material can be obtained at prescribed rates from the Public Reference Section
of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. The
Commission maintains a web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission. The address of the Commission's web site is
http://www.sec.gov.
The Company intends, and is required by the terms of the Indenture, to
furnish Holders of New Notes annual reports containing consolidated financial
statements audited by its independent auditors and with quarterly reports
containing unaudited condensed consolidated financial information for each of
the first three quarters of each fiscal year.
This Prospectus is part of a Registration Statement on Form S-4 (together
with all amendments and exhibits thereto, the "Registration Statement") which
the Company has filed with the Commission under the Securities Act, relating to
the New Notes offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the Commission. For
further information, reference is made to the Registration Statement.
The Company's common stock trades on the New York Stock Exchange under the
symbol "JEF."
2
<PAGE> 3
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
This Prospectus incorporates by reference documents which are not presented
herein or delivered herewith. Copies of any such documents filed by the Company
with the Commission, other than exhibits to such documents, are available upon
request, and without charge, from Jefferies Group, Inc., 11100 Santa Monica
Boulevard, 11th Floor, Los Angeles, California 90025, Attention: Jerry Gluck
(telephone: (310) 914-1300). In order to ensure timely delivery of the
documents, any request should be made by February 9, 1998.
The Company's Quarterly Report on Form 10-Q for the period ended September
26, 1997, and the Company's Annual Report on Form 10-K for the year ended
December 31, 1996, which have been filed with the Commission by the Company
pursuant to the Exchange Act, are incorporated herein by reference in their
entirety. All documents filed by the Company pursuant to Section 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the termination of the offering described herein shall be deemed to be
incorporated by reference into this Prospectus and to be a part hereof from the
respective dates of filing of such documents. 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 this Prospectus to the
extent that a statement contained herein, or in any other subsequently filed
document that also is or is deemed to be incorporated by reference herein,
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a copy of
this Prospectus has been delivered, on the written or oral request of such
person, a copy of any or all of the documents referred to above which have been,
or may be, incorporated in this Prospectus by reference, other than exhibits to
such documents.
3
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements (including notes thereto)
appearing elsewhere, and incorporated by reference, in this Prospectus.
THE COMPANY
The Company is a holding company which, through its four primary
subsidiaries, Jefferies & Company, Inc. ("JEFCO"), Investment Technology Group,
Inc. ("ITGI"), Jefferies International Limited ("JIL") and Jefferies Pacific
Limited ("JPL"), is engaged in securities brokerage and trading, corporate
finance and other financial services. The Company's principal subsidiary, JEFCO,
was founded in 1962 and is engaged in equity, convertible debt and taxable fixed
income securities brokerage and trading and investment banking. JEFCO is one of
the leading national brokerage firms engaged in the distribution and trading of
blocks of equity securities and often conducts such activities in the "third
market." The term "third market" refers to transactions in listed equity
securities effected away from national securities exchanges. Total revenues and
net earnings of the Company for the nine months ended September 26, 1997 were
$554.8 million and $45.6 million, respectively, representing a 43% and 46%
increase from the nine months ended September 27, 1996. Total revenues and net
earnings of the Company for fiscal 1996 were $540.8 million and $43.6 million,
respectively, representing a 29% and 53% increase from fiscal 1995.
ITGI is a holding company which is publicly traded (Nasdaq: ITGI) and is
approximately 83% owned by the Company. Its wholly-owned subsidiary, ITG Inc.
("ITG"), is a leading provider of technology-based equity trading services and
transaction research to institutional investors and brokers. ITG's services help
clients to access liquidity, execute trades more efficiently, and make better
trading decisions. ITG's expanding range of services includes: POSIT(R), the
world's largest intra-day electronic equity matching system; QuantEX(R), a
fully-integrated trade routing, analysis, and management system; and ISIS, a set
of analytical tools for systematically lowering the costs of trading.
JIL, a broker-dealer subsidiary of the Company, was incorporated in 1986 in
England. JIL is a member of The International Stock Exchange and The Securities
and Futures Authority. JIL introduces customers trading in U.S. securities to
JEFCO and also trades as a broker-dealer in international equity and convertible
securities and American Depositary Receipts ("ADRs"). In 1995, JIL formed a
wholly-owned subsidiary, Jefferies (Switzerland) Ltd. In 1996, JIL formed a
wholly-owned subsidiary, Jefferies (Japan) Limited, which maintains a branch
office in Tokyo.
JPL, also a broker-dealer subsidiary of the Company, was incorporated in
1992 in Hong Kong. JPL presently introduces foreign customers trading in U.S.
securities to JEFCO.
The Company's Common Stock trades on the New York Stock Exchange under the
symbol "JEF." On November 12, 1997, the Company's closing stock price was $67
per share.
The Company and its various subsidiaries maintain offices in Los Angeles,
New York, Short Hills, Jersey City, Chicago, Dallas, Boston, Atlanta, New
Orleans, Houston, San Francisco, Stamford, London, Hong Kong, Zurich and Tokyo.
The Company's executive offices are located at 11100 Santa Monica Boulevard, Los
Angeles, California 90025, and its telephone number is (310) 445-1199.
SUMMARY OF THE TERMS OF THE EXCHANGE OFFER
Termination of Certain
Rights..................... The Old Notes were sold by the Company on August
18, 1997, pursuant to the purchase agreement, dated
August 18, 1997 (the "Purchase Agreement"), by and
between the Company and each of the purchasers of
the Old Notes (the "Purchasers"). Each of the
Purchasers is a qualified institutional buyer, as
defined in Rule 144A under the Securities Act, or
an institutional accredited investor, as defined in
Rule 501(a)(1), (2), (3) or (7) of Regulation D
under the Securities
4
<PAGE> 5
Act. Pursuant to the Purchase Agreement, the
Company and the Purchasers entered into the
Registration Rights Agreement, which grants the
Holders of the Old Notes certain registration
rights. See "The Exchange Offer -- Termination of
Certain Rights." The Exchange Offer is intended to
satisfy such rights which terminate upon the
consummation of the Exchange Offer. The Holders of
the Old Notes not accepted for exchange in the
Exchange Offer will no longer have the benefits of
registration rights, and the Holders of the New
Notes will not be entitled to registration rights
with respect to the New Notes.
The Exchange Offer......... The Company is offering to exchange $1,000
principal amount of its New Notes for each $1,000
principal amount of its outstanding Old Notes that
are properly tendered and accepted. As of the date
of this Prospectus, $100,000,000 in aggregate
principal amount of Old Notes were outstanding,
which is the maximum aggregate amount authorized by
the Indenture for all Notes. As of the date of this
Prospectus, there was one registered Holder of Old
Notes. Only a registered Holder of Old Notes (or
such Holder's legal representative or
attorney-in-fact) as reflected on the records of
the Trustee under the Indenture (each an "Eligible
Holder") may participate in the Exchange Offer. See
"The Exchange Offer -- Terms of the Exchange
Offer."
Expiration Date............ The Exchange Offer will expire at 5:00 p.m., New
York City time, on February 16, 1998, or, at the
Company's option, such earlier date upon which 100%
of the Old Notes have been validly tendered
pursuant to the Exchange Offer and not withdrawn,
unless the Company, in its sole discretion, extends
the Exchange Offer (the "Expiration Date"). See
"The Exchange Offer -- Terms of the Exchange Offer;
Expiration Date; Extensions; Amendments."
Accrued Interest on the New
Notes and Old Notes...... The New Notes will bear interest from their
respective issuance dates at the same rate and upon
the same terms as the Old Notes. Eligible Holders
whose Old Notes are accepted for exchange will be
entitled to receive accrued but unpaid interest
thereon to, but not including, the issuance date of
the New Notes and will be deemed to have waived the
right to receive any payment in respect of interest
on the Old Notes accrued from and after the date of
issuance of the New Notes. Such accrued but unpaid
interest on the Old Notes will be payable with the
first interest payment on the New Notes to the
registered Holder of the New Notes.
Certain Conditions of the
Exchange Offer........... The Exchange Offer is subject to certain customary
conditions, including (i) no commencement of any
action, legal or governmental, with respect to the
Exchange Offer or which the Company reasonably
determines would make it inadvisable to proceed
with the Exchange Offer, (ii) no banking moratorium
or similar event or international calamity
involving the United States, (iii) no change in the
business or prospects of the Company that may have
a material adverse effect on the Company, and (iv)
the Exchange Offer not violating any applicable
law. The Company expects that the foregoing
conditions will be satisfied. Any or all such
conditions may be waived by the Company. Holders of
Old Notes may have certain rights and remedies
against the Company under the Registration Rights
Agreement should the Company fail to consummate the
5
<PAGE> 6
Exchange Offer. See "The Exchange Offer -- Certain
Conditions of the Exchange Offer."
Procedures for Tendering
Old Notes.................. Each Eligible Holder desiring to accept the
Exchange Offer must either: (i) transmit a properly
completed and duly executed Letter of Transmittal,
the certificates for the Old Notes being tendered,
and all other documents required by the Letter of
Transmittal, with signatures thereon guaranteed if
required by the instructions to the Letter of
Transmittal; or (ii) in the case of a book-entry
transfer as described below, if such transfer
procedure is available, transfer the Old Notes to
the Exchange Agent's account at The Depository
Trust Company (the "Depository") via the ATOP
System. In either case, the Exchange Agent must
receive the Letter of Transmittal and all other
required documents, or confirmation of book-entry
transfer via ATOP (a "Book-Entry Confirmation"),
before 5:00 p.m., New York City time on the
Expiration Date; or the Holder must comply with the
guaranteed delivery procedures described below. Any
beneficial owner of Old Notes ("Beneficial Owner")
whose Old Notes are registered in the name of a
nominee, such as a broker, dealer, commercial bank,
or trust company, and who wishes to tender Old
Notes in the Exchange Offer, should contact such
nominee promptly and instruct it to tender on such
Beneficial Owner's behalf.
Guaranteed Delivery
Procedures................. If an Eligible Holder wishes to tender its Old
Notes and either (i) such Old Notes are not
immediately available, (ii) time will not permit
such Old Notes or other required documents to reach
the Exchange Agent on or prior to the Expiration
Date, or (iii) the procedure for book-entry
transfer cannot be completed on or prior to the
Expiration Date, tenders may be effected pursuant
to the guaranteed delivery procedures set forth in
"The Exchange Offer -- Guaranteed Delivery
Procedures."
Withdrawal of Tenders...... Tenders of Old Notes may be withdrawn at any time
prior to 5:00 p.m., New York City time, on the
Expiration Date. See "The Exchange
Offer -- Withdrawal Rights."
Acceptance of Old Notes and
Delivery of New Notes.... Subject to the satisfaction or waiver of all
conditions of the Exchange Offer, the Company will
accept for exchange any and all Old Notes which are
properly tendered in the Exchange Offer prior to
5:00 p.m., New York City time, on the Expiration
Date. The New Notes issued pursuant to the Exchange
Offer will be delivered in exchange for the
applicable Old Notes accepted in the Exchange Offer
promptly following the Expiration Date. See "The
Exchange Offer -- Acceptance of Old Notes in
Exchange; Delivery of New Notes."
Certain Federal Income Tax
Consequences............. For a discussion of certain federal income tax
consequences of the exchange of the Old Notes, see
"Certain Federal Income Tax Consequences."
Exchange Agent............. The Bank of New York is the Exchange Agent (the
"Exchange Agent"). The address and telephone number
of the Exchange Agent are set forth in "The
Exchange Offer -- Exchange Agent."
6
<PAGE> 7
SUMMARY DESCRIPTION OF THE NOTES
The terms of the Old Notes and the New Notes are identical in all material
respects, except for certain transfer restrictions and registration rights
relating to the Old Notes.
Securities Offered......... $100,000,000 aggregate principal amount of New
Notes, less the aggregate principal amount of Old
Notes not exchanged. See "Description of the
Notes."
Issuer..................... The Company
Maturity Date.............. August 15, 2007.
Interest Payment Dates..... February 15 and August 15, commencing February 15,
1998.
Ranking.................... The New Notes are senior unsecured obligations of
the Company ranking pari passu in right of payment
with all existing and future senior indebtedness of
the Company and will be senior in right of payment
to all existing and future subordinated
indebtedness of the Company.
Redemption................. The New Notes are not redeemable prior to maturity
and will not be entitled to the benefit of any
sinking fund.
Covenants.................. The indenture under which the New Notes will be
issued (the "Indenture") will limit, among other
things, (i) consolidations, mergers or transfers of
assets as an entirety or substantially as an
entirety, (ii) the creation of certain liens on
Voting Stock (as defined herein) of Material
Subsidiaries (as defined herein), and (iii) certain
transactions with Affiliates (as defined herein).
See "Description of the Notes."
Events of Default.......... Events of default include: (i) failure to pay
installments of interest on the New Notes as and
when due and continuance of such failure for 30
days; (ii) failure to pay all or part of the
principal or premium on the Notes as and when due;
(iii) failure for 60 days after a notice of default
to comply with any other agreement or covenant in
the Indenture; (iv) certain events of bankruptcy,
insolvency or reorganization; (v) an event of
default under any mortgage, indenture or other
instrument under which any Indebtedness (as defined
in the Indenture) is outstanding or may be issued,
in certain circumstances; and (vi) the failure of
JEFCO to maintain Net Capital (as defined herein)
greater than or equal to the Minimum Net Capital
Amount (as defined herein) for a period of 30
consecutive days. See "Description of the
Notes -- Events of Default."
Governing Law.............. The Indenture, the Registration Rights Agreement,
and the New Notes are governed by the laws of the
State of New York.
For a more detailed discussion of the terms of the New Notes, see
"Description of the Notes."
INVESTMENT CONSIDERATIONS
In addition to the other information contained in this Prospectus, the
following factors should be carefully considered by Holders prior to tendering
their Old Notes in the Exchange Offer.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the issuance of the Old Notes pursuant to exemptions from, or in
transactions not
7
<PAGE> 8
subject to, the registration requirements of the Securities Act and applicable
state securities laws. In general, the Old Notes may not be offered or sold,
unless registered under the Securities Act, except pursuant to an exemption
from, or in a transaction not subject to, the Securities Act and applicable
state securities laws. The Company does not currently anticipate that it will
register the Old Notes under the Securities Act. Based on interpretations by the
staff of the Commission, New Notes issued pursuant to the Exchange Offer in
exchange for Old Notes may be offered for resale, resold or otherwise
transferred by any Holder thereof (other than any such Holder which is either
(i) an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act, or (ii) a broker-dealer, except as provided below), without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such New Notes were acquired in the ordinary
course of such Holder's business and such Holder had no arrangement with any
person to participate in the distribution of such New Notes. Notwithstanding the
foregoing, each broker-dealer that receives New Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with any resale of New Notes received in exchange
for Old Notes where such Old Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities. The Company has
agreed that, for a period of 180 days from the Expiration Date, it will make
this Prospectus available to any broker-dealer for use in connection with any
such resale. See "Plan of Distribution." However, to comply with the securities
laws of certain jurisdictions, if applicable, the New Notes may not be offered
or resold by any Holder unless they have been registered or qualified for sale
in such jurisdictions or an exemption from registration or qualification is
available and the requirements of such exemption have been satisfied. The
Company does not currently intend to register or qualify the resale of the New
Notes in any such jurisdictions.
ABSENCE OF PUBLIC MARKET
The Old Notes are eligible for trading in the Private Offerings, Resale and
Trading through Automated Linkages (PORTAL) market. The New Notes will be new
securities for which there currently is no market. Accordingly, there can be no
assurance as to the development or liquidity of any market for the New Notes.
The Company does not intend to apply for listing of the New Notes on any
securities exchange or for quotation through the National Association of
Securities Dealers Automated Quotation System. If an active market for the Notes
fails to develop or be sustained, the trading price of such Notes could be
adversely affected.
