<PAGE> 1
Filed pursuant to Rule 424(b)(5)
Registration No. 33-51837
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED JULY 11, 1995)
$250,000,000
LEHMAN BROTHERS INC.
7 1/8% SENIOR SUBORDINATED NOTES DUE 2002
------------------------
INTEREST PAYABLE JANUARY 15 AND JULY 15
------------------------
The Notes will mature on July 15, 2002. The Notes may not be redeemed prior
to maturity and are not subject to any sinking fund.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT COMPANY(1)(2)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Note....................................... 99.646% .625% 99.021%
- ------------------------------------------------------------------------------------------------
Total.......................................... $249,115,000 $1,562,500 $247,552,500
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
</TABLE>
(1) Plus accrued interest, if any, from July 14, 1995.
(2) Before deducting expenses payable by the Company estimated at $50,000.
------------------------
The Notes offered by this Prospectus Supplement are offered by the
Underwriters subject to prior sale, withdrawal, cancellation or modification of
the offer without notice, to delivery to and acceptance by the Underwriters and
to certain further conditions. It is expected that delivery of the Notes will be
made at the offices of Lehman Brothers Inc., New York, New York, on or about
July 14, 1995.
------------------------
LEHMAN BROTHERS
July 11, 1995
<PAGE> 2
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES OFFERED
HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
DESCRIPTION OF NOTES
The following description of the particular terms of the Notes offered
hereby supplements the description of the general terms and provisions of the
Securities set forth in the Prospectus, to which description reference is hereby
made.
The Notes offered hereby are limited to an aggregate principal amount of
$250,000,000 and will be issued under an indenture dated as of June 14, 1989, as
amended and supplemented (the "Indenture"), from the Company to Bank of America
Illinois, (formerly known as Continental Bank), as trustee (the "Trustee"),
which is more fully described in the accompanying Prospectus under "Description
of Securities." The Notes will bear interest from July 14, 1995, at the annual
rate of 7 1/8%, payable semiannually on January 15 and July 15 of each year, and
at maturity, commencing January 15, 1996, to the person in whose name the Note
is registered at the close of business on the last day of the month preceding
such interest payment date. The Notes will mature on July 15, 2002. The Notes
may not be redeemed prior to maturity and will not be subject to any sinking
fund.
The Indenture does not contain any covenants or other provisions that are
specifically intended to afford holders of the Notes special protection in the
event of a highly leveraged reorganization, restructuring or similar transaction
involving the Company that may adversely affect holders of the Notes. However,
any such transaction would likely require regulatory approval.
The Notes will rank junior to the Company's Senior Indebtedness, on a
parity with the Company's other Senior Subordinated Indebtedness and senior to
the Company's Subordinated Indebtedness. At May 31, 1995, approximately $20
billion, $2.1 billion and $209 million (each on an unconsolidated basis) of the
Company's Senior Indebtedness, Senior Subordinated Indebtedness and Subordinated
Indebtedness, respectively, were outstanding.
The principal of, and interest on, the Notes will be payable when due at
the office of the Trustee's New York facility, c/o Mellon Securities Transfer
Services Inc. at 120 Broadway, 33rd Floor, NY, New York 10271; provided,
however, that payment of interest may be made at the option of the Company by
check mailed to the address of the person entitled thereto as it appears on the
registry books of the Trustee.
The Notes will be transferable by the registered holders thereof or by
their attorneys duly authorized in writing at the office or agency of the
Company maintained for such purpose in the Borough of Manhattan, The City of New
York (which shall initially be the Trustee's New York facility), without charge
except for any tax or other governmental charge imposed in relation thereto, and
in the manner and subject to the limitations provided in the Indenture, and upon
surrender of the Notes. Upon any such transfer, a new Note or Notes in
authorized denominations for an equal aggregate principal amount and like
interest rate will be issued to the transferee in exchange therefor.
INTERIM FINANCIAL DATA
Revenues, net revenues and net income for the three months ended May 31,
1995 were $2,991 million, $487 million and $221 thousand, respectively.
Revenues, net revenues and net income (loss) for the six months ended May 31,
1995 were $5,771 million, $938 million and $5 million, respectively, compared to
$3,885 million, $1,156 million and $(13) million, for the six months ended June
30, 1994. The foregoing interim data are unaudited and are not necessarily
indicative of the results for the fiscal year.
S-2
<PAGE> 3
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement, the Company has agreed to sell to the Underwriter, and the
Underwriter has agreed to purchase, all of the Notes.
The Company has been advised that the Underwriter proposes initially to
offer the Notes to the public at the public offering price set forth on the
cover page of this Prospectus Supplement, and to certain dealers at such price
less a concession not in excess of .400% of the principal amount. The
Underwriter may allow and such dealers may reallow a concession not in excess of
.250% of the principal amount to certain other dealers. After the initial public
offering, the public offering price and such concessions may be changed.
The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933.
The underwriting arrangements for this offering comply with the
requirements of Schedule E of the By-laws of the NASD regarding an NASD member
firm underwriting its securities.
S-3
<PAGE> 4
LEHMAN BROTHERS INC.
SENIOR SUBORDINATED DEBT SECURITIES
------------------------
Lehman Brothers Inc. (the "Company") from time to time may issue in one or
more series its senior subordinated debt securities (the "Securities") from
which the Company will receive up to an aggregate of $825,000,000 of proceeds.
The Securities of each series will be offered on terms determined at the time of
sale. The Securities will be unsecured and will rank equally with all other
senior subordinated indebtedness of the Company. The specific designation,
aggregate principal amount, rate (or method of calculation) and time of payment
of any interest, authorized denominations, maturity, offering price, any
redemption terms or other specific terms of the series of Securities in respect
of which this Prospectus is being delivered are set forth in the accompanying
Prospectus Supplement ("Prospectus Supplement"). The Securities are subordinated
to all Senior Indebtedness as defined in the Indenture (as hereinafter defined).
There is no limitation on the amount of Senior Indebtedness which may be
incurred by the Company.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The Company may sell Securities through, or through underwriting syndicates
managed by, Lehman Brothers Inc. alone or with one or more other underwriters.
The specific managing underwriter or underwriters with respect to the offer and
sale of the Securities are set forth on the cover of the Prospectus Supplement
relating to such Securities and the members of the underwriting syndicate, if
any, are named in such Prospectus Supplement.
July 11, 1995
<PAGE> 5
------------------------
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and in accordance therewith files
reports and other information with the Securities and Exchange Commission (the
"SEC"). Such reports and information may be inspected and copied at the public
reference facilities maintained by the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the following Regional Offices of the SEC: New
York Regional Office, 7 World Trade Center, New York, New York 10048; and
Chicago Regional Office, Suite 1400, Northwestern Atrium Center, 500 W. Madison
Street, Chicago, Illinois 60661-2511; and copies of such material can be
obtained from the Public Reference Section of the SEC, Washington, D.C. 20549,
at prescribed rates. In addition, reports and other information concerning the
Company can be inspected at the offices of the New York Stock Exchange, Inc.
(the "NYSE"), 20 Broad Street, New York, New York 10005.
The Company has filed with the SEC a registration statement on Form S-3
(herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"). 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 SEC. For further information,
reference is hereby made to the Registration Statement.
------------------------
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by the Company with the SEC
pursuant to the Exchange Act are hereby incorporated by reference in this
Prospectus:
(1) The Company's Transition Report on Form 10-K for the eleven months
ended November 30, 1994.
(2) The Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended February 28, 1995.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering of the Securities shall be deemed to be incorporated
by reference in this Prospectus and to be a part hereof from the date 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 and any amendment or supplement
hereto to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus or any such amendment or supplement.
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 any such
person, a copy of any or all of the documents referred to above which have been
or may be incorporated by reference into this Prospectus, other than exhibits to
such documents unless such exhibits are specifically incorporated by reference
into the documents that this Prospectus incorporates. Requests for such copies
should be directed to Mary J. Capko, Controller's Office, Lehman Brothers Inc.,
3 World Financial Center, 27th Floor, New York, New York 10285 (telephone (212)
526-0660).
2
<PAGE> 6
THE COMPANY
The Company is one of the leading global investment banks serving
institutional, corporate, government and high-net-worth individual clients and
customers. The Company's worldwide headquarters in New York are complemented by
offices in additional locations in the United States, Europe, the Middle East,
Latin America and the Asia Pacific region. The Company also operates a
commodities trading and sales operation in London. Affiliates of the Company
provide investment banking and capital markets services in Europe and Asia.
The Company's business includes capital raising for clients through
securities underwriting and direct placements; corporate finance and strategic
advisory services; merchant banking; securities sales and trading; asset
management; research; and the trading of foreign exchange, derivative products
and certain commodities. The Company acts as a market maker in all major fixed
income and equity products in both the domestic and certain international
markets. The Company is a member of all principal securities and commodities
exchanges in the United States and the National Association of Securities
Dealers, Inc. ("NASD"). Affiliates of the Company hold memberships or associate
memberships on several principal international securities and commodities
exchanges, including the London, Tokyo, Hong Kong, Frankfurt and Milan stock
exchanges.
The Company was incorporated in Delaware in 1965. The Company is a
wholly-owned subsidiary of Lehman Brothers Holdings Inc. The Company's executive
offices are located at 3 World Financial Center, New York, New York 10285
(telephone (212) 526-7000). Unless the context otherwise indicates, the term
"Company" as used in this Prospectus includes Lehman Brothers Inc. and its
subsidiaries.
USE OF PROCEEDS
Except as may be otherwise set forth in the Prospectus Supplement
accompanying this Prospectus, the Company intends to apply the net proceeds from
the sale of the Securities to its general funds to be used for general corporate
purposes.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to fixed charges of
the Company for each of the four years in the period ended December 31, 1993,
the eleven months ended November 30, 1994 and the three months ended February
28, 1995:
<TABLE>
<CAPTION>
ELEVEN MONTHS THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED ENDED
- ------------------------------- NOVEMBER 30, FEBRUARY 28,
1990 1991 1992 1993 1994 1995
- ---- ---- ---- ---- ------------- ------------
<S> <C> <C> <C> <C> <C>
* 1.05 1.05 * * 1.00
</TABLE>
* Earnings were inadequate to cover fixed charges and would have had to
increase approximately $569 million in 1990, $214 million in 1993 and $51
million in 1994 in order to cover the deficiency.
In computing the ratio of earnings to fixed charges, "earnings" consist of
earnings from continuing operations before income taxes and fixed charges.
"Fixed charges" consist principally of interest expense and one-third of office
rentals and one-fifth of equipment rentals, which are deemed to be
representative of the interest factor.
3
<PAGE> 7
DESCRIPTION OF SECURITIES
The following description sets forth certain general terms and provisions
of the Securities to which any Prospectus Supplement may relate. The particular
terms of the Securities offered by any Prospectus Supplement and the extent, if
any, to which such general provisions may or may not apply to the Securities so
offered will be described in the Prospectus Supplement relating to such
Securities.