8
<PAGE> 9
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The summary consolidated financial information set forth below for the
fiscal years ended December 31, 1996, December 31, 1995, and December 31, 1994,
has been derived from the consolidated financial statements of the Company which
have been audited by KPMG Peat Marwick LLP, independent auditors. The summary
consolidated financial information for the nine months ended September 26, 1997,
and September 27, 1996, is unaudited. This information should be read in
conjunction with the consolidated financial statements and notes thereto
incorporated herein and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included herein.
<TABLE>
<CAPTION>
NINE MONTHS ENDED,
YEAR ENDED DECEMBER 31, -----------------------------
---------------------------------- SEPTEMBER 26, SEPTEMBER 27,
1996 1995 1994 1997 1996
-------- -------- -------- ------------- -------------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
EARNINGS STATEMENT DATA:
Revenues:
Commissions................................. $ 239.8 $ 178.2 $ 155.3 $ 220.5 $ 176.3
Principal transactions...................... 143.9 98.0 67.0 132.3 108.1
Corporate finance........................... 104.3 73.5 40.7 145.3 63.6
Interest.................................... 47.8 65.8 51.2 52.5 36.2
Other....................................... 5.0 4.2 1.9 4.2 3.8
-------- -------- -------- -------- --------
Total revenues..................... 540.8 419.7 316.1 554.8 388.0
Interest Expense............................ 37.9 54.3 41.6 46.0 28.2
-------- -------- -------- -------- --------
Revenues, net of interest expense........... 502.9 365.4 274.5 508.8 359.8
-------- -------- -------- -------- --------
Non-interest expenses:
Compensation and benefits................... 264.0 195.3 145.4 281.7 187.7
Floor brokerage and clearing fees........... 27.3 20.3 18.7 25.8 19.7
Telecommunications and data processing
services.................................. 35.2 25.0 21.0 33.0 24.9
Occupancy and equipment rental.............. 17.2 16.0 14.3 15.4 12.2
Travel and promotional...................... 15.4 10.8 8.9 14.4 11.7
Software royalties.......................... 8.8 6.0 5.0 7.3 6.5
Other....................................... 51.8 38.8 30.5 47.9 37.4
-------- -------- -------- -------- --------
Total non-interest expenses........ 419.7 312.2 243.8 425.5 300.1
-------- -------- -------- -------- --------
Operating Income............................ 83.2 53.2 30.7 83.3 59.7
Other Income:
Gain on initial public offering of ITGI..... -- -- 8.3 -- --
-------- -------- -------- -------- --------
Earnings before income taxes and minority
interest.................................. 83.2 53.2 39.0 83.3 59.7
Income taxes................................ 35.4 21.9 17.6 34.1 25.4
-------- -------- -------- -------- --------
Earnings before minority interest........... 47.8 31.3 21.4 49.2 34.3
Minority interest........................... 4.2 2.8 1.2 3.6 3.1
-------- -------- -------- -------- --------
Net earnings....................... $ 43.6 $ 28.5 $ 20.2 $ 45.6 $ 31.2
======== ======== ======== ======== ========
Earnings per share of common stock:(1)
Primary..................................... $ 3.68 $ 2.39 $ 1.63 $ 4.01 $ 2.62
======== ======== ======== ======== ========
Fully diluted............................... $ 3.66 $ 2.37 $ 1.63 $ 3.99 $ 2.61
======== ======== ======== ======== ========
SELECTED BALANCE SHEET DATA:
Total assets................................ $1,568.1 $1,537.0 $1,557.3 $ 2,179.1 $ 1,335.2
Total long-term debt........................ 53.0 56.3 59.6 152.8 56.5
Total stockholders' equity.................. 195.4 186.3 163.2 223.2 194.6
Book value per common share(1).............. 18.86 16.55 14.56 22.28 18.23
INTEREST COVERAGE:
Fixed charge coverage ratio(2).............. 12.1x 7.9x 7.4x 13.6x 11.6x
</TABLE>
- ---------------
(1) Adjusted for a two for one stock split.
(2) Earnings used in computing the Fixed Charge Coverage Ratio consist of net
earnings before income taxes plus fixed charges. Fixed charges consist of
interest expense on long-term debt (including amortization of deferred debt
discount, financing costs and the portion of rental expense deemed to
represent the interest factor).
9
<PAGE> 10
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company at September 26, 1997:
<TABLE>
<CAPTION>
AT SEPTEMBER 26,
1997
------------------
(DOLLARS IN
MILLIONS)
<S> <C> <C>
Long-Term Debt:
Senior Notes due 2004................................................ $ 49.5 13%
Senior Notes due 2007................................................ 99.7 27
Subordinated Debt.................................................... 3.6 1
------ ---
Total Long-Term Debt.............................................. 152.8 41
Total Stockholders' Equity............................................. 223.2 59
------ ---
Total Capitalization.............................................. $376.0 100%
====== ===
</TABLE>
10
<PAGE> 11
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The selected consolidated financial information set forth below for the
fiscal years ended December 31, 1996, December 31, 1995, December 31, 1994,
December 31, 1993 and December 31, 1992 has been derived from the consolidated
financial statements of the Company which have been audited by KPMG Peat Marwick
LLP, independent auditors. The consolidated financial information for nine
months ended September 26, 1997, and September 27, 1996, is unaudited. This
information should be read in conjunction with the consolidated financial
statements and notes thereto incorporated herein and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included herein.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, -----------------------------
---------------------------------------------------- SEPTEMBER 26, SEPTEMBER 27,
1996 1995 1994 1993 1992 1997 1996
-------- -------- -------- -------- -------- ------------- -------------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
Commissions................................ $ 239.8 $ 178.2 $ 155.3 $ 138.1 $ 106.8 $ 220.5 $ 176.3
Principal transactions..................... 143.9 98.0 67.0 83.4 86.4 132.3 108.1
Corporate finance.......................... 104.3 73.5 40.7 72.4 23.9 145.3 63.6
Interest................................... 47.8 65.8 51.2 21.7 16.8 52.5 36.2
Other...................................... 5.0 4.2 1.9 2.5 1.5 4.2 3.8
------- ------- ------- ------- ------ ------- -------
Total revenues......................... 540.8 419.7 316.1 318.1 235.4 554.8 388.0
Interest expense........................... 37.9 54.3 41.6 17.5 13.3 46.0 28.2
------- ------- ------- ------- ------ ------- -------
Revenues, net of interest expense........ 502.9 365.4 274.5 300.6 222.1 508.8 359.8
------- ------- ------- ------- ------ ------- -------
Non-interest expenses:
Compensation and benefits.................. 264.0 195.3 145.4 167.5 118.3 281.7 187.7
Floor brokerage and clearing fees.......... 27.3 20.3 18.7 15.9 13.8 25.8 19.7
Telecommunications and data processing
services................................. 35.2 25.0 21.0 19.0 17.1 33.0 24.9
Occupancy and equipment rental............. 17.2 16.0 14.3 12.8 12.1 15.4 12.2
Travel and promotional..................... 15.4 10.8 8.9 8.6 5.6 14.4 11.7
Software royalties......................... 8.8 6.0 5.0 4.0 2.2 7.3 6.5
Other...................................... 51.8 38.8 30.5 25.5 19.4 47.9 37.4
------- ------- ------- ------- ------ ------- -------
Total non-interest expenses............ 419.7 312.2 243.8 253.3 188.5 425.5 300.1
------- ------- ------- ------- ------ ------- -------
Operating Income........................... 83.2 53.2 30.7 47.3 33.6 83.3 59.7
Other Income:
Gain on initial public offering of ITGI.... -- -- 8.3 -- -- -- --
------- ------- ------- ------- ------ ------- -------
Earnings before income taxes, minority
interest and cumulative effect of change
in accounting principle.................. 83.2 53.2 39.0 47.3 33.6 83.3 59.7
Income taxes............................... 35.4 21.9 17.6 19.8 14.9 34.1 25.4
------- ------- ------- ------- ------ ------- -------
Earnings before minority interest and
cumulative effect of change in accounting
principle................................ 47.8 31.3 21.4 27.5 18.7 49.2 34.3
Minority interest.......................... 4.2 2.8 1.2 -- -- 3.6 3.1
------- ------- ------- ------- ------ ------- -------
Earnings before cumulative effect of change
in accounting principle.................. 43.6 28.5 20.2 27.5 18.7 45.6 31.2
Cumulative effect of change in accounting
principle................................ -- -- -- 1.4 -- -- --
------- ------- ------- ------- ------ ------- -------
Net earnings........................... $ 43.6 $ 28.5 $ 20.2 $ 28.9 $ 18.7 $ 45.6 $ 31.2
======= ======= ======= ======= ====== ======= =======
Earnings per share of common stock before
cumulative effect of accounting
change:(1)
Primary.................................... $ 3.68 $ 2.39 $ 1.63 $ 2.69 $ 1.91 $ 4.01 $ 2.62
======= ======= ======= ======= ====== ======= =======
Fully diluted.............................. $ 3.66 $ 2.37 $ 1.63 $ 2.33 $ 1.54 $ 3.99 $ 2.61
======= ======= ======= ======= ====== ======= =======
SELECTED BALANCE SHEET DATA:
Total assets............................... $1,568.1 $1,537.0 $1,557.3 $1,388.4 $ 531.0 $ 2,179.1 $ 1,335.2
Total long-term debt....................... 53.0 56.3 59.6 10.0 41.0 152.8 56.5
Total stockholders' equity................. 195.4 186.3 163.2 144.6 96.6 223.2 194.6
Book value per common share(1)............. 18.86 16.55 14.56 12.69 10.42 22.28 18.23
Shares outstanding (in thousands).......... 10,363 11,257 11,210 11,391 9,267 10,017 10,672
INTEREST COVERAGE:
Fixed charge coverage ratio(2)............. 12.1x 7.9x 7.4x 10.4x 7.2x 13.6x 11.6x
</TABLE>
- ---------------
(1) Adjusted for a two for one stock split.
(2) Earnings used in computing the Fixed Charge Coverage Ratio consist of net
earnings before income taxes plus fixed charges. Fixed charges consist of
interest expense on long-term debt (including amortization of deferred debt
discount, financing costs and the portion of rental expense deemed to
represent the interest factor).
11
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company's principal activities, securities brokerage and the trading of
and market making in securities, are highly competitive. The earnings of the
Company are subject to wide fluctuations since many factors over which the
Company has little or no control, particularly the overall volume of trading and
the volatility and general level of market prices, may significantly affect its
operations. The following provides a summary of revenues by source for the three
years ended December 31, 1996, December 31, 1995, and December 31, 1994, and for
the nine months ended September 26, 1997, and September 27, 1996.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, NINE MONTHS ENDED
---------------------------------------------------------- ------------------------------------------------
1996 1995 1994 SEPT. 26, 1997 SEPT. 27, 1996
% OF TOTAL % OF TOTAL % OF TOTAL % OF TOTAL % OF TOTAL
AMOUNT REVENUES AMOUNT REVENUES AMOUNT REVENUES AMOUNT REVENUES AMOUNT REVENUES
------ ---------- ------ ---------- ------ ---------- ------ --------------- ------ ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commissions and
Principal
Transactions:
Equities
Division........ $175.6 32% $139.9 33% $123.2 39% $158.1 29% $129.6 33%
Investment
Technology
Group, Inc...... 113.5 21 71.9 17 54.3 17 102.1 18 83.5 22
International
Division........ 43.3 8 39.6 9 29.4 9 42.7 8 33.1 9
Taxable Fixed
Income
Division........ 28.8 5 11.0 3 7.9 2 26.1 5 20.0 5
Convertible
Division........ 8.1 2 7.2 2 5.2 2 6.3 1 5.7 2
Other Proprietary
Trading......... 14.4 3 6.6 2 2.3 1 17.5 3 12.5 3
------ --- ------ --- ------ --- ------ --- ------ ---
Total......... 383.7 71 276.2 66 222.3 70 352.8 64 284.4 74
------ --- ------ --- ------ --- ------ --- ------ ---
Corporate Finance... 104.3 19 73.5 17 40.7 13 145.4 26 63.6 16
Interest............ 47.8 9 65.8 16 51.2 16 52.4 9 36.2 9
Other............... 5.0 1 4.2 1 1.9 1 4.2 1 3.8 1
------ --- ------ --- ------ --- ------ --- ------ ---
Total
revenues.... $540.8 100% $419.7 100% $316.1 100% $554.8 100% $388.0 100%
====== === ====== === ====== === ====== === ====== ===
</TABLE>
FIRST THREE QUARTERS 1997 VERSUS FIRST THREE QUARTERS 1996
Revenues, net of interest expense, increased 41% to $508.8 million,
compared to $359.8 million for the first nine months of 1996. The increase was
due primarily to an $81.8 million, or 129%, increase in corporate finance, a
$44.2 million, or 25%, increase in commissions, and a $24.2 million, or 22%,
increase in principal transactions. Commission revenues increased, led by ITG,
the Equities Division and the International Division. Revenues from principal
transactions increased primarily due to increased trading gains in the Equities
Division, the Taxable Fixed Income Division and the International Division.
Corporate finance revenues benefited from increased debt financing deals. Net
interest income (interest revenues less interest expense) decreased $1.6 million
as the increase in income on securities borrowed, partially offset by decreases
in margin interest income and investment interest income, was outpaced by the
increase in expense on securities loaned and subordinated loans.
Total non-interest expenses increased 42% to $425.5 million, compared to
$300.2 million for the first nine months of 1996. Compensation and benefits
increased $93.9 million, or 50%, mostly due to higher incentive based
compensation accruals. Other expense increased $10.4 million, or 28%, largely
due to higher soft dollar expenses and increased consulting expenses.
Telecommunications and data processing services increased $8.1 million, or 33%,
primarily due to increased trade volume, personnel, and system upgrades. Floor
brokerage and clearing fees increased $6.2 million, or 31%, due to increased
volume of business executed on the various exchanges. Occupancy and equipment
rental increased $3.2 million, or 27%, largely due to office space relocation
and expansion in several divisions. Travel and promotional increased $2.7
million, or 23%, largely due to increased business travel related to corporate
finance activities. Software royalties increased $752,000, or 12%, due to higher
POSIT(R) commission revenues.
Earnings before income taxes and minority interest were up 40% to $83.3
million, compared to $59.7 million for the same prior year period. The effective
tax rate was approximately 41% for the first nine months of 1997 versus
approximately 43% for the first nine months of 1996. The reduction in the
effective tax rate was due largely to a reversal of deferred taxes related to
ITGI shares that were repurchased during 1997.
Minority interest (approximately 17% of the earnings of ITGI) was $3.7
million for the first nine months of 1997 as compared to $3.0 million in the
comparable 1996 period. The increase in minority interest expense was due to
increased ITGI earnings.
Primary earnings per share were $4.01 for the first nine months of 1997 on
11,155,000 shares compared to $2.62 in the 1996 period on 11,818,000 shares.
Fully diluted earnings per share were $3.99 for the first nine months of 1997 on
11,218,000 shares compared to $2.61 in the 1996 period on 11,858,000 shares.
12
<PAGE> 13
1996 COMPARED TO 1995
Revenues, net of interest expense, increased $137.6 million, or 38%, in
1996 as compared to 1995. The increase was due to a $61.5 million, or 35%,
increase in commission revenue, a $46.0 million, or 47%, increase in principal
transaction revenue, a $30.8 million, or 42%, increase in corporate finance
revenue, and a $765,000 increase in other revenue, offset by a $1.5 million, or
13%, decrease in net interest income (interest revenue less interest expense).
Commission revenue increased, led by ITG, the Equities Division, the
International Division and the Convertibles Division. Revenue from principal
transactions increased primarily due to increased trading gains in the Equities
Division, the Taxable Fixed Income Division, the Analytical Trading Division and
the International Division. Corporate finance revenue grew due to an increase in
equity underwritings and advisory fees. Other revenue increased largely due to a
one time expense reimbursement related to prior years. Net interest income
decreased as the $18.0 million decrease in interest revenue exceeded the $16.5
million decrease in interest expense. Interest revenue decreased due primarily
to lower securities borrowed. The related decrease in interest on securities
loaned and customer credit balances only partially offset the drop in interest
revenue.