Up to $825,000,000 of Securities are to be issued under an indenture, dated
as of June 14, 1989 (the "Original Indenture"), as amended and supplemented (the
Original Indenture, as amended and supplemented, the "Indenture") between the
Company and Bank of America Illinois (formerly Continental Bank), as trustee
(the "Trustee"), the form of such Original Indenture is incorporated by
reference as an exhibit to the Registration Statement and copies of the
supplements thereto are filed as exhibits to the Registration Statement. This
prospectus contains descriptions of all material provisions of the Indenture.
The summaries of such provisions of the Indenture do not purport to be complete
and are subject to, and are qualified in their entirety by reference to, all the
provisions of the Indenture, including the definitions therein of certain terms.
Wherever particular provisions or defined terms of the Indenture are referred
to, such provisions or defined terms are incorporated herein by reference.
General. The Indenture does not limit the aggregate principal amount of
Securities which may be issued thereunder and provides that Securities may be
issued thereunder from time to time in one or more series. The Securities will
be unsecured obligations of the Company and will rank equally with all
indebtedness of the Company designated as Senior Subordinated Indebtedness. At
May 31, 1995, approximately $2.1 billion of Senior Subordinated Indebtedness (on
an unconsolidated basis) was outstanding.
Reference is made to the Prospectus Supplement relating to the particular
series of Securities offered thereby (the "Offered Debt Securities") for the
following terms of the Offered Debt Securities: (1) the title of the Offered
Debt Securities; (2) any limit on the aggregate principal amount of the Offered
Debt Securities; (3) the date or dates on which the Offered Debt Securities will
mature; (4) the rate or rates (which may be fixed or variable) per annum at
which the Offered Debt Securities will bear interest, if any, and the date from
which such interest will accrue; (5) the dates on which such interest will be
payable and the Regular Record Dates for such Interest Payment Dates; (6) any
mandatory or optional sinking fund or obligation to purchase or analogous
provisions; (7) if applicable, the date after which and the price or prices at
which the Offered Debt Securities may, pursuant to any optional or mandatory
redemption provisions, be redeemed at the option of the Company or of the Holder
thereof and the other detailed terms and provisions of such optional or
mandatory redemption; (8) any additional restrictive covenants included for the
benefit of the Holders of the Offered Debt Securities; (9) any additional Events
of Acceleration or Events of Default provided with respect to the Offered Debt
Securities; and (10) any other terms of the Offered Debt Securities. (Section
301)
The Indenture provides the Company with the ability, in addition to the
ability to issue Securities with terms different from those of Securities
previously issued, to "reopen" a previous issue of Securities and issue
additional Securities of such series. (Section 301)
Unless otherwise indicated in the Prospectus Supplement relating thereto,
principal of and premium, if any, and interest, if any, on the Offered Debt
Securities will be payable, and the Offered Debt Securities will be exchangeable
and transfers thereof will be registrable, at the office of the Trustee at the
address designated in the Prospectus Supplement, provided that, at the option of
the Company, payment of interest may be made by check mailed to the address of
the Person entitled thereto as it appears in the Security Register. (Sections
305, 307 and 308)
Unless otherwise indicated in the Prospectus Supplement relating thereto,
the Offered Debt Securities will be issued only in fully registered form without
coupons in denominations of $1,000 or any integral multiple thereof. (Section
302) No service charge will be made for any transfer or exchange of such Offered
Debt
4
<PAGE> 8
Securities, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith. (Section 305)
Securities may be issued under the Indenture as Original Issue Discount
Securities to be offered and sold at a substantial discount from the principal
amount thereof. "Original Issue Discount Security" means any security which
provides for an amount less than the principal amount thereof to be due and
payable following an Event of Acceleration or an Event of Default. (Section 101)
If the Offered Debt Securities are Original Issue Discount Securities or are
treated as issued with original issue discount for federal income tax purposes,
special federal income tax, accounting and other considerations applicable
thereto will be described in the Prospectus Supplement relating thereto.
Restrictions on Payment. The Company's obligation to pay the Offered Debt
Securities at maturity shall be suspended if, after giving effect to such
payment, the Company's net capital would be reduced below its Applicable Minimum
Capital or its adjusted net capital. The Company's Applicable Minimum Capital
and adjusted net capital are the minimum amounts of capital to be maintained by
the Company as required by the rules and regulations of various domestic
exchanges, boards of trade and governmental agencies to which it is subject in
order to permit payment of subordinated debt capital. If such obligation is
suspended for more than six months, the Company will be required to liquidate
its business. If any principal payment is made on the Offered Debt Securities at
a time when the Company's net capital is below its Applicable Minimum Capital,
the Holders of the Offered Debt Securities are required to repay to the Company,
its successors or assigns, the sum so paid; provided, however, that any suit for
such recovery must be commenced within two years of the date of such payment.
(Sections 702(b) and 1203)
The Company may not make any optional redemptions of the Offered Debt
Securities without the consent of various domestic exchanges and boards of trade
or if the Company's net capital will be reduced below certain minimum
requirements. If any principal payment is made on the Offered Debt Securities
notwithstanding the foregoing, the Holders of the Offered Debt Securities are
required to repay to the Company, its successors or assigns, the sum so paid;
provided, however, that any suit for such recovery must be commenced within two
years of the date of such payment. (Section 1203)
Redemption. Unless otherwise indicated in the Prospectus Supplement
relating thereto, if the Offered Debt Securities should cease to constitute "net
capital" for purposes of the Net Capital Rule (as hereinafter defined), then the
Company at any time may redeem for cash such Securities in whole or in part at
their principal amount (or, if the Securities of that series are Original Issue
Discount Securities, such portion of the principal amount as may be specified in
the terms of that series) plus accrued interest, if any. (Section 1202)
Subordination. The payment of the principal of, premium, if any, and
interest, if any, on the Offered Debt Securities is expressly subordinated, to
the extent and in the manner set forth in the Indenture, in right of payment to
the prior payment of all Senior Indebtedness. "Senior Indebtedness" includes all
Indebtedness (as defined below) of the Company, to the extent unsecured, arising
out of any matter or event occurring prior to the date on which any payment on
or in respect of any Offered Debt Securities matures and becomes due and
payable, which has not in whole or in part been subordinated in right of payment
to any other Indebtedness of the Company. "Indebtedness" means all obligations
which would be treated as liabilities in accordance with generally accepted
accounting principles. By reason of such subordination, upon the maturity of any
Senior Indebtedness, full payment in accordance with the terms thereof must be
made or provided for before any payment of principal or interest, if any, or
premium, if any, is made upon the Offered Debt Securities and, in the event of
bankruptcy, assignment for benefit of creditors, liquidation, reorganization or
other marshalling of assets and liabilities of the Company, payment of the
principal and interest, if any, and/or premium, if any, on the Offered Debt
Securities will be subordinated to the prior payment in full of all Senior
Indebtedness, and nothing shall be paid to the Holders of the Offered Debt
Securities unless all amounts due to the holders of Senior Indebtedness have
been paid or provided for. (Sections 401 and 402)
There is no limitation in the Indenture on the amount of Senior
Indebtedness or other Indebtedness that may exist. At May 31, 1995, Senior
Indebtedness (on an unconsolidated basis) was approximately $20 billion and
total assets of the Company (on an unconsolidated basis) were approximately $25
billion.
5
<PAGE> 9
Junior Indebtedness. The Offered Debt Securities will be senior in right
of payment to certain Indebtedness of the Company designated as subordinated
debt in the respective instrument or plan document pursuant to which such
Indebtedness was issued or incurred. (Section 411 of the Indenture) At May 31,
1995, approximately $209 million of such subordinated debt (on an unconsolidated
basis) was outstanding.
Financial Covenants. The Company may pay dividends on its common stock
(with the exception of dividends paid in common stock) only to the extent that
the aggregate of such dividends paid subsequent to June 30, 1978 does not exceed
the sum of (i) $5,000,000, (ii) the aggregate Consolidated Net Income earned
since that date, (iii) the net proceeds of the sale since that date of common
stock of the Company and (iv) the net proceeds of indebtedness sold since that
date which was thereafter converted into common stock of the Company. (Section
505)
Events of Default and Acceleration and Notice Thereof. The Holders of a
majority in aggregate principal amount of the Outstanding Securities of a series
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee with respect to
the Securities of such series. The Trustee or the Holders of not less than 25%
in aggregate principal amount of the Outstanding Securities of a series may, if
an Event of Acceleration as defined in the Indenture occurs with respect to
Securities of that series, declare, by notice in writing, the principal amount
(or, if the Securities of that series are Original Issue Discount Securities,
such portion of the principal amount as may be specified in the terms of that
series) of all Outstanding Securities of that series and the interest accrued
thereon to be due and payable on the last business day of the sixth calendar
month following such notice (but not earlier than the first anniversary of the
date of issuance of such Securities in any event) and, if such Event of
Acceleration is not cured by the Company prior to such last business day, the
Outstanding Securities of that series will be due and payable on that date. In
case an Event of Default with respect to Securities of any series shall occur,
the principal amount (or, if the Securities of that series are Original Issue
Discount Securities, such portion of the principal amount as may be specified in
the terms of that series) of all Outstanding Securities of that series will
become immediately due and payable. Subject to provisions requiring the exercise
of the degree of care a prudent man would show in the conduct of his own
affairs, 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 of Securities
unless they shall have offered to the Trustee reasonable security or indemnity.
Except as specifically provided in the Indenture, nothing therein relieves the
Trustee from liability for its own negligent action, its own negligent failure
to act or its own wilful misconduct. (Sections 702(a), 703, 714, 801 and 803(e))
The following events constitute Events of Acceleration as defined in the
Indenture with respect to any series of Securities: failure for 30 days to pay
interest upon any Security of that series when due; failure to pay principal or
premium, if any, on any Security of that series when due; failure for 60 days
after notice to perform a certain covenant in the Indenture; and, subject to
certain conditions, acceleration of the maturity of Indebtedness of the Company
constituting net capital aggregating more than $10,000,000 upon default thereon.