Total non-interest expenses increased $107.6 million, or 34%, in 1996 as
compared to 1995. Compensation and benefits expense increased $68.8 million, or
35% primarily due to a $30.3 million increase in performance-based compensation,
a $19.1 million increase in sales commission expense and a $10.2 million
increase in salary expense. Salaries increased due largely to expansion in ITG,
the Corporate Finance Division, the Equity Research Division and the Equities
Division. The compensation costs of the Technology Department increased to
support expansion and to strengthen the trading and management information
systems. Other expense increased $13.0 million, or 34%, largely due to higher
soft dollar expenses. Telecommunications and data processing services expense
increased $10.2 million, or 41%, primarily due to increased trade volume and
personnel. Floor brokerage and clearing fee expense increased $7.1 million, or
35%, mostly due to increased volume of business executed on the various
exchanges. Travel and promotional expense increased $4.6 million, or 42%, mostly
due to increased business travel. Software royalty expense increased $2.8
million, or 47%, due to an increase in POSIT(R) commission revenues. Occupancy
and equipment rental expense increased $1.2 million, or 8%, mostly due to the
relocation and addition of office space.
As a result of the above, earnings before income taxes and minority
interest were up $29.9 million, or 56%.
Net earnings were up 53% to $43.6 million, as compared to $28.5 million in
1995. Minority interest of $4.2 million in 1996 represents approximately 18% of
ITGI's net earnings. The effective tax rate was approximately 42.6% in 1996
compared to approximately 41.2% in 1995.
Primary earnings per share were $3.68 in 1996 on 11.7 million shares
compared to $2.39 in 1995 on 12.0 million shares. Fully diluted earnings per
share were $3.66 in 1996 on 11.8 million shares compared to $2.37 in 1995 on
12.0 million shares.
1995 COMPARED TO 1994
Revenues, net of interest expense, increased $90.9 million, or 33%, in 1995
as compared to 1994. The increase was due to a $32.8 million, or 81%, increase
in corporate finance revenue, a $30.9 million, or 46%, increase in principal
transaction revenue, a $23.0 million, or 15%, increase in commission revenue, a
$2.3 million increase in other revenue and a $1.8 million, or 19%, increase in
net interest income (interest revenue less interest expense). Commission revenue
increased, led by ITG and the Equities Division. Revenue from principal
transactions increased primarily due to increased trading gains in the Equities
Division, the Taxable Fixed Income Division and the International Division.
Corporate finance revenue benefited from increases in underwriting and advisory
fees. Other revenue increased largely due to higher ITG-related investment
income. Net interest income increased as the $14.6 million increase in interest
revenues exceeded the $12.7 million increase in interest expense. Interest
revenue increased due primarily to higher securities borrowed and customer
margin interest income. The related increase in interest on securities loaned
only partially offset the growth in interest revenue.
13
<PAGE> 14
Total non-interest expenses increased $68.4 million, or 28%, in 1995 as
compared to 1994. Compensation and benefits expense increased $49.9 million, or
34%, primarily due to a $29.1 million increase in performance-based
compensation, a $13.4 million increase in sales commission expense and a $1.8
million increase in salary expense. Salaries increased due largely to expansion
in the Corporate Finance Division and equity research. Other expense increased
$8.4 million, or 27%, largely due to higher technology development expenses.
Telecommunications and data processing services expense increased $4.0 million,
or 19%, primarily due to increased trade volume and personnel. Travel and
promotional expense increased $1.9 million, or 21%, mostly due to an increase in
ITG's advertising and promotional costs as well as increased travel related to
the Corporate Finance Division. Occupancy and equipment rental expense increased
$1.7 million, or 12%, mostly due to the relocation and addition of offices.
Floor brokerage and clearing fee expense increased $1.6 million, or 9%, mostly
due to increased volume of business executed on the various exchanges. Software
royalties increased $959,000, or 19%, due to an increase in POSIT(R) commission
revenues.
As a result of the above, operating income increased $22.5 million, or 73%.
In 1994, the Company recorded a pre-tax gain of $8.3 million on the initial
public offering of ITGI. The minority stockholders' ownership interest reduced
the Company's ownership of ITGI to approximately 80%.
Earnings before income taxes and minority interest were up $14.2 million,
or 36%.
Net earnings were up 41% to $28.5 million, as compared to $20.2 million in
1994. Minority interest of $2.8 million in 1995 represents approximately 20% of
ITGI's net earnings. The effective tax rate was approximately 41.2% in 1995
compared to approximately 45.0% in 1994. The 1995 effective tax rate was lower
due to a reduction in the effective state tax rates and research and development
tax credits.
Primary earnings per share were $2.39 in 1995 on 12.0 million shares
compared to $1.63 in 1994 on 12.4 million shares. Fully diluted earnings per
share were $2.37 in 1995 on 12.0 million shares compared to $1.63 in 1994 on
12.4 million shares.
LIQUIDITY AND CAPITAL RESOURCES
A substantial portion of the Company's assets are liquid, consisting of
cash or assets readily convertible into cash. The majority of securities
positions (both long and short) in the Company's trading accounts are readily
marketable and actively traded. Receivables from brokers and dealers are
primarily current open transactions or securities borrowed transactions which
can be settled or closed out within a few days. Receivables from customers,
officers and directors include margin balances and amounts due on uncompleted
transactions. Most of the Company's receivables are secured by marketable
securities.
The Company's assets are funded by equity capital, senior debt,
subordinated debt, temporary subordinated debt to facilitate certain
underwritings, securities loaned, customer free credit balances, bank loans and
other payables. Bank loans represent secured and unsecured short-term borrowings
(usually overnight) which are generally payable on demand. Secured bank loans
are collateralized by a combination of customer, non-customer and firm
securities. JEFCO has obtained a $125 million revolving credit facility, which
is guaranteed by the Company and which is intended to enhance JEFCO's
underwriting capabilities. The Company has always been able to obtain necessary
short-term borrowings in the past and believes that it will continue to be able
to do so in the future. Additionally, the Company has letters of credit
outstanding which are used in the normal course of business to satisfy various
collateral requirements in lieu of depositing cash or securities.
Total assets increased $611.0 million from $1,568.1 million at December 31,
1996 to $2,179.1 million at September 26, 1997. The increase in assets is mostly
due to an increase in securities borrowed (included in receivable from brokers
and dealers) and an increase in investments. The increase in securities borrowed
is related to an increase in securities loaned (included in payable to brokers
and dealers). During August 1997, the Company issued $100 million face value of
Old Notes.
JEFCO, ITG and W&D Securities, Inc., a Delaware corporation ("W&D"), the
Company's execution service affiliate, are subject to the net capital
requirements of the Commission and other regulators, which are
14
<PAGE> 15
designed to measure the general financial soundness and liquidity of
broker-dealers. JEFCO, ITG and W&D have consistently operated in excess of the
minimum requirements. As of September 26, 1997, JEFCO's, ITG's and W&D's net
capital was $131.1 million, $24.7 million and $1.1 million, respectively, which
exceeded minimum net capital requirements by $127.3 million, $24.5 million and
$827,000, respectively. JEFCO, ITG and W&D use the alternative method of
calculating their regulatory net capital.
During the first nine months of 1997, the Company repurchased 496,513
shares (including 139,600 shares purchased in connection with the Company's
Capital Accumulation Plan) of its Common Stock versus 824,651 shares (including
163,612 shares purchased in connection with the Company's Capital Accumulation
Plan) for the comparable 1996 period.
In 1996, the Company redeemed $3.6 million face value of its 8.87%
Subordinated Notes due 1997 in accordance with sinking fund requirements. Also
in 1996, the Company repurchased 1,160,176 shares (including 207,312 shares
purchased in connection with the Company's Capital Accumulation Plan) of its
Common Stock at prices ranging from $22.63 to $37.25.
In 1995, the Company redeemed $3.6 million face value of its 8.875%
Subordinated Notes due 1997 in accordance with sinking fund requirements. Also
in 1995, the Company repurchased 727,738 shares (including 267,936 shares
purchased in connection with the Company's Capital Accumulation Plan) of its
Common Stock at prices ranging from $14.31 to $23.25.
EFFECT OF THE COMMISSION'S ORDER HANDLING RULES
In late 1996 the Commission adopted a series of rules which may have a
significant impact on the Company's market making activities in Nasdaq
securities. These rules, referred to as the Commission's Order Handling rules,
require market makers to display, in certain circumstances, a customer's limit
order. The implementation of these rules was phased-in during 1997. The impact
on the profitability of the Company's activities as a market maker in Nasdaq
securities remains unclear, although these rules appear to have had the effect
of reducing the spread for certain Nasdaq securities, thereby decreasing the
per-transaction profitability from such market making activity.
EFFECTS OF CHANGES IN FOREIGN CURRENCY RATES
The Company maintains a foreign securities business in its foreign offices
(London, Hong Kong, Zurich and Tokyo) as well as in some of its domestic
offices. Most of these activities are hedged by related foreign currency
liabilities or by forward exchange contracts. However, the Company is still
subject to some foreign currency risk. A change in the foreign currency rates
could create either a foreign currency transaction gain/loss (recorded in the
Company's Consolidated Statements of Earnings) or a foreign currency translation
adjustment to the stockholders' equity section of the Company's Consolidated
Statements of Financial Condition.
15
<PAGE> 16
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Old Notes were sold by the Company on August 18, 1997 to the
Purchasers, pursuant to the Purchase Agreement. The Purchasers are qualified
institutional buyers, as defined in Rule 144A under the Securities Act, or
accredited investors, as defined in Rule 501(a)(1), (2), (3) or (7) of
Regulation D under the Securities Act. As a condition to the Purchase Agreement,
the Company and the Purchasers entered into the Registration Rights Agreement on
August 18, 1997. Pursuant to the Registration Rights Agreement, the Company
agreed to (i) file with the Commission a registration statement under the
Securities Act with respect to the New Notes within 90 days after the date of
the original issuance of the Old Notes (the "Issue Date"), (ii) use its best
efforts to cause the Registration Statement covering the Exchange Offer to
become effective under the Securities Act within 180 days after the Issue Date
(the "Effectiveness Date"), and (iii) use its best efforts to consummate the
Exchange Offer within 45 days after the Effectiveness Date. The Registration
Statement of which this Prospectus is a part is intended to satisfy such
obligations of the Company under the Registration Rights Agreement. A copy of
the Registration Rights Agreement has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part.
TERMS OF THE EXCHANGE OFFER
The Company hereby offers, upon the terms and subject to the conditions set
forth herein and in the accompanying Letter of Transmittal, to exchange $1,000
in principal amount of New Notes for each $1,000 in principal amount of the
outstanding Old Notes. New Notes will be issued only in integral multiples of
$1,000 to each tendering Eligible Holder whose Old Notes are accepted in the
Exchange Offer. The Company will accept any Old Notes validly tendered and not
withdrawn prior to 5:00 p.m. New York City time, on the Expiration Date. Old
Notes that are not accepted for exchange will be returned as promptly as
practicable after the Expiration Date. Eligible Holders may tender all or a
portion of the Old Notes pursuant to the Exchange Offer.
The form and terms of the New Notes under the Indenture will be identical
in all material respects to the form and terms of the Old Notes. The New Notes
evidence the same debt as the Old Notes (which they replace) and will be issued
under, and be entitled to the benefits of, the Indenture governing the Old
Notes. The New Notes will bear interest from their date of issuance at the same
rate and upon the same terms as the Old Notes. See "Description of the Notes."
Accrued and unpaid interest on the Old Notes accepted for exchange for the
period to but not including the date of issuance of the New Notes (the "Exchange
Date") will be paid to the registered Holders of New Notes on the first interest
payment date of the New Notes. Holders whose Old Notes are accepted for exchange
will be deemed to have waived the right to receive any payment in respect of
interest on the Old Notes accrued on and after the Exchange Date.
As of the date of this Prospectus, $100,000,000 aggregate principal amount
of the Old Notes are outstanding and there is one registered Holder thereof.
Solely for reasons of administration (and for no other purpose) the Company has
fixed the close of business of December 12, 1997, as the record date (the
"Record Date") for the Exchange Offer for purposes of determining the Holders of
certificated Old Notes to whom this Prospectus and the Letter of Transmittal
will be mailed initially. Only an Eligible Holder may participate in the
Exchange Offer. There will be no fixed record date for determining registered
Holders of Old Notes entitled to participate in the Exchange Offer.
Eligible Holders of Old Notes do not have any appraisal or dissenters'
rights under the General Corporation Law of the State of Delaware or the
Indenture in connection with the Exchange Offer. The Company intends to conduct
the Exchange Offer in accordance with the applicable requirements of the
Exchange Act and the rules and regulations of the Commission thereunder.
The Company shall be deemed to have accepted validly tendered Old Notes
when, as, and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering Holders
of Old Notes for the purposes of receiving the New Notes from the Company.
16
<PAGE> 17
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, any such unaccepted Old Notes will be returned, without expense, to
the tendering Holder thereof as promptly as practicable after the Expiration
Date.
Tendering Eligible Holders will not be required to pay broker commissions
or fees or, subject to the instructions in the Letter of Transmittal, transfer
taxes with respect to the exchange of Old Notes for New Notes pursuant to the
Exchange Offer. The Company will pay all charges and expenses, other than
certain taxes which may be levied in the event of any transfer of ownership, in
connection with the Exchange Offer. See "Fees and Expenses" below.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
February 16, 1998, or, at the Company's option, such earlier date upon which
100% of the Old Notes shall have been validly tendered pursuant to the Exchange
Offer and not withdrawn, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral or written notice and will make a public
announcement thereof, each prior to 10:00 a.m., New York City time, on the next
business day after the previously scheduled Expiration Date.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Old Notes, (ii) to extend the Exchange Offer, (iii) to terminate
the Exchange Offer if it is determined that the Exchange Offer does not meet the
conditions set forth in "Certain Conditions of the Exchange Offer" below, in
each case by giving oral or written notice of such delay, extension, or
termination to the Exchange Agent, or (iv) to amend the terms of the Exchange
Offer in any manner. Any such delay in acceptance, extension, termination, or
amendment will be followed as promptly as practicable by a public announcement
thereof. If the Exchange Offer is amended in a manner determined by the Company
to constitute a material change, the Company will promptly disclose such
amendment by means of a prospectus supplement that will be distributed to the
registered Holders of Old Notes, and the Company will extend the Exchange Offer
for a period of five to ten business days, depending upon the significance of
the amendment and the manner of disclosure to the registered Holders, if the
Exchange Offer would otherwise expire during such five to ten business day
period.
Without limiting the manner in which the Company may choose to make a
public announcement of the delay, extension, termination, or amendment of the
Exchange Offer, the Company shall not have an obligation to publish, advertise
or otherwise communicate any such public announcement, other than by making a
timely release to the Dow Jones News Service.
INTEREST ON THE NOTES
The New Notes will bear interest from their date of issuance. Holders of
Old Notes that are accepted for exchange will be entitled to receive, in cash,
accrued and unpaid interest thereon to, but not including, the date of issuance
of the New Notes and will be deemed to have waived the right to receive any
payment in respect of interest on the Old Notes accrued from and after the date
of issuance of the New Notes. Such accrued and unpaid interest on the Old Notes
will be paid to registered Holders of the New Notes with the first interest
payment on the New Notes. Interest on the Old Notes accepted for exchange will
cease to accrue on the day prior to the issuance of the New Notes.
The New Notes bear interest (as do the Old Notes) at a rate equal to 7 1/2%
per annum. Interest on the New Notes is payable on each February 15 and August
15, commencing on February 15, 1998.