Events of Default include: bankruptcy, liquidation and similar proceedings and
the failure for 15 consecutive days to maintain the minimum amount of net
capital under the Net Capital Rule necessary to permit the Company to carry on
its business as a broker-dealer. (Section 701)
The Indenture provides that the Trustee shall, within 90 days after the
occurrence of an event described in the preceding paragraph (without regard to
any period of grace as therein specified or any requirement for the giving of
notice) or the failure of the Company to duly observe or perform any provision
of the Indenture with respect to Securities of any series, give to the Holders
of the Outstanding Securities of that series notice of all uncured defaults
known to it with respect to Securities of that series (including both Events of
Default and Events of Acceleration); provided that, except in the case of
default in the payment of principal or interest, if any, on any of the
Securities of that series or the payment of any sinking fund installment, the
Trustee shall 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 Outstanding Securities of that series. (Section 802)
The Company must deliver to the Trustee annually an officers' certificate
stating whether or not the signers thereof have obtained knowledge of any
existing default by the Company in the performance or
6
<PAGE> 10
fulfillment of the covenants, agreements and obligations contained in the
Indenture with respect to any series of Securities and, if so, specifying each
such default and the nature thereof. (Section 506)
Modification of the Indenture. Modifications and amendments of the
Indenture may be made by the Company and the Trustee with the consent of the
Holders of not less than a majority in aggregate principal amount of the
Outstanding Securities of each series affected thereby; provided, however, that
no such modification or amendment may, without the consent of the Holder of each
Outstanding Security affected thereby: (a) change the stated maturity date of
the principal of, or any installment of principal of or interest, if any, on,
any Security; (b) reduce the principal amount of, or the premium (if any) or
interest, if any, on, any Security; (c) adversely affect any right of repayment
at the option of the Holder of any Security, or reduce the amount of, or
postpone the date fixed for, the payment of any sinking fund or analogous
obligation; (d) reduce the amount of principal of an Original Issue Discount
Security payable upon acceleration of the Maturity thereof; (e) change the place
or currency of payment of principal of, or premium (if any) or interest, if any,
on, any Security; (f) impair the right to institute suit for the enforcement of
any payment on or with respect to any Security; or (g) reduce the percentage in
principal amount of Outstanding Securities of any series, the consent of the
Holders of which is required for modification or amendment of the Indenture or
for waiver of compliance with certain provisions of the Indenture or for waiver
of certain defaults. (Section 1102)
The Holders of not less than a majority in aggregate principal amount of
the Outstanding Securities of any series may on behalf of the Holders of all
Securities of that series waive, insofar as that series is concerned, compliance
by the Company with certain restrictive covenants of the Indenture. (Section
507) The Holders of a majority in aggregate principal amount of the Outstanding
Securities of any series may on behalf of the Holders of all Securities of that
series waive any past default under the Indenture with respect to that series,
except a default in the payment of the principal of, or the premium (if any) or
interest, if any, on, any Security of that series or in respect of a provision
which under the Indenture cannot be modified or amended without the consent of
the Holder of each Outstanding Security of that series affected. (Section 715)
Satisfaction and Discharge. The Indenture may be fully satisfied and
discharged not earlier than two years after payment of all Outstanding
Securities shall have been made or duly provided for. (Section 601)
Certain Information Relating to the Trustee. The Company and its
affiliates maintain bank accounts, borrow money and have other customary banking
relationships with the Trustee.
UNITED STATES TAXATION
Certain Tax Consequences for United States Holders. The following summary
describes certain United States federal income tax consequences of the ownership
of Securities as of the date hereof. Except where noted, it deals only with
Securities held as capital assets by United States Holders and does not deal
with special situations, such as those of dealers in securities, financial
institutions, life insurance companies or United States Holders whose
"functional currency" is not the U.S. dollar. Furthermore, the discussion below
is based upon the provisions of the Internal Revenue Code of 1986, as amended
(the "Code") and regulations, rulings and judicial decisions thereunder as of
the date hereof, and such authorities may be repealed, revoked or modified so as
to result in federal income tax consequences different from those discussed
below. For a discussion of certain United States federal income tax consequences
of the ownership of Securities to Non-United States Holders see "Certain Tax
Consequences for Non-United States Holders" below. PERSONS CONSIDERING THE
PURCHASE, OWNERSHIP OR DISPOSITION OF SECURITIES SHOULD CONSULT THEIR OWN TAX
ADVISORS CONCERNING THE FEDERAL INCOME TAX CONSEQUENCES IN LIGHT OF THEIR
PARTICULAR SITUATIONS AS WELL AS ANY CONSEQUENCES ARISING UNDER THE LAWS OF ANY
OTHER TAXING JURISDICTION.
UNITED STATES HOLDERS. As used herein, a "United States Holder" of a
Security means a holder that is a citizen or resident of the United States, a
corporation, partnership or other entity created or organized in or under the
laws of the United States or an estate or trust the income of which is subject
to United States federal income taxation regardless of its source, and "United
States" means the United States of America (including the States and the
District of Columbia) and its possessions including Puerto Rico, the U.S. Virgin
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Islands, Guam, American Samoa, Wake Island and the Northern Mariana Islands. The
term "Non-United States Holder" means any Holder which is not a United States
Holder.
PAYMENTS OF INTEREST. Except as set forth below, interest on a Security
will generally be taxable to a United States Holder as ordinary income from
domestic sources at the time it is paid or accrued in accordance with the United
States Holder's method of accounting for tax purposes.
ORIGINAL ISSUE DISCOUNT. The following is a summary of the principal
United States federal income tax consequences of the ownership of Securities
issued with original issue discount ("Original Issue Discount Notes") by United
States Holders. This summary is based upon regulations issued by the Treasury
Department which became effective on April 4, 1994 (the "OID Regulations"). The
following discussion addresses only Securities providing for fixed payments and
Securities that bear qualified stated interest, as defined below.
A Security with an "issue price" that is less than its stated redemption
price at maturity (the sum of all payments to be made on the Security other than
"qualified stated interest," as defined below) will be issued with original
issue discount ("OID") if such difference is at least 0.25 percent of the stated
redemption price at maturity multiplied by the number of complete years to
maturity. Notice will be given in the applicable Prospectus Supplement when the
Company determines that a particular Security will be an Original Issue Discount
Note.
Under the OID Regulations, the "issue price" of each Security in a
particular offering will be the first price at which a substantial amount of
that particular offering is sold. "Qualified stated interest" with respect to a
Security is stated interest that is unconditionally payable in cash or in
property (other than debt instruments of the issuer) at least annually at a
single fixed rate ("Fixed Rate Security"). Interest is payable at a single fixed
rate only if the rate appropriately takes into account the length of the
interval between payments. Securities other than Fixed Rate Securities will also
be treated as bearing qualified stated interest if they qualify as "variable
rate debt instruments."
A Security will be treated as a "variable rate debt instrument" for
purposes of the OID regulations if the Security is issued for an amount that
does not exceed the total of principal payments unconditionally payable by more
than an amount equal to the lesser of (i) 0.015 multiplied by the product of the
total principal unconditionally payable and the number of complete years to
maturity from the issue date; or (ii) 15 percent of the total principal payments
unconditionally payable. In addition, to be a variable rate debt instrument, the
Security must bear stated interest at (i) one or more qualified floating rates,
(ii) a single fixed rate and one or more qualified floating rates, (iii) a
single objective rate or (iv) a single fixed rate and a single objective rate
that is a "qualified inverse floating rate." In general, a qualified floating
rate is a rate the variations in the value of which can reasonably be expected
to measure contemporaneous variations in the cost of newly borrowed funds in the
currency in which the Security is denominated. An objective rate is a rate
(other than a qualified floating rate) that is determined using a single fixed
formula and that is based on one or more of: (i) qualified floating rates, (ii)
rates that would be qualified floating rates for a debt obligation denominated
in a different currency or (iii) the yield or change in the price of one or more
items of actively traded personal property, other than the stock or debt of the
issuer or a related party. A "qualified inverse floating rate" is a rate that is
equal to a fixed rate minus a qualified floating rate and the variations in
which can reasonably be expected to inversely reflect contemporaneous variations
in the cost of newly borrowed funds, disregarding certain restrictions on such
rate such as caps, floors or governors. Unless a Prospectus Supplement so
indicates, Securities will be issued with qualified stated interest.
In the case of a Security issued with de minimis OID (i.e., discount that
is not OID because it is less than 0.25 percent of the stated redemption price
at maturity multiplied by the number of complete years to maturity), the United
States Holder generally must include such de minimis OID in income as stated
principal payments on the Security are made, including the de minimis OID in
proportion to the amount of principal paid. Any amount of de minimis OID that
has not been included in income prior to sale, exchange or retirement of a
Security shall be treated as capital gain.
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The OID Regulations provide that Securities that may be redeemed prior to
their Stated Maturity shall be treated from the time of issuance as having a
maturity date for federal income tax purposes on such redemption date if such
redemption would result in a lower yield to maturity in the case of a redemption
at the issuer's option or a higher yield to maturity in the case of a redemption
at the holder's option. Notice will be given in the applicable Prospectus
Supplement when the Company determines that a particular Security will be deemed
to have a maturity date for federal income tax purposes prior to its Stated
Maturity.
United States Holders of Original Issue Discount Notes with a maturity upon
issuance of more than one year must, in general, include OID in income in
advance of the receipt of some or all of the related cash payments. The amount
of OID includible in income by the initial United States Holder of an Original
Issue Discount Note is the sum of the "daily portions" of OID with respect to
the Security for each day during the taxable year or portion of the taxable year
in which such United States Holder held such Security ("accrued OID"). The daily
portion is determined by allocating to each day in any "accrual period" a pro
rata portion of the OID allocable to that accrual period. The "accrual period"
for an Original Issue Discount Note may be of any length and may vary in length
over the term of the Security, provided that each accrual period is no longer
than one year and each scheduled payment of principal or interest occurs on the
first day or the final day of an accrual period. In general, the computation of
OID is simplest if accrual periods correspond to the intervals between payment
dates provided by the terms of the Security. The amount of OID allocable to any
accrual period is an amount equal to the excess, if any, of (a) the product of
the Security's adjusted issue price at the beginning of such accrual period and
its yield to maturity (determined on the basis of compounding at the close of
each accrual period and properly adjusted for the length of the accrual period)
over (b) the sum of the qualified stated interest allocable to the accrual
period. In determining OID allocable to an accrual period, if an interval
between payments of qualified stated interest contains more than one accrual
period, the amount of qualified stated interest payable at the end of the
interval (including any qualified stated interest that is payable on the first
day of the accrual period immediately following the interval) is allocated on a
pro rata basis to each accrual period in the interval and the adjusted issue
price at the beginning of each accrual period in the interval must be increased
by the amount of any qualified stated interest that has accrued prior to the
first day of the accrual period but is not payable until the end of the
interval. OID allocable to a final accrual period is the difference between the
amount payable at maturity (other than a payment of qualified stated interest)
and the adjusted issue price at the beginning of the final accrual period. If
all accrual periods are of equal length, except for either an initial shorter
accrual period or an initial and a final shorter accrual period, the amount of
OID allocable to the initial accrual period may be computed under any reasonable
method. The "adjusted issue price" of a Security at the beginning of any accrual
period is equal to its issue price increased by the accrued OID for each prior
accrual period (determined without regard to the amortization of any acquisition
or bond premium, as described below) and reduced by any prior payments, or any
payments made on the first day of the accrual period, with respect to such
Security that were not qualified stated interest. Under these rules, a United
States Holder will have to include in income increasingly greater amounts of OID
in successive accrual periods. The Company is required to provide information
returns stating the amount of OID accrued on Securities held of record by
persons other than corporations and other exempt holders.