PROCEDURES FOR TENDERING OLD NOTES
The tender by an Eligible Holder as set forth below and the acceptance
thereof by the Company will constitute a binding agreement between the tendering
Eligible Holder and the Company upon the terms and subject to the conditions set
forth in this Prospectus and in the accompanying Letter of Transmittal. Except
as
17
<PAGE> 18
set forth below, an Eligible Holder who wishes to tender Old Notes for exchange
pursuant to the Exchange Offer must transmit a properly completed and duly
executed Letter of Transmittal, the certificates for the Old Notes being
tendered, and all other documents required by such Letter of Transmittal, to the
Exchange Agent at the address set forth in the Letter of Transmittal on or prior
to 5:00 p.m., New York City time, on the Expiration Date. Eligible Holders
wishing to accept the Exchange Offer through the book-entry transfer procedure
described below, if such procedure is available, may transfer the Old Notes
being tendered via ATOP. In tendering the Old Notes via ATOP, such Holder will
expressly acknowledge the receipt, and agree to be bound by, the terms of the
Letter of Transmittal (or, in the case of a tender by guaranteed delivery, that
such Holder has received and agrees to be bound by the Notice of Guaranteed
Delivery). Book-Entry Confirmation must be received by the Exchange Agent by
5:00 p.m., New York City time, on the Expiration Date. Alternatively, an
Eligible Holder may accept the Exchange Offer by complying with the guaranteed
delivery procedures described below. THE METHOD OF DELIVERY OF OLD NOTES,
LETTERS OF TRANSMITTAL, AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND
RISK OF THE ELIGIBLE HOLDER. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT
REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED.
INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT THE ELIGIBLE HOLDER USE AN
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE TIMELY DELIVERY.
Each signature on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the Old Notes surrendered for exchange
pursuant thereto are tendered (i) by a registered Holder of the Old Notes who
has completed either the box entitled "Special Issuance Instructions" or the box
entitled "Special Delivery Instructions" on the Letter of Transmittal or (ii) by
an Eligible Institution (as defined below). In the event that a signature on a
Letter of Transmittal or a notice of withdrawal, as the case may be, is required
to be guaranteed, such guarantee must be by a firm which is a member of a
registered national securities exchange or a member of the NASD, a commercial
bank or trust company having an office or correspondent in the United States or
is otherwise an "eligible guarantor institution" within the meaning of Rule
17Ad-15 under the Exchange Act (collectively, "Eligible Institutions"). If Old
Notes are registered in the name of a person other than a signer of the Letter
of Transmittal, the Old Notes surrendered for exchange must either (i) be
endorsed by the registered Holder, with the signature thereon guaranteed by an
Eligible Institution or (ii) be accompanied by a bond power, in satisfactory
form as determined by the Company in its sole discretion, duly executed by the
registered Holder, with the signature thereon guaranteed by an Eligible
Institution along with any other documents required upon transfer. The term
"registered Holder" as used herein with respect to the Old Notes means any
person in whose name the Old Notes are registered on the books of the registrar
for the Old Notes.
Tenders may be made only in principal amounts of $1,000 and integral
multiples thereof. Subject to the foregoing, Eligible Holders may tender less
than the aggregate principal amount represented by the Old Notes deposited with
the Exchange Agent provided they appropriately indicate this fact on the Letter
of Transmittal accompanying the tendered Old Notes.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance, and withdrawal of Old Notes tendered for exchange will be
determined by the Company in its sole, reasonable discretion, which
determination shall be final and binding on all parties. The Company reserves
the absolute right to reject any and all tenders of any particular Old Notes not
properly tendered or to reject any particular Old Notes whose acceptance might,
in the judgment of the Company or its counsel, be unlawful. The Company also
reserves the absolute right to waive any defects or irregularities or conditions
of the Exchange Offer as to any particular Old Notes either before or after the
Expiration Date (including the right to waive the ineligibility of any Holder
who seeks to tender Old Notes in the Exchange Offer). The interpretation of the
terms and conditions of the Exchange Offer (including the Letter of Transmittal
and the instructions thereto) by the Company shall be final and binding on all
parties. Unless waived, any defects or irregularities in connection with tenders
of Old Notes for exchange must be cured within such reasonable period of time as
the Company shall determine. The Company will use reasonable efforts to give
notification of defects or irregularities with respect to tenders of Old Notes
for exchange but shall not incur any liability for failure to
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<PAGE> 19
give such notification. Tenders of the Old Notes will not be deemed to have been
made until such irregularities have been cured or waived.
If any Letter of Transmittal, endorsement, bond power, power of attorney,
or any other document required by the Letter of Transmittal is signed by a
trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation, or other person acting in a fiduciary or representative capacity,
such person should so indicate when signing, and, unless waived by the Company,
proper evidence satisfactory to the Company of such person's authority to so act
must be submitted.
Any Beneficial Owner whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company, or other nominee and who wishes
to tender Old Notes in the Exchange Offer should contact such registered Holder
promptly and instruct such registered Holder to tender on such Beneficial
Owner's behalf. If such Beneficial Owner wishes to tender directly, such
Beneficial Owner must, prior to completing and executing the Letter of
Transmittal and tendering Old Notes, make appropriate arrangements to register
ownership of the Old Notes in such Beneficial Owner's name. Beneficial Owners
should be aware that the transfer of registered ownership may take considerable
time.
Each Eligible Holder accepting the Exchange Offer is required to make the
representations to the Company described under "Resales of the New Notes" below.
BOOK ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Depository for purposes of the Exchange Offer within two
business days after the date of this Prospectus, and any financial institution
that is a participant in the Depository's system may make book-entry delivery of
Old Notes by causing the Depository to transfer such Old Notes into the Exchange
Agent's account at the Depository in accordance with the Depository's procedures
for transfer. A Holder tendering the Old Notes via ATOP will expressly
acknowledge the receipt, and agree to be bound by, the terms of the Letter of
Transmittal (or, in the case of a tender by guaranteed delivery, that such
Holder has received and agrees to be bound by the Notice of Guaranteed
Delivery).
GUARANTEED DELIVERY PROCEDURES
If a registered Holder of Old Notes desires to tender such Old Notes (other
than through book-entry transfer procedures) and such Old Notes are not
immediately available, or if time will not permit such Holder's Old Notes or
other required documents to reach the Exchange Agent on or prior to the
Expiration Date, a tender may be effected if (i) the tender is made by or
through an Eligible Institution, (ii) prior to the Expiration Date, the Exchange
Agent receives from such Eligible Institution a properly completed and duly
executed Letter of Transmittal (or facsimile thereof) and Notice of Guaranteed
Delivery, substantially in the form provided by the Company (by facsimile
transmission, mail or hand delivery), setting forth the name and address of the
Holder of Old Notes, the certificate number or numbers of any Old Notes which
will not be tendered by book-entry transfer, and the amount of Old Notes
tendered, stating that the tender is being made thereby and guaranteeing that
within five New York Stock Exchange trading days after the date of execution of
the Notice of Guaranteed Delivery, the certificates for all physically tendered
Old Notes, in proper form for transfer, and any other documents required by the
Letter of Transmittal will be deposited by the Eligible Institution with the
Exchange Agent, and (iii) the certificates for all physically tendered Old
Notes, in proper form for transfer, and all other documents required by the
Letter of Transmittal, are received by the Exchange Agent within five New York
Stock Exchange trading days after the date of execution of the Notice of
Guaranteed Delivery. If a registered Holder of Old Notes desires to tender such
Old Notes by book-entry transfer, and the procedure for book-entry transfer
cannot be completed on or prior to the Expiration Date, a tender may be effected
if (i) the tender is made by an Eligible Institution, (ii) prior to the
Expiration Date, the Exchange Agent receives confirmation from the Depository of
receipt by the Depository of a Notice of Guaranteed Delivery via ATOP, by which
the Tendering Holder will expressly acknowledge the receipt of, and agree to be
bound by, the Notice of Guaranteed Delivery, including a guarantee that
Book-Entry Confirmation will be received by the Exchange Agent within five New
York Stock Exchange trading days
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<PAGE> 20
after the date of the transmittal of the Notice of Guaranteed Delivery via ATOP,
and (iii) Book-Entry Confirmation is received by the Exchange Agent within five
New York Stock Exchange trading days after the date of the transmittal of the
Notice of Guaranteed Delivery via ATOP.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Except as set forth under "Certain Conditions of the Exchange Offer" below,
the Company will accept, promptly after the Expiration Date, all Old Notes
properly tendered and will issue the New Notes promptly after acceptance of the
Old Notes. For purposes of the Exchange Offer, the Company shall be deemed to
have accepted properly tendered Old Notes for exchange when, as, and if the
Company has given oral or written notice thereof to the Exchange Agent.
In all cases, issuances of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of certificates for such Old Notes accompanied by a
properly completed and duly executed Letter of Transmittal, and all other
required documents, or a Book-Entry Confirmation of the transfer of such Old
Notes into the Exchange Agent's account at the Depository; provided, however,
that the Company has given oral or written notice thereof to the Exchange Agent,
and provided further that the Company reserves the absolute right to waive any
defects or irregularities in the tender or conditions of the Exchange Offer. If
any tendered Old Notes are not accepted for any reason set forth in the terms
and conditions of the Exchange Offer or if Old Notes are submitted for a greater
principal amount than the Eligible Holder desires to exchange, such unaccepted
or non-exchanged Old Notes or substitute Old Notes evidencing the unaccepted
portion, as appropriate, will be returned without expense to the tendering
Eligible Holder thereof as promptly as practicable after the expiration or
termination of the Exchange Offer.
WITHDRAWAL RIGHTS
Tenders of the Old Notes may be withdrawn at any time prior to 5:00 p.m.,
New York City time, on the Expiration Date. For a withdrawal to be effective, a
written notice of withdrawal must be received by the Exchange Agent at its
address set forth under "Exchange Agent" below. Any such notice of withdrawal
must (i) specify the name of the person having tendered the Old Notes to be
withdrawn, (ii) identify the Old Notes to be withdrawn (including the principal
amount of such Old Notes), and (iii) if certificates for Old Notes were
tendered, specify the name in which such Old Notes were registered, if different
from that of the withdrawing Holder. If certificates for Old Notes have been
delivered or otherwise identified to the Exchange Agent then, prior to the
release of such certificates, the withdrawing Holder must also submit the serial
numbers of the particular certificates to be withdrawn and a signed notice of
withdrawal with signatures guaranteed by an Eligible Institution unless such
Holder is an Eligible Institution. If Old Notes have been tendered pursuant to
the procedure for book-entry transfer, any notice of withdrawal must specify the
name and number of the account at the Depository to be credited with the
withdrawn Old Notes, and otherwise comply with the procedures of the Depository.
All questions as to the validity, form, and eligibility (including time of
receipt) of such notices will be determined by the Company in its sole,
reasonable discretion, which determination shall be final and binding on all
parties. The Old Notes so withdrawn, if any, will be deemed not to have been
validly tendered for exchange for purposes of the Exchange Offer. Any Old Notes
that have been tendered for exchange but which are withdrawn will be returned to
the Eligible Holder thereof without cost to such Eligible Holder as soon as
practicable after withdrawal. Properly withdrawn Old Notes may be retendered by
following one of the procedures described under "Procedures for Tendering Old
Notes" above at any time on or prior to the Expiration Date.
CERTAIN CONDITIONS OF THE EXCHANGE OFFER
Notwithstanding any other provisions of the Exchange Offer, the Company
shall not be required to accept for exchange, or to issue the New Notes in
exchange for, any Old Notes and may terminate or amend the Exchange Offer if,
prior to the exchange of the New Notes for the Old Notes, the Company
determines, in its sole discretion, that (i) there has been a commencement of
any action, legal or governmental, with respect to the Exchange Offer or which
the Company reasonably determines would make it inadvisable to proceed with
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<PAGE> 21
the Exchange Offer, (ii) there has been a banking moratorium or similar event or
international calamity involving the United States, (iii) there has been a
change in the business or prospects of the Company that may have a material
adverse effect on the Company, or (iv) the Exchange Offer violates any
applicable law. If the Company makes any of the foregoing determinations, the
Company may (i) refuse to accept any Old Notes and return all tendered Old Notes
to the tendering Holders or (ii) extend the Exchange Offer, retain all Old Notes
tendered prior to the Expiration Date, and use reasonable efforts to satisfy any
such condition, subject, however, to the rights of Eligible Holders to withdraw
such Old Notes (see "Withdrawal Rights" above). In addition, the Company will
not accept for exchange any Old Notes tendered, and no New Notes will be issued
in exchange for any such Old Notes, if at such time any stop order shall be
threatened or in effect with respect to the Registration Statement or the
qualification of the Indenture under the Trust Indenture Act of 1939, as
amended, as in effect on the date of the Indenture (the "Trust Indenture Act").
Holders of Old Notes may have certain rights and remedies against the
Company under the Registration Rights Agreement should the Company fail to
consummate the Exchange Offer, including provisions for liquidated damages (as
described below), notwithstanding any nonfulfillment of the above conditions.
Such conditions are not intended to modify such rights and remedies in any
respect.
Under the Registration Rights Agreement, if, other than as a result of
actions by the Holders of the Old Notes, (i) the Registration Statement filed
with the Commission relating to the Exchange Offer has not been declared
effective by the Commission by the Effectiveness Date, or (ii) on or prior to
the Consummation Date (as defined below), the Exchange Offer has not been
consummated, then the Company will pay to each Holder of the Old Notes an
additional amount equal to $0.05 per week (or partial week) per $1,000 principal
amount of the Old Note held by such holder, during the first 90-day period
immediately following the Effectiveness Date referred to in (i) above, or the
Consummation Date referred to in (ii) above, as liquidated damages, provided
that the amount of liquidated damages will increase by an additional $0.05 per
week (or partial week), per $1,000 principal amount at the beginning of each
subsequent 90-day period in the case of (i) or (ii) above, to a maximum amount
of liquidated damages of $0.25 per week per $1,000 principal amount, which
provision for liquidated damages will continue until such condition noted in (i)
or (ii) has been cured. "Consummation Date" means the date 45 days from the
Effectiveness Date, provided that, in the event such date is not a Business Day,
the next succeeding Business Day. Liquidated damages accrued as of any interest
payment date will be payable on such date.
TERMINATION OF CERTAIN RIGHTS
Eligible Holders of the Old Notes to whom this Exchange Offer is made have
certain rights under the Registration Rights Agreement and Purchase Agreement
that will terminate upon the consummation of the Exchange Offer, which rights
include, without limitation, (a) the right to require the Company (i) to file
with the Commission the Exchange Offer Registration Statement under the
Securities Act within 90 days following the Issue Date; (ii) to use its best
efforts to cause such Registration Statement to become effective by the
Effectiveness Date; (iii) to consummate the Exchange Offer within 45 days of the
Effectiveness Date; and (iv) if certain events described in the Registration
Rights Agreement occur (x) to file a Shelf Registration Statement covering
resales of the Old Notes, (y) to use its best efforts to cause such Shelf
Registration Statement to be declared effective under the Securities Act and (z)
to keep such Shelf Registration Statement effective for the period described in
the Registration Rights Agreement; and (b) the right to receive liquidated
damages from the Company under certain circumstances described in the
Registration Rights Agreement.