In the case of certain variable rate debt instruments that are issued with
OID and that bear interest at a single qualified floating rate or a qualified
inverse floating rate, the accrual of OID is to be determined by assuming that
the rate is fixed upon issuance at the initial value of the interest rate. In
the case of certain variable rate debt instruments that are issued with OID and
that bear an objective interest rate (other than a qualified inverse floating
rate), the accrual of OID is calculated by assuming that the Security bears
interest at a fixed rate that reflects the yield that is reasonably expected for
the Security. The method for determining OID on Securities that do not bear
interest at a qualified floating rate, at a qualified inverse floating rate or
at an objective rate will be provided in the applicable Prospectus Supplement
for such Security. United States Holders may elect to treat all interest on any
Security as OID and calculate the amount includible in gross income under the
constant yield method described above. For the purposes of this election,
interest includes stated interest, acquisition discount, OID, de minimis OID,
market discount, de minimis market discount and unstated interest, as adjusted
by any amortizable bond premium or acquisition premium. If a United States
Holder makes this election for a Security with market discount or amortizable
bond premium, the election is treated as an election under the market discount
or amortizable bond premium provisions, described below,
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and the electing United States Holder will be required to amortize bond premium
or include market discount in income currently for all of the holder's other
debt instruments with market discount or amortizable bond premium. The election
is to be made for the taxable year in which the United States Holder acquired
the Security, and may not be revoked without the consent of the Internal Revenue
Services ("IRS"). UNITED STATES HOLDERS SHOULD CONSULT WITH THEIR OWN TAX
ADVISERS ABOUT THIS ELECTION.
In the case of Original Issue Discount Notes having a term of one year or
less ("Short-Term Original Issue Discount Notes"), under the OID Regulations all
payments (including all stated interest) will be included in the stated
redemption price at maturity and, thus, United States Holders will generally be
taxable on the discount in lieu of stated interest. The discount will be equal
to the excess of the stated redemption price at maturity over the issue price of
a Short-Term Original Issue Discount Note, unless the United States Holder
elects to compute this discount using tax basis instead of issue price. In
general, an individual and certain other cash method United States Holders of a
Short-Term Original Issue Discount Note are not required to include accrued
discount in their income currently unless they elect to do so. United States
Holders who report income for federal income tax purposes on the accrual method
and certain other United States Holders are required to accrue discount on such
Short-Term Original Issue Discount Notes (as ordinary income) on a straight-line
basis, unless an election is made to accrue the discount according to a constant
yield method based on daily compounding. In the case of a United States Holder
who is not required, and does not elect, to include discount in income
currently, any gain realized on the sale, exchange or retirement of the
Short-Term Original Issue Discount Note will be ordinary income to the extent of
the discount accrued through the date of sale, exchange or retirement. In
addition, such United States Holder who does not elect to include currently
accrued discount in income may be required to defer deductions for a portion of
the United States Holder's interest expense with respect to any indebtedness
incurred or continued to purchase or carry such Securities.
MARKET DISCOUNT. If a United States Holder purchases a Security (other
than an Original Issue Discount Note) for an amount that is less than its stated
redemption price at maturity or, in the case of an Original Issue Discount Note,
its adjusted issue price, the amount of the difference will be treated as
"market discount" for federal income tax purposes, unless such difference is
less than a specified de minimis amount. Under the market discount rules, a
United States Holder will be required to treat any principal payment on, or any
gain on the sale, exchange, retirement or other disposition of, a Security as
ordinary income to the extent of the market discount which has not previously
been included in income and is treated as having accrued on such Security at the
time of such payment or disposition. In addition, a United States Holder may be
required to defer, until the maturity of the Security or its earlier disposition
in a taxable transaction, the deduction of all or a portion of the interest
expense on any indebtedness incurred or continued to purchase or carry such
Security.
Any market discount will be considered to accrue ratably during the period
of acquisition to the maturity date of the Security, unless the United States
Holder elects to accrue on a constant interest method. A United States Holder of
a Security may elect to include market discount in income currently as it
accrues (on either a ratable or constant interest method), in which case the
rule described above regarding deferral of interest deductions will not apply.
This election to include market discount in income currently, once made, applies
to all market discount obligations acquired on or after the first taxable year
to which the election applies, and may not be revoked without the consent of the
IRS.
ACQUISITION PREMIUM; AMORTIZABLE BOND PREMIUM. A United States Holder who
purchases a Security for an amount that is greater than its adjusted issue price
but equal to or less than the sum of all amounts payable on the Security after
the purchase date other than payments of qualified stated interest will be
considered to have purchased such Security at an "acquisition premium". Under
the acquisition premium rules, the amount of OID which such holder must include
in its gross income with respect to such Security for any taxable year will be
reduced by the portion of such acquisition premium properly allocable to such
year.
A United States Holder who purchases a Security for an amount in excess of
the sum of all amounts payable on the Security after the purchase date other
than qualified stated interest will be considered to have purchased the Security
at a "premium" and will not be required to include any OID in income. A United
States Holder generally may elect to amortize the premium over the remaining
term of the Security on a
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constant yield method. The amount amortized in any year will be treated as a
reduction of the United States Holder's interest income from the Security. Bond
premium on a Security held by a United States Holder that does not make such an
election will decrease the gain or increase the loss otherwise recognized on
disposition of the Security. The election to amortize premium on a constant
yield method once made applies to all debt obligations held or subsequently
acquired by the electing United States Holder on or after the first day of the
first taxable year to which the election applies and may not be revoked without
the consent of the IRS.