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EXCHANGE AGENT
All tendered Old Notes, executed Letters of Transmittal, and other related
documents should be directed to the Exchange Agent at one of the addresses set
forth below. In addition, any questions and requests for assistance and requests
for additional copies of this Prospectus, the Letter of Transmittal, and other
related documents should be addressed to the Exchange Agent:
<TABLE>
<S> <C> <C>
If by overnight carrier or by If by registered or certified If by Facsimile:
hand: mail:
The Bank of New York The Bank of New York (212) 815-6339
101 Barclay Street 101 Barclay Street -- 7E
Corporate Trust Services Window New York, New York 10286 Confirm by telephone:
Ground Level Attn: Shilpa Trivedi (212) 815-5789
New York, New York 10286
Attention: Shilpa Trivedi
</TABLE>
DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF
INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A
VALID DELIVERY.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by facsimile, telephone or in person by officers and regular
employees of the Company and its affiliates. The Company has not retained any
dealer-manager in connection with the Exchange Offer. The Company, however, will
reimburse brokers, dealers, commercial banks and trust companies for reasonable
and necessary costs and expenses incurred by them in forwarding this Prospectus
and the related Exchange Offer documents to the beneficial owners of Old Notes
held by them as nominee or in a fiduciary capacity. The Company also will pay
the Exchange Agent reasonable and customary fees for its services and will
reimburse it for its reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will be
paid by the Company and are estimated to be approximately $100,000. Such
expenses include fees and expenses of the Exchange Agent, accounting and legal
fees, filing fees and printing costs.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Old Notes pursuant to the Exchange Offer. If, however, a transfer tax is
imposed for any reason other than the exchange of Old Notes pursuant to the
Exchange Offer, then the amount of any such transfer taxes (whether imposed on
the registered Holder or any other persons) will be payable by the tendering
Holder. If satisfactory evidence of payment of such taxes or exemption therefrom
is not submitted with the Letter of Transmittal, the amount of such transfer
taxes will be billed directly to such tendering Holder.
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Old Notes,
as reflected in the Company's accounting records on the date of the Exchange.
Accordingly, no gain or loss for accounting purposes will be recognized. The
expenses of the Exchange Offer will be amortized over the term of the New Notes.
RESALES OF THE NEW NOTES
With respect to resales of New Notes, based on an interpretation by the
Staff of the Commission set forth in no-action letters issued to third parties,
the Company believes that an Eligible Holder (other than (i) an affiliate of the
Company within the meaning of Rule 405 under the Securities Act or (ii) a
broker-dealer, except as provided below) who exchanges Old Notes for New Notes
in the ordinary course of its business and who is not participating, does not
intend to participate, and has no arrangement or understanding with any person
to participate, in the distribution of the New Notes, will be allowed to resell
the New Notes to the public without further registration under the Securities
Act and without delivering to the purchasers of the New Notes a prospectus that
satisfies the requirements of Section 10 thereof. However, if any Eligible
Holder
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<PAGE> 23
acquires New Notes in the Exchange Offer for the purpose of distributing or
participating in a distribution of the New Notes, such Eligible Holder cannot
rely on the position of the Staff of the Commission enunciated in Exxon Capital
Holdings Corporation (available May 13, 1988) or similar no-action letters or
any similar interpretive letters and must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction, unless an exemption from registration is otherwise
available.
As contemplated by the above no-action letters and the Registration Rights
Agreement, each Holder of Old Notes accepting the Exchange Offer is required to
represent to the Company in the Letter of Transmittal that (i) any New Notes are
to be acquired in the ordinary course of business of the person receiving such
New Notes, whether or not such person is such Holder, (ii) neither the Holder of
such Old Notes nor any such other person receiving such New Notes is
participating, intends to participate, or has any arrangement or understanding
with any person to participate, in the distribution of the New Notes, and (iii)
except as otherwise disclosed, neither the Holder of such Old Notes nor any such
other person is an affiliate of the Company within the meaning of Rule 405 under
the Securities Act. Further, each Holder of Old Notes accepting the Exchange
Offer must acknowledge that any person participating in the Exchange Offer for
the purpose of distributing the New Notes must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with a
secondary resale of the New Notes and cannot rely on the no-action letters
discussed above.
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. The Letter of Transmittal states
that by so acknowledging and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from time
to time, may be used by a broker-dealer in connection with resales of New Notes
received in exchange for Old Notes, where such Old Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, for a period of 180 days after the Expiration Date. The Company will
make this Prospectus available to any broker-dealer, at no charge, for use in
connection with any such resale for a period of 180 days after the Expiration
Date. See "Plan of Distribution."
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon. In general,
the Old Notes may not be offered or sold, unless registered under the Securities
Act and applicable state securities laws. The Company does not intend to
register the Old Notes under the Securities Act or any state securities laws.
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<PAGE> 24
BUSINESS
The Company is a holding company which, through its four primary
subsidiaries, Jefferies & Company, Inc., Investment Technology Group, Inc.,
Jefferies International Limited and Jefferies Pacific Limited, is engaged in
securities brokerage and trading, corporate finance and other financial
services. The term "Company" refers, unless the context requires otherwise, to
Jefferies Group, Inc., its subsidiaries, predecessor entities, and W&D
Securities, Inc. The Company was originally incorporated in 1973 as a holding
company for JEFCO and was reincorporated in Delaware on August 10, 1983. The
Company and its various subsidiaries maintain offices in Los Angeles, New York,
Short Hills, Jersey City, Chicago, Dallas, Boston, Atlanta, New Orleans,
Houston, San Francisco, Stamford, London, Hong Kong, Zurich and Tokyo.
As of December 31, 1996, the Company and its subsidiaries had 909 full-time
employees, including 429 representatives registered with the National
Association of Securities Dealers, Inc. ("NASD"). The Company's executive
offices are located at 11100 Santa Monica Boulevard, Los Angeles, California
90025, and its telephone number is (310) 445-1199.
JEFFERIES & COMPANY, INC.
JEFCO was founded in 1962 and is engaged in equity, convertible debt and
taxable fixed income securities brokerage and trading and corporate finance.
JEFCO is one of the leading national firms engaged in the distribution and
trading of blocks of equity securities both on the national securities exchanges
and in the "third market." The term "third market" refers to transactions in
listed equity securities effected away from national securities exchanges.
JEFCO's revenues are derived primarily from commission revenues and market
making or trading as principal in equity, taxable fixed income and convertible
securities with or on behalf of institutional investors, with the balance
generated by corporate finance and other activities. JEFCO has continued to add
to its equity research capabilities and currently provides equity research in
the areas of energy, health care, telecommunications, consumer, real estate
investment trusts, gaming and entertainment, business services, and financial
services.
INVESTMENT TECHNOLOGY GROUP, INC.
ITGI is a holding company which is publicly traded (Nasdaq: ITGI) and is
approximately 83% owned by the Company. Its wholly-owned subsidiary, ITG Inc.
("ITG"), is a leading provider of technology-based equity trading services and
transaction research to institutional investors and brokers. ITG services help
clients to access liquidity, execute trades more efficiently, and make better
trading decisions. ITG's expanding range of services includes: POSIT(R), the
world's largest intra-day electronic equity matching system; QuantEX(R), a
fully-integrated trade routing, analysis, and management system; and ISIS, a set
of analytical tools for systematically lowering the costs of trading.
JEFFERIES INTERNATIONAL LIMITED AND JEFFERIES PACIFIC LIMITED
JIL, a broker-dealer subsidiary of the Company, was incorporated in 1986 in
England. JIL is a member of The International Stock Exchange and The Securities
and Futures Authority. JIL introduces customers trading in U.S. securities to
JEFCO and also trades as a broker-dealer in international equity and convertible
securities and American Depositary Receipts ("ADRs"). In 1995, JIL formed a
wholly-owned subsidiary, Jefferies (Switzerland) Ltd. In 1996, JIL formed a
wholly-owned subsidiary, Jefferies (Japan) Limited, which maintains a branch
office in Tokyo.
JPL, a broker subsidiary of the Company, was incorporated in 1992 in Hong
Kong. JPL presently introduces foreign customers trading in U.S. securities to
JEFCO. JPL commenced operations in 1993 and has not yet generated material
revenues.
W&D SECURITIES, INC.
W&D primarily provides execution services on the New York Stock Exchange
("NYSE") and other exchanges to JEFCO and ITG. In order to comply with
regulatory requirements of the NYSE that generally
24
<PAGE> 25
prohibit NYSE members and their affiliates from executing, as principal and, in
certain cases, as agent, transactions in NYSE-listed securities off the NYSE,
the Company gave up its formal legal control of W&D, effective January 1, 1983,
by exchanging all of the W&D common stock owned by it for non-voting preferred
stock of W&D. The common stock of W&D is presently held by an officer of W&D who
has agreed with the Company that, at the option of the Company, he will sell
such stock to the Company for nominal consideration. In the event that the
Company were to regain ownership of such common stock, the Company believes that
the NYSE would assert that W&D would be in violation of the NYSE's rules unless
similar arrangements satisfactory to the NYSE were made with respect to the
ownership of the common stock.
While the NYSE has generally approved the above arrangements, there can be
no assurance that it will not raise objections in the future. In light of these
arrangements and the high proportion of the equity of W&D represented by the
non-voting preferred stock held by the Company, W&D is consolidated as a
subsidiary of the Company for financial statement purposes. The Company believes
that it can make satisfactory alternative arrangements for executing
transactions in listed securities on the NYSE if it were precluded from doing so
through W&D.
COMMISSION BUSINESS
A substantial portion of the Company's revenues is derived from customer
commissions on brokerage transactions in equity (primarily listed) and debt
securities for domestic and international investors such as investment advisors,
banks, mutual funds, insurance companies and pension and profit sharing plans.
Such investors normally purchase and sell securities in block transactions, the
execution of which requires special marketing and trading expertise. The Company
is one of the leading national firms in the execution of equity block
transactions, and believes that its institutional customers are attracted by the
quality of the Company's execution (with respect to considerations of quantity,
timing and price) and its competitive commission rates, which are negotiated on
the basis of market conditions, the size of the particular transaction and other
factors. In addition to domestic equity securities, the Company executes
transactions in taxable fixed income securities, domestic and international
convertible securities, international equity securities, ADRs, options,
preferred stocks, financial futures and other similar products.
All of JEFCO's equity account executives are electronically interconnected
through a system permitting simultaneous verbal and graphic communication of
trading and order information by all participants. JEFCO believes that its
execution capability is significantly enhanced by this system, which permits its
account executives to respond to each other and to negotiate order indications
directly with customers rather than through a separate trading department.
PRINCIPAL TRANSACTIONS
In the regular course of its business, JEFCO takes securities positions as
a market-maker to facilitate customer transactions and for investment purposes.
In making markets and when trading for its own account, JEFCO exposes its own
capital to the risk of fluctuations in market value. Trading profits (or losses)
depend primarily upon the skills of the employees engaged in market making and
position taking, the amount of capital allocated to positions in securities and
the general trend of prices in the securities markets.
JEFCO monitors its risk by maintaining its securities positions at or below
certain pre-established levels. These levels reduce certain opportunities to
realize profits in the event that the value of such securities increases.
However, they also reduce the risk of loss in the event of a decrease in such
value and result in controlled interest costs incurred on funds provided to
maintain such positions.
Equities. The Equities Division makes markets in over 400 over-the-counter
equity and ADR securities, and trades securities for its own account, as well as
to accommodate customer transactions. The International Division engages in
hedged trading involving securities listed or traded in both domestic and
foreign markets.
Taxable Fixed Income. The Taxable Fixed Income Division trades high grade
and non-investment grade public and private debt securities. The Division
specializes in trading and making markets in over 300 unrated or less than
investment grade corporate debt securities and accounts for these positions at
market value. At
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<PAGE> 26
September 26, 1997, the aggregate long and short market value of these positions
was $20.8 million and $34.0 million, respectively. Risk of loss upon default by
the borrower is significantly greater with respect to unrated or less than
investment grade corporate debt securities than with other corporate debt
securities. These securities are generally unsecured and are often subordinated
to other creditors of the issuer. These issuers usually have high levels of
indebtedness and are more sensitive to adverse economic conditions, such as
recession or increasing interest rates, than are investment grade issuers. There
is a limited market for some of these securities and market quotes are generally
available from a small number of dealers.
Convertible Securities and Warrants. The Company also trades domestic and
international convertible securities and warrants and assists corporate and
institutional clients in identifying attractive investments in these securities
and warrants.
Other Proprietary Trading. The Company invests in statistically-defined
market-neutral strategies in the equities markets in an effort to earn above
market rates on invested capital.
CORPORATE FINANCE
JEFCO's Corporate Finance Division offers corporations a full range of
advisory as well as debt and equity financing services which include private
placements and public offerings of debt and equity securities, debt
refinancings, recapitalizations, mergers and acquisitions advice, exclusive
sales advice, structured financings and securitizations, consent and waiver
solicitations, and company and bondholder representations in corporate
restructurings.
Investment banking activity involves both economic and regulatory risks. An
underwriter may incur losses if it is unable to sell the securities it is
committed to purchase or if it is forced to liquidate its commitments at less
than the agreed upon purchase price. In addition, under the Securities Act and
other laws and court decisions with respect to underwriters' liability and
limitations on indemnification of underwriters by issuers, an underwriter is
subject to substantial potential liability for material misstatements or
omissions in prospectuses and other communications with respect to underwritten
offerings. Further, underwriting commitments constitute a charge against net
capital and JEFCO's underwriting commitments may be limited by the requirement
that it must, at all times, be in compliance with the Uniform Net Capital Rule
15c3-1 of the Commission.
JEFCO intends to continue to pursue opportunities for its corporate
customers which may require it to finance and/or underwrite the issuance of
securities. Under circumstances where JEFCO is required to act as an underwriter
or to trade on a proprietary basis with its customers, JEFCO may assume greater
risk than would normally be assumed in certain other principal transactions.
INTEREST
The Company derives a substantial portion of its interest revenues, and
incurs a substantial portion of its interest expenses, in connection with its
securities borrowed/securities loaned activity. The Company also earns interest
on its securities portfolio, on its operating and segregated balances, on its
margin lending activity and on certain of its investments.
Securities Borrowed/Securities Loaned. In connection with both its trading
and brokerage activities, the Company borrows securities to cover short sales
and to complete transactions in which customers have failed to deliver
securities by the required settlement date, and lends securities to other
brokers and dealers for similar purposes. The Company has an active securities
borrowed and lending matched book business ("Matched Book"), in which the
Company borrows securities from one party and lends them to another party. When
the Company borrows securities, the Company provides cash to the lender as
collateral, which is reflected in the Company's financial statements as
receivable from brokers and dealers. The Company earns interest revenues on this
cash collateral. Similarly, when the Company lends securities to another party,
that party provides cash to the Company as collateral, which is reflected in the
Company's financial statements as payable to brokers and dealers. The Company
pays interest expense on the cash collateral received from the
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party borrowing the securities. A substantial portion of the Company's interest
revenues and interest expense results from the Matched Book activity.
Margin Lending. Customers' transactions are executed on either a cash or
margin basis. In a margin transaction, the Company extends credit to the
customer, collateralized by securities and cash in the customer's account, for a
portion of the purchase price, and receives income from interest charged on such
extensions of credit.
In permitting a customer to purchase securities on margin, the Company is
subject to the risk that a market decline could reduce the value of its
collateral below the amount of the customer's indebtedness and that the customer
might otherwise be unable to repay the indebtedness.
In addition to monitoring the creditworthiness of its customers, the
Company also considers the trading liquidity and volatility of the securities it
accepts as collateral for its margin loans. Trading liquidity and volatility may
be dependent, in part, upon the market on which the security is traded, the
number of outstanding shares of the issuer, events affecting the issuer and/or
securities markets in general, and whether or not there are any legal
restrictions on the sale of the securities. Certain types of securities have
historical trading patterns which may assist the Company in making its
evaluation. Historical trading patterns, however, may not be good indicators
over relatively short time periods or in markets which are affected by unusual
or unexpected developments. The Company considers all of these factors at the
time it agrees to extend credit to customers and continues to review its
extensions of credit on an ongoing basis.
The majority of the Company's margin loans are made to United States
citizens or to corporations which are domiciled in the United States. The
Company may extend credit to investors or corporations who are citizens of
foreign countries or who may reside outside the United States. The Company
believes that should such foreign investors default upon their loans with the
Company and should the collateral for those loans be insufficient to satisfy the
investors' obligations to the Company, the Company may experience more
difficulty in collecting investors' outstanding indebtedness than would be the
case if investors were citizens or residents of the United States.
Although the Company attempts to minimize the risk associated with the
extension of credit in margin accounts, there is no assurance that the
assumptions on which the Company bases its decisions will be correct or that the
Company is in a position to predict factors or events which will have an adverse
impact on any individual customer or issuer, or the securities markets in
general.
COMPETITION
All aspects of the business of the Company are intensely competitive. The
Company competes directly with numerous other brokers and dealers, investment
banking firms and banks. In addition to competition from firms currently in the
securities business, there has been increasing competition from others offering
financial services. These developments and others have resulted, and may
continue to result, in significant additional competition for the Company.
Member firms of the NYSE generally are prohibited from effecting
transactions when acting as principal and, in certain cases, as agents, in
listed equity securities off the NYSE, and therefore, unlike JEFCO, are
precluded from effecting such transactions in the third market. Such firms may
execute certain transactions in listed equity securities in the third market for
customers, although typically they do not do so. Since firms which the Company
regards as its major competitors in the execution of transactions in equity
securities for institutional investors are members of the NYSE, any removal of
these prohibitions could adversely affect the Company's business.
REGULATION
The securities industry in the United States is subject to extensive
regulation under both federal and state laws. The Commission is the federal
agency responsible for the administration of federal securities laws. In
addition, self-regulatory organizations, principally the NASD and the securities
exchanges, are actively involved in the regulation of broker-dealers. These
self-regulatory organizations conduct periodic examinations
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of member broker-dealers in accordance with rules they have adopted and amended
from time to time, subject to approval by the Commission. Securities firms are
also subject to regulation by state securities commissions in those states in
which they do business. JEFCO is registered as a broker-dealer in 50 states, the
District of Columbia and Puerto Rico. ITG is registered as a broker-dealer in 49
states and the District of Columbia. W&D is registered as a broker-dealer in 23
states.
Broker-dealers are subject to regulations which cover all aspects of the
securities business, including sales methods, trade practices among
broker-dealers, use and safekeeping of customers' funds and securities, capital
structure of securities firms, record-keeping and the conduct of directors,
officers and employees. Additional legislation, changes in rules promulgated by
the Commission and self-regulatory organizations, or changes in the
interpretation or enforcement of existing laws and rules, may directly affect
the mode of operation and profitability of broker-dealers. The Commission,
self-regulatory organizations and state securities commissions may conduct
administrative proceedings which can result in censure, fine, suspension,
expulsion of a broker-dealer, its officers or employees, or revocation of
broker-dealer licenses. The principal purpose of regulation and discipline of
broker-dealers is the protection of customers and the securities markets, rather
than protection of creditors and stockholders of broker-dealers.
As registered broker-dealers, JEFCO, ITG and W&D are required by law to
belong to the Securities Investor Protection Corporation ("SIPC"). In the event
of a member's insolvency, the SIPC fund provides protection for customer
accounts up to $500,000 per customer, with a limitation of $100,000 on claims
for cash balances.
Net Capital Requirements. Every U.S. registered broker-dealer doing
business with the public is subject to the Commission's Uniform Net Capital Rule
(the "Rule"), which specifies minimum net capital requirements. Jefferies Group,
Inc. is not a registered broker-dealer and is therefore not subject to the Rule;
however, its United States broker-dealer subsidiaries are subject thereto.
The Rule provides that a broker-dealer doing business with the public shall
not permit its aggregate indebtedness to exceed 15 times its adjusted net
capital (the "basic method") or, alternatively, that it not permit its adjusted
net capital to be less than 2% of its aggregate debit balances (primarily
receivables from customers and broker-dealers) computed in accordance with such
Rule (the "alternative method"). JEFCO, ITG and W&D use the alternative method
of calculation.
Compliance with applicable net capital rules could limit operations of
JEFCO or ITG, such as underwriting and trading activities, that require use of
significant amounts of capital, and may also restrict loans, advances, dividends
and other payments by JEFCO or ITG to the Company. At September 26, 1997,
JEFCO's, ITG's and W&D's net capital was $131.1 million, $24.7 million and $1.1
million, respectively, which exceeded minimum net capital requirements by $127.3
million, $24.5 million and $827,000, respectively.
PROPERTIES
The Company maintains sales offices in Los Angeles, New York, Short Hills,
Chicago, Dallas, Boston, Atlanta, New Orleans, Houston, San Francisco, Stamford,
London, Hong Kong, Zurich and Tokyo. In addition, the Company maintains
operations offices in Los Angeles and Jersey City. The Company leases all of its
office space which management believes is adequate for the Company's business.
(For information concerning leasehold improvements and rental expense, see notes
1, 6 and 11 of Notes to Consolidated Financial Statements.)
LEGAL PROCEEDINGS
For a description of legal proceedings involving the Company and its
subsidiaries, see "Legal Proceedings" included as Part II, Item 1 of the
Company's Quarterly Report on Form 10-Q for the period ended September 26, 1997.
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MANAGEMENT
INFORMATION CONCERNING DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning the executive
officers and directors of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
---------------------------- --- -----------------------------------------------
<S> <C> <C>
Frank E. Baxter 60 Chairman of the Board, Chief Executive Officer
Richard G. Dooley 68 Director
Tracy G. Herrick 63 Director
Raymond L. Killian, Jr. 60 Director
Michael L. Klowden 52 Director, President, Chief Operating Officer
Frank J. Macchiarola 56 Director
Barry M. Taylor 57 Director
Mark A. Wolfson 45 Director
</TABLE>
Frank E. Baxter, 60, has been Chairman of the Board since September 26,
1990, Chief Executive Officer since March 19, 1987, and a Director of the
Company and JEFCO since 1975. Mr. Baxter has previously served as President of
the Company and of JEFCO from January 1986 until December 1996, Executive Vice
President, National Sales Manager and New York Branch Manager of JEFCO, and
Managing Director of the Company's U.K. subsidiary. Mr. Baxter has been a
Director of ITGI since March 1994, and was a Director of ITG, from January 1994
through January 1997.
Richard G. Dooley, 68, has been a Director of the Company since November
1993. From 1978 until his retirement in June 1993, Mr. Dooley was Executive Vice
President and Chief Investment Officer of Massachusetts Mutual Life Insurance
Company ("Mass Mutual"); Mr. Dooley is currently a consultant to Mass Mutual.
Mr. Dooley is also a Director of Advest Group, Inc. (since 1983), Hartford Steam
Boiler Inspection and Insurance Company (since 1984), Kimco Realty Corporation
(since 1990), ITGI (since 1996) and various Mass Mutual sponsored investment
companies. Mr. Dooley is also a trustee of Saint Anselm College and Chairman of
the Board of The New England Education Loan Marketing Corporation. Mr. Dooley is
Chairman of the Company's Compensation Committee and a member of the Audit
Committee.
Tracy G. Herrick, 63, has been a Director of the Company since 1983 and of
JEFCO since 1981. He is also President of Tracy G. Herrick, Inc., an economic
consulting firm, and a Director of Anderson Capital Management, a registered
investment adviser, and of The Committee for Monetary Research and Education.
Raymond L. Killian, Jr., 60, has been a Director of the Company since
January 1997. Mr. Killian has been the Chairman of the Board of ITGI and of ITG
since January 1997, has been a member of the Board of ITGI since March 1994, and
served as the President and Chief Executive Officer of ITGI from March 1994
until January 1997. Mr. Killian has been on ITG's Board from 1992, directed the
activities of ITG from 1987 until January 1997, and was President and Chief
Executive Officer of ITG from 1992 until January 1997. Mr. Killian was a
Director of the Company from 1985 to 1992, an Executive Vice President of the
Company from 1985 to 1995, a Director and an Executive Vice President of JEFCO
from 1985 to 1991, and served as National Sales Manager of JEFCO from 1985 to
1990.
Michael L. Klowden, 52, has been a Director of the Company since May 1987
and the President and Chief Operating Officer of the Company and of JEFCO since
December 1996. From May 1995 until December 1996, he was Vice Chairman of the
Company and of JEFCO. Mr. Klowden has been a Director of JEFCO since May 1995,
and has been a trustee of the University of Chicago since 1986. From 1978 until
May 1995, Mr. Klowden was a senior partner of Morgan, Lewis & Bockius LLP. Mr.
Klowden has been a Director of ITGI since January 1997.
Frank J. Macchiarola, 56, has been a Director of the Company since August
1991. He is currently the President of St. Francis College. He also serves as
special counsel to the law firm of Newman, Tannenbaum, Halpern, Syracuse &
Hirschtritt. Previously, he was a Professor of Law and Political Science and the
Dean of
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the Benjamin N. Cardozo School of Law at Yeshiva University in New York City
(1991 to 1996), Professor of Business in the Graduate School of Business at
Columbia University (1987 to 1991), and President and Chief Executive Officer of
the New York City Partnership, Inc. (1983 to 1987). Prior to 1985, he was a
faculty member at the City University of New York and Chancellor of the New York
City Public School System. Mr. Macchiarola has been a Trustee of the Manville
Personal Injury Trust since 1991, and a Director of Johns Manville Corporation
since 1996. Mr. Macchiarola is Chairman of the Company's Audit Committee and a
member of the Compensation Committee.
Barry M. Taylor, 57, has been an Executive Vice President and Director of
the Company since 1983 and a Director of JEFCO since 1981. Mr. Taylor has been a
sales executive of JEFCO since 1974 and was Los Angeles Branch Manager from
February 1983 through June 1984.
Mark A. Wolfson, 45, has been a Director of the Company since July 1991.
Mr. Wolfson has been a principal of Arbor Investors, a private investment
company, since 1995, President of MW General, Inc. since 1994, and a Vice
President of Keystone, Inc., the primary investment vehicle of Robert M. Bass,
since 1995. He is also a Professor at the Graduate School of Business, Stanford
University, where he has been a faculty member since 1977, including a term as
Associate Dean from 1990 through 1993, and has taught at the University of
Chicago and Harvard University. Mr. Wolfson has been a Director of ITGI since
June 1994, a Director of Oreck Corp. since 1996, a Director of Oreck
Manufacturing Corp. since 1997 and a member of the Board of Advisors of FEP
Capital Holdings, L.P., since 1995. Mr. Wolfson is a member of the Company's
Audit and Compensation Committees.
OTHER EXECUTIVE OFFICERS
The Executive Officers of the Company are appointed by the Board of
Directors and serve at the discretion of the Board. Other than Messrs. Baxter,
Klowden and Taylor, for whom information is provided above, the following sets
forth information as to the Executive Officers:
Louis V. Bellucci, Sr., 60, has been a Senior Managing Director and the
Director of the Equities Division of JEFCO since July 1997, was the National
Equity Sales Manager of JEFCO from January 1991 through July 1997, and has been
Executive Vice President and a Director of JEFCO since 1985. Prior to 1985, Mr.
Bellucci was Co-Manager of JEFCO's New York branch office.
Jonathan Cunningham, 35, has been an Executive Vice President of the
Company since 1994, a Director of JEFCO since 1993, and Managing Director of the
Convertible Securities Department of JEFCO since January 1997. Mr. Cunningham
was Senior Vice President of JEFCO from 1991 to 1993 and was the Assistant
National Sales Manager of the Convertible Securities Department from 1994
through 1996.
David F. Eisner, 39, has been an Executive Vice President of the Company
and Executive Vice President and a Director of JEFCO since August 1992. Mr.
Eisner was previously Chairman of Madison Capital Advisors, Inc., a consulting
and financial advisor firm (April 1992 to August 1992), Senior Vice President of
Providence Capital, Inc., a securities broker-dealer (January 1991 to March
1992), a Vice President of JEFCO (March 1988 to December 1990), a Director of
ITGI (March 1994 to January 1997) and a Director of ITG (January 1994 to January
1997).
Jerry M. Gluck, 50, has been Secretary and General Counsel of the Company
and JEFCO since May 1985 and a Director of JEFCO since November 1984. From March
1994 until September 1995, Mr. Gluck was the Secretary of ITGI.
Richard B. Handler, 36, has been an Executive Vice President of JEFCO since
April 1990 and a Director of JEFCO since May 1993. Mr. Handler is the Manager of
the Taxable Fixed Income Division of JEFCO.
Clarence T. Schmitz, 49, has been an Executive Vice President and the Chief
Financial Officer of the Company and an Executive Vice President and a Director
of JEFCO since February 1995. Prior to 1990, Mr. Schmitz founded and chaired
KPMG Peat Marwick's ("KPMG") International Mergers and Acquisitions Group. From
1990 until May 1993, Mr. Schmitz was the Managing Partner of KPMG's Los Angeles
Business Unit and a member of KPMG's Board of Directors. From June 1993 until
January 1995,
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Mr. Schmitz was the National Managing Partner for KPMG's Manufacturing,
Retailing and Distribution line of business, and was a member of KPMG's
Management Committee. Mr. Schmitz has been a Director of RVI Services Co., Inc.
since February 1995, a Director of Leslie's Poolmart since November 1996, and a
Director of the Los Angeles Area Chamber of Commerce, since 1996.
Clifford A. Siegel, 40, has been an Executive Vice President of JEFCO since
May 1992, a Director of JEFCO since May 1991, and Managing Director of Jefferies
International Limited, the Company's wholly owned U.K. subsidiary, since
February 1995. From June 1990 until May 1992, Mr. Siegel was a Senior Vice
President of JEFCO. Prior to June 1990, Mr. Siegel was President of Cresvale
International Inc., a registered securities broker-dealer.
Maxine Syrjamaki, 53, has been Controller of the Company since May 1987, an
Executive Vice President of JEFCO since November 1986 and Chief Financial
Officer of JEFCO since September 1984.
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<PAGE> 32
DESCRIPTION OF THE NOTES
The following is a summary of the material terms and provisions of the
Notes. The New Notes will be issued pursuant to the Indenture, a copy of which
has been filed as an exhibit to the Registration Statement of which this
Prospectus constitutes a part. The terms of the Notes include those set forth in
the Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939 (the "Trust Indenture Act"). The Notes are subject to all
such terms, and prospective purchasers of the Notes are referred to the
Indenture, and the Trust Indenture Act for a statement thereof. The following
summary does not purport to be a complete description of the Notes and is
subject to the detailed provisions of, and qualified in its entirety by
reference to, the Notes and the Indenture (including the definitions contained
therein). Definitions of certain capitalized terms used in the following summary
are set forth throughout this description. Capitalized terms that are used but
not otherwise defined herein have the meanings assigned to them in the Indenture
and such definitions are incorporated herein by reference. References to the
"Company" as used in this "Description of the Notes" are to Jefferies Group,
Inc.
GENERAL
On August 18, 1997, the Company issued $100,000,000 principal amount of Old
Notes under the Indenture. The terms of the New Notes are identical in all
material respects to the Old Notes, except for certain transfer restrictions and
registration rights relating to the Old Notes. The Trustee will authenticate and
deliver New Notes for original issue only in exchange for a like principal
amount of Old Notes. Any Old Notes that remain outstanding after the
consummation of the Exchange Offer, together with the new Notes, will be treated
as a single class of securities under the Indenture.
The Notes are limited in aggregate principal amount to $100 million and
will mature on August 15, 2007. They will not be redeemable prior to maturity
and will not be entitled to the benefit of a sinking fund. The Notes will bear
interest at the rate stated on the cover page hereof from the date of issuance
or from the most recent Interest Payment Date to which interest has been paid or
provided for, payable semi-annually on February 15 and August 15, of each year,
commencing on February 15, 1998, to the persons in whose names such Notes are
registered at the close of business on February 1 or August 1 next preceding
such Interest Payment Date. Interest on the Notes will be paid on the basis of a
360-day year consisting of twelve 30-day months. The Notes will be issued only
in fully registered form without coupons in denominations of $1,000 and any
integral multiple thereof.
The Notes are senior, unsecured obligations of the Company and rank pari
passu in right of payment with all existing and future senior indebtedness of
the Company and senior to all subordinated indebtedness of the Company. At
September 26, 1997, the Company had approximately $152.8 million of senior
indebtedness. The Notes are effectively subordinated to claims of creditors of
the Company's subsidiaries. The business operations of the Company are conducted
through its operating subsidiaries, and therefore the Company is dependent on
the cash flow of its subsidiaries to meet its debt obligations under the Notes.
Dividends, loans and advances from certain subsidiaries, including JEFCO, to the
Company are restricted by net capital requirements under the Exchange Act and
under the rules of certain exchanges and other regulatory bodies.
Principal of, premium, if any, and interest on the Notes will be payable,
and the Notes may be presented for registration of transfer or exchange, at the
office or agency of the Company maintained for such purpose in the Borough of
Manhattan, City of New York, and such other office or agency of the Company as
may be maintained for such purpose. At the option of the Company, payment of
interest may be made by check mailed to the Holders of the Notes at the
addresses set forth upon the registry books of the Company. No service charge
will be made for any registration of transfer or exchange of the Notes, but the
Company may require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith. Until otherwise designated
by the Company, the Company's office or agency will be the corporate trust
office of the Trustee presently located at 101 Barclay Street, New York, New
York 10286.
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COVENANTS
Limitation on Certain Liens. The Indenture contains, among other covenants,
a covenant providing that the Company will not, and will not permit any Material
Subsidiary to, issue, assume, incur or guarantee any Indebtedness for borrowed
money secured by a Lien (other than Permitted Liens) upon any shares of the
Voting Stock of a Material Subsidiary which shares are owned by the Company or
its Material Subsidiaries without effectively providing that the Notes (and if
the Company so elects, any other indebtedness of the Company ranking on a parity
with the Notes) shall be secured equally and ratably with, or prior to, any such
secured Indebtedness so long as such Indebtedness remains outstanding.
Limitation on Transactions with Affiliates. The Indenture provides that the
Company will not, and will not permit any of its subsidiaries to, sell, lease,
transfer or otherwise dispose of any of its properties or assets to, or purchase
any property or asset from, or enter into any transaction, contract, agreement,
understanding, loan, advance or guarantee with, or for the benefit of, any
Affiliate (each of the foregoing, an "Affiliate Transaction"), unless (a) such
Affiliate Transaction is made on terms that are no less favorable to the Company
or the relevant Subsidiary than those that would have been obtained in a
comparable transaction by the Company or such Subsidiary with an unrelated
person and (b) the Company delivers to the Trustee with respect to any Affiliate
Transaction or series of related Affiliate Transactions involving aggregate
consideration in excess of $10 million in any fiscal year, a resolution of the
Board of Directors set forth in an Officers' Certificate certifying that such
Affiliate Transaction or series of related Affiliate Transactions complies with
clause (a) above and such Affiliate Transaction or series of related Affiliate
Transactions has been approved by a majority of the disinterested members of the
Board of Directors; provided, however, that (i) any employment agreement entered
into by the Company or any of its Subsidiaries in the ordinary course of
business and consistent with the past practice of the Company, such Subsidiary,
or W&D; (ii) transactions between or among the Company, its Subsidiaries and/or
W&D; and (iii) Affiliate Transactions entered into prior to the Issue Date,
shall be deemed not to be Affiliate Transactions.
Repurchase of Notes at the Option of the Holder Upon a Change of
Control. The Indenture provides that in the event that a Change of Control (as
defined below) occurs, each Holder of Notes shall have the right, at such
Holder's option, subject to the terms and conditions of the Indenture, to
require the Company to repurchase all or any part of such Holder's Notes
(provided that the principal amount of such Notes must be $1,000 or an integral
multiple thereof) on the date that is no later than 40 Business Days after the
occurrence of such Change of Control (the "Change of Control Payment Date"), at
a cash price equal to 101% of the principal amount thereof, plus accrued and
unpaid interest, if any (the "Change of Control Purchase Price"), to and
including the Change of Control Payment Date.
The Company shall notify the Trustee within five Business Days after each
date upon which the Company knows, or reasonably should know, of the occurrence
of a Change of Control. Within 10 Business Days after the Company knows, or
reasonably should know, of the occurrence of each Change of Control, the Company
shall make an irrevocable, unconditional offer (a "Change of Control Offer") to
all Holders of Notes to repurchase all of the Notes at the Change of Control
Purchase Price. Written notice of a Change of Control offer shall be sent at
least 20 days prior to the third Business Day prior to the Change of Control
Payment Date (the "Change of Control Put Date"), by first class mail, to each
Holder at its registered address, with a copy to the Trustee. The notice to
Holders shall contain all instructions and materials required by applicable law
and shall contain or make available to Holders other information material to
such Holders' decision to tender Notes pursuant to the Change of Control Offer.
On or before the Change of Control Payment Date, the Company shall (i)
accept for payment Notes or portions thereof properly tendered pursuant to the
Change of Control Offer prior to the close of the third Business Day preceding
the Change of Control Payment Date, (ii) deposit with the Paying Agent U.S.
Legal Tender sufficient to pay the Change of Control Purchase Price of all Notes
so tendered and (iii) deliver to the Trustee Notes so accepted together with an
Officers' Certificate listing the Notes or portions thereof being purchased by
the Company. The Paying Agent shall promptly mail to the Holders of Notes so
accepted payment in an amount equal to the Change of Control Purchase Price, and
the Trustee shall promptly authenticate and mail or deliver to such Holders a
new Note equal in principal amount to any unpurchased
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<PAGE> 34
portion of the Note surrendered. Any Notes not so accepted shall be promptly
mailed or delivered by the Company to the Holder thereof. The Company will
publicly announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Purchase Date.
"Change of Control" means any "person" or "group" (as such terms are used
for purposes of Sections 13(d) and 14(d) of the Exchange Act, whether or not
applicable) becomes the "beneficial owner" (as that term is used in Rules 13d-3
and 13d-5 under the Exchange Act, whether or not applicable, except that a
person shall be deemed to have "beneficial ownership" of all shares that any
such person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly, of more
than 50% of the total voting power entitled to vote in the election of directors
of the Company if as a result and within 60 days, of such person or group
becoming the beneficial owner of such voting power, the Notes do not have a
rating of BBB- or higher by Standard & Poor's; provided, however that a Change
of Control shall not be deemed to have occurred (a) as a result of the formation
of such a "group" or the acquisition of shares of Capital Stock of the Company
by such group if such group includes existing Affiliates and/or persons who
beneficially own in the aggregate, as of the date of the Indenture, 20% or more
of the outstanding shares of Capital Stock of the Company on the date of the
Indenture or (b) by virtue of the Company, any Subsidiary, any employee stock
ownership plan or any other employee benefit plan of the Company or any
Subsidiary, or any other person holding Capital Stock of the Company for or
pursuant to the terms of any such employee benefit plan, becoming a beneficial
owner, directly or indirectly, of more than 50% of the total voting power
entitled to vote in the election of directors of the Company.
Repurchase of Notes at the Option of the Holder Upon a Prohibited
Restricted Payment. The Indenture provides that, in the event that a Prohibited
Restricted Payment (as defined below) occurs, each Holder of Notes shall have
the right, at such Holder's option, subject to the terms and conditions of the
Indenture, to require the Company to repurchase all or any part of such Holder's
Notes (provided that the principal amount of such Notes must be $1,000 or an
integral multiple thereof) on the date that is no later than 40 Business Days
after the occurrence of such Prohibited Restricted Payment (the "Prohibited
Payment Purchase Date"), at a cash price equal to 102% of the principal amount
thereof, plus accrued and unpaid interest, if any (the "Prohibited Payment
Purchase Price"), to and including the Prohibited Payment Purchase Date.
The Company shall notify the Trustee within five Business Days after each
date upon which the Company knows, or reasonably should know, of the occurrence
of a Prohibited Restricted Payment. Within 10 Business Days after the Company
knows, or reasonably should know, of the occurrence of a Prohibited Restricted
Payment, the Company shall make an irrevocable, unconditional offer (a
"Prohibited Payment Offer") to all Holders of Notes to repurchase all of the
Notes at the Prohibited Payment Purchase Price. Written notice of a Prohibited
Restricted Payment offer shall be sent at least 20 days prior to the third
Business Day prior to the Prohibited Payment Purchase Date (the "Prohibited
Payment Put Date"), by first class mail, to each Holder at its registered
address, with a copy to the Trustee. The notice to Holders shall contain all
instructions and materials required by applicable law and shall contain or make
available to Holders other information material to such Holders' decision to
tender Notes pursuant to the Prohibited Payment Offer.
On or before the Prohibited Payment Purchase Date, the Company shall (i)
accept for payment Notes or portions thereof properly tendered pursuant to the
Prohibited Payment Offer prior to the close of the third Business Day preceding
the Prohibited Payment Purchase Date, (ii) deposit with the Paying Agent U.S.
Legal Tender sufficient to pay the Prohibited Payment Purchase Price of all
Notes so tendered and (iii) deliver to the Trustee Notes so accepted together
with an Officers' Certificate listing the Notes or portions thereof being
purchased by the Company. The Paying Agent shall promptly mail to the Holders of
Notes so accepted payment in an amount equal to the Prohibited Payment Purchase
Price, and the Trustee shall promptly authenticate and mail or deliver to such
Holders a new Note equal in principal amount to any unpurchased portion of the
Note surrendered. Any Notes not so accepted shall be promptly mailed or
delivered by the Company to the Holder thereof. The Company will publicly
announce the results of the Prohibited Payment Offer on or as soon as
practicable after the Prohibited Payment Purchase Date.
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"Prohibited Restricted Payment" means a "Restricted Payment" (as defined
hereafter) made if the Company's senior unsecured debt does not have a rating of
BBB- or higher by Standard & Poor's, and if after giving effect to the
Restricted Payment, the Consolidated Net Worth Ratio (as defined hereafter)
would be greater than 2.00 to one. "Restricted Payment" means (a) a direct or
indirect declaration or payment of any dividends or the making of any
distribution on the Company's Capital Stock or to the holders of its Capital
Stock (other than dividends or distributions payable in the Company's Common
Stock or its shares of Capital Stock of the same class held by such holders or
in options, warrants or other rights to purchase the Company's Common Stock or
such Capital Stock); or (b) the direct or indirect purchase, redemption or other
acquisition or retirement for value, or the Company's permitting any Subsidiary
of the Company to, directly or indirectly, purchase, redeem or otherwise acquire
for value, any such Capital Stock (other than in exchange for the Company's
Common Stock or options, warrants or other rights to purchase the Company's
Common Stock or such Capital Stock). "Consolidated Net Worth Ratio" means, with
respect to any Person, as of the date of calculation, the ratio of (i) the
aggregate amount of indebtedness which is characterized as long-term
indebtedness in accordance with GAAP, of such person and each subsidiary (where
the financial statements of such subsidiary shall be, or should be, consolidated
for financial statement reporting purposes with the financial statements of such
person in accordance with GAAP), as of the date of calculation, to (ii) the
Consolidated Net Worth of such person as of the date of calculation.
The Indenture provides that failure by the Company to repurchase the Notes
when required under either the Change of Control or Prohibited Restricted
Payment provisions as described above, will result in an Event of Default with
respect to the Notes. The Company's ability to repurchase the Notes upon a
Change of Control may be limited by covenants contained in future indebtedness.
To the extent applicable and if required by law, the Company will comply
with Section 14 of the Exchange Act and the provisions of Regulation 14E and any
other tender offer rules under the Exchange Act and other securities laws, rules
and regulations which may then be applicable to any offer by the Company to
repurchase the Notes at the option of Holders upon a Change of Control.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise.
"Capital Lease Obligation" means, at the time any determination thereof is
made, the amount of the liability in respect of a capital lease that would at
such time be so required to be capitalized on the balance sheet in accordance
with GAAP.
"Capital Stock" means any and all shares, interests, participations, rights
or the equivalents (however designated) of corporate stock, including, without
limitation, partnership interests.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the common stockholders of such Person
and its Consolidated Subsidiaries as of such date plus (ii) the respective
amounts reported on such Person's balance sheet as of such date with respect to
any series of preferred stock (other than Disqualified Stock) that by its terms
is not entitled to the payment of dividends unless such dividends may be
declared and paid only out of net earnings in respect of the year of such
declaration and payment, but only to the extent of any cash received by such
Person upon issuance of such preferred stock.
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"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Disqualified Stock" means any Capital Stock which by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the Holder thereof, in whole or in part, on or prior to the final
date of maturity of the Notes.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other entity as have been approved by a
significant segment of the accounting profession, which are in effect on the
date of the Indenture.
"Guaranty" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Hedging Obligations" means, with respect to any Person, the Obligations of
such Person under interest rate swap agreements, interest rate cap agreements,
and interest rate collar agreements, and other agreements or arrangements
designed to protect such Person against fluctuations in interest rates.
"Holder" or "Security Holder" means the person in whose name a security is
registered on the registrar's book.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or representing Capital Lease
Obligations or the balance deferred and unpaid of the purchase price of any
property or representing any Hedging Obligations, except any such balance that
constitutes an accrued expense or trade payable, if and to the extent any of the
foregoing indebtedness (other than letters of credit and Hedging Obligations)
would appear as a liability upon a balance sheet of such Person prepared in
accordance with GAAP, and also includes, to the extent not otherwise included,
the Guaranty of any indebtedness of such Person or any other Person.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of loans (including
a Guaranty), advances or capital contributions (excluding commission, travel and
similar advances to officers and employees made in the ordinary course of
business), purchases or other acquisitions for consideration of indebtedness,
Equity Interests or other securities and all other items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
"Lien" means any mortgage, lien, pledge, charge, security interest or
encumbrance of any kind, whether or not filed, recorded or otherwise perfected
under applicable law.
"Material Subsidiary" means (i) any Subsidiary of the Company which at June
27, 1997 was a Significant Subsidiary or any successor to such Subsidiary and
(ii) any other Subsidiary of the Company or any of its Subsidiaries if the
Company's or any of its Subsidiaries' Investments in such Subsidiary at the date
of determination thereof, represent 20% or more of the Company's Consolidated
Net Worth as of such date; provided, however, that clause (ii) shall not include
any Subsidiary if, at the time that it became a Subsidiary, the Company
contemplated commencing a voluntary case or proceeding under the Bankruptcy Law
with respect to such Subsidiary.
"Minimum Net Capital Amount" means, as of any date, the product of (i) the
minimum Net Capital required by Rule 15c3-1 under the Exchange Act and (ii)
150%.
"Net Capital" shall have the meaning set forth in Rule 15c3-1 under the
Exchange Act.
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"Obligations" means any principal, premium, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Permitted Liens" means (a) Liens in favor of the Company; (b) Liens on any
shares of Voting Stock of any corporation existing at the time such corporation
becomes a Material Subsidiary of the Company (and any extensions, renewals or
replacements thereof); (c) Liens to secure the performance of statutory
obligations, surety or appeal bonds, performance bonds or other obligations of a
like nature incurred in the ordinary course of business; and (d) Liens for
taxes, assessments or governmental charges or claims that are not yet delinquent
or that are being contested in good faith by appropriate proceedings promptly
instituted and diligently concluded; provided, that any reserve or appropriate
provision as shall be required in conformity with GAAP shall have been made
therefor.
"Person or person" means any individual, corporation, partnership, joint
venture, association, joint stock company, trust, unincorporated organization or
government or other agency or political subdivision thereof.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act of 1933, as amended, as such Regulation is in
effect on the date of the Indenture.
"Stated Maturity" when used with respect to any Note means August 15, 2007.
"Subsidiary" means any corporation, association or other business entity of
which more than 50% of the total voting power of shares of Capital Stock
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by any Person or one or more of the other
Subsidiaries of that Person or a combination thereof.
"Voting Stock" means any class or classes of Capital Stock pursuant to
which the holders thereof have the general voting power under ordinary
circumstances to elect at least a majority of the board of directors, managers
or trustees of any Person (irrespective of whether or not at the time stock of
any other class or classes shall have or might have voting power by reason of
the happening of any contingency).
MERGER AND CONSOLIDATION
The Indenture provides that the Company may not, in a single transaction or
through a series of related transactions, consolidate with or merge with or into
any other Person or, directly or indirectly, sell, lease, assign, convey or
transfer its properties and assets as an entirety or substantially as an
entirety to any Person or group of affiliated persons unless (A) either the
Company shall be the continuing person, or the successor (if other than the
Company) is a corporation organized under the laws of any domestic jurisdiction
and expressly assumes the Company's obligations under the Indenture and the
Notes issued thereunder; (B) immediately after giving effect to such
transaction, no Default or Event of Default, shall have occurred and be
continuing; and (C) if a supplemental indenture is required in connection with
such transaction, certain certificates and legal opinions are delivered.
The Indenture provides that, upon any consolidation or merger or transfer
of the properties and assets of the Company substantially as an entirety as
described in the preceding paragraph, the successor corporation formed by such
consolidation or into which the Company is merged or to which such conveyance or
transfer is made shall be substituted for the Company with the same effect as if
such successor corporation had been named as the Company in the Indenture.
Thereafter, the Company shall be relieved of the performance and observance of
all obligations and covenants of such Indenture and the Notes, including but not
limited to the obligation to make payment of the principal of and interest, if
any, on all the Notes then outstanding, and the Company may thereupon or any
time thereafter be liquidated and dissolved.
SATISFACTION AND DISCHARGE
The Company will be discharged from its obligations under the outstanding
Notes upon satisfaction of the following principal conditions: (a) the Company
has irrevocably deposited with the Trustee either money, U.S. Government
Obligations, or a combination thereof, in an amount which will through the
payment of
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principal and interest, and in the case of U.S. Government Obligations taking
into account payment of all Federal, state and local taxes or other charges or
assessments in respect thereof payable by the Trustee, in the written opinion of
independent public accountants delivered to the Trustee, be sufficient to pay
and discharge the entire principal of, premium, if any, and interest to Stated
Maturity on the outstanding Notes on the dates on which any such payments are
due and payable in accordance with the terms of the Indenture; (b) the Company
has paid or caused to be paid all other sums payable with respect to the
outstanding Notes; (c) the Trustee has received an Officers' Certificate and an
Opinion of Counsel each stating that all conditions precedent have been complied
with; and (d) the Trustee has received an opinion of tax counsel to the effect
that such deposit and discharge will not cause the Holders of the Notes to
recognize income, gain or loss for federal income tax purposes and that the
Holders will be subject to federal income tax in the same amounts, in the same
manner and at the same times as would have been the case if such deposit and
discharge had not occurred. Upon such discharge, the Company will be deemed to
have satisfied all the obligations under the Indenture, except for obligations
with respect to registration of transfer and exchange of the Notes, the rights
of the Holders to receive from deposited funds payment of the principal of (and
premium, if any) and interest on the Notes, and the right of the Trustee to
reimbursement and indemnification.
MODIFICATION OF THE INDENTURE
The Indenture provides that the Company and the Trustee thereunder may,
without the consent of any Holders of Notes, enter into supplemental indentures
for the purposes of, among other things, adding to the Company's covenants,
adding additional Events of Default, establishing the form or terms of Notes or
curing ambiguities or inconsistencies in such Indenture or making other
provisions; provided that such action shall not adversely affect the interests
of the Holders of Notes in any respect.
The Indenture contains provisions permitting the Company, with the consent
of the Holders of not less than a majority in principal amount of the
outstanding Notes, to amend the Indenture or execute supplemental indentures
adding any provisions to or changing or eliminating any of the provisions of
such Indenture or modifying the rights of the Holders of the Notes, except that
no such amendment or supplemental indenture may, without the consent of the
Holders of all the outstanding Notes affected thereby, among other things: (i)
reduce the percentage of principal amount of Notes whose Holders must consent to
an amendment, supplement or waiver of any provision of the Indenture or the
Notes; (ii) reduce the rate or extend the time for payment of interest on any
Notes; (iii) reduce the principal amount of any Note; (iv) change the Stated
Maturity of any Note or extend any Maturity Date of any Note; (v) make any
changes in the provisions concerning waivers of Defaults or Events of Default by
Holders of the Notes or the rights of Holders to recover the principal or
premium of, or interest on any Note; (vi) change the unconditional right of the
Holders to receive payment for the Notes on the Maturity Date; (vii) make the
principal of, or the interest on, any Note payable with anything or in any
manner other than as provided for in the Indenture and the Notes on the Issue
Date; or (viii) make the Notes subordinated in right of payment to any extent or
under any circumstances to any other indebtedness.
EVENTS OF DEFAULT
An Event of Default in respect of the Notes is defined in the Indenture to
be: (i) the failure by the Company to pay installments of interest on the Notes
as and when the same becomes due and payable and the continuance of such failure
for 30 days; (ii) the failure by the Company to pay all or any part of the
principal or premium, if any, on the Notes when the same becomes due and
payable, whether payable at maturity, acceleration or repurchase obligation or
otherwise; (iii) the failure by the Company for 60 days after a notice of
default to comply with any other agreement or covenant in the Indenture; (iv)
certain events of bankruptcy, insolvency or reorganization of the Company or any
of its Material Subsidiaries; (v) an event of default under any mortgage,
indenture or other instrument under which any Indebtedness of the Company or any
Subsidiary is outstanding or may be issued if (a) such default results in the
holder or holders of such Indebtedness causing such Indebtedness to become due
prior to its stated maturity, and (b) the principal amount of such Indebtedness,
together with the principal amount of any other such Indebtedness in default for
failure to pay principal at maturity or the maturity of which has been so
accelerated, aggregates $25,000,000 or more at any
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one time; or (vi) the failure of JEFCO to maintain Net Capital greater than or
equal to the Minimum Net Capital Amount, and the continuance of any such failure
for a period of 30 consecutive days.
The Indenture provides that if an Event of Default specified therein other
than certain events of bankruptcy, insolvency and reorganization, in respect of
any outstanding Notes issued under such Indenture shall have happened and be
continuing, either the Trustee thereunder or the holders of not less than 25% in
principal amount of the outstanding Notes may declare the principal of all of
the outstanding Notes, premium, if any, and accrued interest thereon, to be
immediately due and payable. If certain events of bankruptcy, insolvency or
reorganization occur, the principal, premium and interest shall be immediately
due and payable without any act by the Trustee or the Holders.
The Indenture provides that the Holders of not less than a majority in
aggregate principal amount of the outstanding Notes may direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
thereunder, or exercising any trust or power conferred on such Trustee, with
respect to the Notes; provided that (i) such direction shall not be in conflict
with any rule of law or with the Indenture, (ii) the Trustee shall not determine
that the action so directed would be unjustly prejudicial to the Holders not
taking part in such direction, and (iii) the Trustee may take any other action
deemed proper that is not inconsistent with such direction.
The Indenture provides that the Holders of not less than a majority in
aggregate principal amount of the outstanding Notes may on behalf of the Holders
of all of the outstanding Notes waive any past default under the Indenture and
its consequences, except a default (i) in the payment of the principal of (or
premium, if any) or any interest on any of the Notes, or (ii) in respect of a
covenant or provision of the Indenture which, under the terms of the Indenture,
cannot be modified or amended without the consent of the Holders of all of the
outstanding Notes affected thereby.
The Indenture contains provisions entitling the Trustee thereunder, subject
to the duty of such Trustee during an Event of Default in respect of any Notes
to act with the required standard of care, to be indemnified by the Holders of
the Notes before proceeding to exercise any right or power under the Indenture
at the request of the Holders of the Notes.
The Indenture provides that the Trustee thereunder will, within 90 days
after the occurrence of a Default in respect of any Notes, give to the Holders
of the Notes notice of all uncured and unwaived defaults known to it; provided,
however, that, except in the case of a default in the payment of the principal
of (or premium, if any) or any interest on any of the Notes such Trustee will be
protected in withholding such notice if it in good faith determines that the
withholding of such notice is in the interests of the Holders of the Notes.
NOTICES
Except as otherwise provided in the Indenture, notices to Holders will be
given by mail to the addresses of such Holders as they appear in the Note
Register.
REPORTS
The Company is required to furnish to the Trustee annually a statement as
to the fulfillment by the Company of all of its covenants under the Indenture.
The Company will mail copies of its annual reports and quarterly reports mailed
to its shareholders to Holders of the Notes. If the Company is not required to
furnish annual or quarterly reports to its shareholders, the Company will, upon
request, mail to each Holder, at such Holder's address as appearing on the Note
Register, audited annual consolidated financial statements prepared in
accordance with GAAP and unaudited condensed quarterly consolidated financial
statements. Such consolidated financial statements shall be accompanied by
management's discussion and analysis of the results of operations and financial
condition of the Company for the period reported upon in substantially the form
required under the rules and regulations of the Commission currently in effect.
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THE TRUSTEE
The Trustee is a New York banking corporation. The Indenture will provide
that, in case an Event of Default shall occur and be continuing, the Trustee
will be required to use the degree of care of a prudent person in the conduct of
his own affairs in the exercise of its power. Subject to such provisions, the
Trustee will be under no obligation to exercise any of its rights or powers
under the Indenture at the request of any of the Holders, unless they shall have
offered to the Trustee security and indemnity satisfactory to it. The Trustee
will be permitted to engage in other transactions with the Company and its
subsidiaries; provided, however, that if such Trustee acquires any conflicting
interest at such time as a Default is pending under the Indenture, such Trustee
must (with certain exceptions) eliminate such conflict or resign.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES OR SHAREHOLDERS
No director, officer, employee, incorporator or shareholder of the Company
will have any liability for any obligations of the Company under the Notes, the
Indenture, or the Registration Rights Agreement or for any claim based on, in
respect of, or by reason of, such obligations or their creation. Each Holder of
the Notes by accepting a Note waives and releases all such liability. The waiver
and release are part of the consideration for issuance of the Notes. Such waiver
may not be effective to waive liabilities under the federal securities laws and
it is the view of the Commission that such a waiver is against public policy.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and the Company may
require a Holder to pay any taxes and fees required by law or permitted by the
Indenture.
The registered Holder of a Note will be treated as the owner of it for all
purposes.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of the material federal income tax
considerations applicable to the exchange of Old Notes for New Notes and the
ownership and disposition of the New Notes by a holder of Old Notes who is an
individual citizen or resident of the United States or a United States
corporation (a "U.S. holder"). This discussion is based on the Internal Revenue
Code of 1986, as amended (the "Code"), regulations and announcements promulgated
thereunder and published rulings and court decisions all as in effect on the
date hereof and without giving effect to changes to the federal tax laws, if
any, enacted after the date hereof. The discussion does not cover all aspects of
federal income taxation that may be relevant to U.S. holders, in light of their
specific circumstances, particularly U.S. holders subject to special treatment
under the federal income tax laws (such as insurance companies, financial
institutions, tax exempt organizations, foreign persons, and taxpayers subject
to the alternative minimum tax). It also does not address state, local, foreign
or other tax laws. The description assumes that U.S. holders of the New Notes
will hold the New Notes as "capital assets" (i.e., property generally held for
investments). EACH HOLDER SHOULD CONSULT HIS TAX ADVISOR IN DETERMINING THE
FEDERAL, STATE, LOCAL AND ANY OTHER TAX CONSEQUENCES TO THE PARTICULAR HOLDER OF
THE EXCHANGE OF OLD NOTES FOR NEW NOTES AND THE OWNERSHIP AND DISPOSITION OF THE
NEW NOTES.
EXCHANGE OF NOTES
An exchange of the New Notes for the Old Notes will not constitute a
taxable event for federal income tax purposes because the terms of the New Notes
do not differ materially from the terms of the Old Notes. Consequently, (i) no
gain or loss will be realized by a U.S. holder upon receipt of a New Note, (ii)
the holding period of the New Note will include the holding period of the Old
Note exchanged therefor, and (iii) the adjusted tax basis of New Note will be
the same as the adjusted tax basis of the New Note exchanged therefor
immediately before the exchange and without giving effect to changes to the
federal tax laws, if any, enacted after the date hereof.
SALE OR REDEMPTION OF NEW NOTES
Subject to the market discount rules discussed below, in general, a U.S.
holder whose New Note is sold or redeemed will recognize gain or loss to the
extent of the difference between the amount realized (exclusive of amounts paid
for accrued interest) and the U.S. holder's adjusted tax basis in the New Note.
A U.S. holder's adjusted tax basis in a New Note generally will be the issue
price of the Old Note. Such gain or loss will constitute capital gain or loss.
Under certain circumstances, capital gains derived by individuals are taxed at
preferential rates. Generally, under recently enacted legislation, individuals
will be taxed on (i) net capital gain on assets held for more than one year, but
not more than 18 months, at a maximum rate of 28%, and (ii) net capital gain on
assets held for more than 18 months at a maximum rate of 20%.
MARKET DISCOUNT ON RESALE
U.S. holders, other than original purchasers of Old Notes in the Offering,
should be aware that the resale of the New Notes may be affected by the market
discount provisions of the Code. These rules generally provide that if a
subsequent U.S. holder of a Note purchases it at a market discount in excess of
a statutorily defined de minimis amount, and thereafter recognizes gain upon a
disposition (including a partial redemption) of the Note, the lesser of such
gain or the portion of the market discount that accrued while the Note was held
by such U.S. holder will be treated as ordinary interest income at the time of
the disposition. The rules also provide that a U.S. holder who acquires a Note
at a market discount may be required to defer all or a portion of any interest
expense that may otherwise be deductible on any indebtedness incurred or
continued to purchase or carry such Note. Such deferred interest may be taken
into account upon disposition of the Note in a taxable transaction, to the
extent of gain recognized on disposition of the Note in a nonrecognition
transaction and, if the Holder so elects, over the term of the Note to the
extent that interest income on the Note includable in income for any taxable
year exceeds the amount of interest paid or accrued during the taxable year on
indebtedness incurred or accrued to purchase or carry the Note. If a Holder of a
Note elects to include market discount in income currently, neither of the
foregoing rules would apply.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired as a result of market-making activities or other
trading activities. The Company has agreed that for a period of 180 days after
the Expiration Date, it will make this Prospectus, as amended or supplemented,
available to any broker-dealer, at no charge, for use in connection with any
such resale. In addition, until a period of 180 days after the Expiration Date,
all dealers effecting transactions in the New Notes, whether or not
participating in the Exchange Offer, may be required to deliver a prospectus.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer
that resells New Notes that were received by it for its own account pursuant to
the Exchange Offer and any broker or dealer that participates in a distribution
of such New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of New Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Exchange Offer (which shall not include the expenses of any
Holder in connection with resales of the New Notes or commissions or concessions
of any brokers or dealers).
EXPERTS
The consolidated financial statements of Jefferies Group, Inc. and
subsidiaries as of December 31, 1996 and 1995, and for each of the years in the
three-year period ended December 31, 1996, have been incorporated by reference
herein and in the Registration Statement in reliance upon the report of KPMG
Peat Marwick LLP, independent certified public accountants, incorporated by
reference herein, and upon the authority of said firm as experts in accounting
and auditing.
LEGAL MATTERS
The validity of the New Notes will be passed upon for the Company by
Morgan, Lewis & Bockius LLP, Los Angeles, California.
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NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE NEW
NOTES IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
SUCH DATE.
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<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information.................. 2
Incorporation of Certain Documents by
Reference............................ 3
Prospectus Summary..................... 4
Investment Considerations.............. 7
Capitalization......................... 10
Selected Consolidated Financial
Information.......................... 11
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 12
The Exchange Offer..................... 16
Business............................... 24
Properties............................. 28
Legal Proceedings...................... 28
Management............................. 29
Description of the Notes............... 32
Certain Federal Income Tax
Consequences......................... 41
Plan of Distribution................... 42
Experts................................ 42
Legal Matters.......................... 42
</TABLE>
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======================================================
$100,000,000
JEFFERIES
Group, Inc.
Series B
7 1/2% Senior Notes due 2007
------------------------
PROSPECTUS
------------------------
December 18, 1997
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