SALE, EXCHANGE AND RETIREMENT OF SECURITIES. A United States Holder's tax
basis in a Security will, in general, be the United States Holder's cost
therefor, increased by OID or market discount, or any discount with respect to a
Short-Term Original Issue Discount Note, previously included in income by the
United States Holder and reduced by an amortized premium and any cash payments
on the Security other than qualified stated interest. Upon the sale, exchange or
retirement of a Security (which might arise in the event of a satisfaction and
discharge), a United States Holder will recognize gain or loss equal to the
difference between the amount realized upon the sale, exchange or retirement
(less any accrued qualified stated interest, which will be taxable as such) and
the adjusted tax basis of the Security. Except as described above with respect
to certain Short-Term Original Issue Discount Notes, such gain or loss will be
capital gain or loss and will be long-term capital gain or loss if at the time
of sale, exchange or retirement the Security has been held for more than one
year. Under current law, net capital gains of individuals are, under certain
circumstances, taxed at lower rates than items of ordinary income. The
deductibility of capital losses is subject to limitations.
BACKUP WITHHOLDING AND INFORMATION REPORTING. In general, information
reporting requirements will apply to certain payments of principal, interest,
OID and premium paid on Securities and to proceeds of sale of a Security made to
United States Holders other than certain exempt recipients (such as
corporations). A 31% backup withholding tax will apply to such payments if the
United States Holder fails to provide a taxpayer identification number or
certification of foreign or other exempt status or fails to report in full
dividend and interest income.
Certain Tax Consequences for Non-United States Holders. Under present
United States federal income and estate tax law, and subject to the discussion
below concerning backup withholding:
(a) no withholding of United States federal income tax will be
required with respect to the payment by the Company or any Paying Agent of
principal or interest (which for purposes of this discussion includes OID)
on a Security owned by a Non-United States Holder, provided, in the case of
interest, (i) that the beneficial owner does not actually or constructively
own 10% or more of the total combined voting power of all classes of stock
of the Company entitled to vote within the meaning of Section 871(h)(3) of
the Code and the regulations thereunder, (ii) the beneficial owner is not a
controlled foreign corporation that is related to the Company through stock
ownership and (iii) the beneficial owner satisfies the statement
requirement (described generally below) set forth in Section 871(h) and
Section 881(c) of the Code and the regulations thereunder;
(b) no withholding of United States federal income tax will be
required with respect to any gain or income realized by a Non-United States
Holder upon the sale, exchange or retirement of a Security; and
(c) a Security beneficially owned by an individual who at the time of
death is a Non-United States Holder will not be subject to United States
federal income tax as a result of such individual's death, provided that
such individual does not actually or constructively own 10% or more of the
total combined voting power of all classes of stock of the Company entitled
to vote within the meaning of Section 871(h)(3) of the Code and provided
that the interest payments with respect to such Security would not have
been, if received at the time of such individual's death, effectively
connected with the conduct of a United States trade or business by such
individual.
To qualify for the exemption from withholding tax in (a)(iii) above, the
beneficial owner of a Security, or a financial institution holding the Security
on behalf of such owner, must provide, in accordance with specified procedures,
a Paying Agent of the Company with a statement to the effect that the beneficial
owner is not a United States person. Pursuant to current temporary Treasury
Regulations, these requirements will be met if (1) the beneficial owner provides
his name and address, and certifies, under penalties of perjury, that he is not
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a United States person (which certification may be made on an IRS Form W-8, or
any successor form) or (2) a financial institution holding the Security on
behalf of the beneficial owner certifies, under penalties of perjury, that such
statement has been received by it and furnishes a Paying Agent with a copy
thereof.
Payments to Non-United States Holders not meeting the requirements of
paragraph (a) above and thus subject to withholding of United States federal
income tax may nevertheless be exempt from such withholding if the beneficial
owner of the Security provides a Paying Agent of the Company with a properly
executed (1) IRS Form 1001 (or any successor form) claiming an exemption from
withholding under the benefit of a tax treaty or (2) IRS Form 4224 (or any
successor form) stating that interest paid on the Security is not subject to
withholding tax because it is effectively connected with the owner's conduct of
a trade or business in the United States.
No information reporting or backup withholding will be required with
respect to payments made by the Company or any Paying Agent to Non-United States
Holders if a statement described in (a)(iii) above has been received and the
payor does not have actual knowledge that the beneficial owner is a United
States person.
In addition, backup withholding and information reporting will not apply if
payments of principal, interest, original issue discount or premium on a
Security are paid or collected by a foreign office of a custodian, nominee or
other foreign agent on behalf of the beneficial owner of such Security, or if a
foreign office of a broker (as defined in applicable Treasury Regulations) pays
the proceeds of the sale of a Security to the owner thereof. If, however, such
nominee, custodian, agent or broker is, for United States federal income tax
purposes, a United States person, a controlled foreign corporation or a foreign
person that derives 50% or more of its gross income for certain periods from the
conduct of a trade or business in the United States, such payments will not be
subject to backup withholding but will be subject to information reporting,
unless (1) such custodian, nominee, agent or broker has documentary evidence in
its records that the beneficial owner is not a United States person and certain
other conditions are met or (2) the beneficial owner otherwise establishes an
exemption. Temporary Treasury Regulations provide that the Treasury is
considering whether backup withholding will apply with respect to such payments
of principal, interest or the proceeds of a sale that are not subject to backup
withholding under the current regulations. Under proposed Treasury Regulations
not currently in effect, backup withholding will not apply to such payments
absent actual knowledge that the payee is a United States person.
Payments of principal, interest, OID or premium on a Security paid to the
beneficial owner of a Security by a United States office of a custodian, nominee
or agent, or the payment by the United States office of a broker of the proceeds
of sale of a Security, will be subject to both backup withholding and
information reporting unless the beneficial owner provides a statement described
in (a)(iii) above and the payor does not have actual knowledge that the
beneficial owner is a United States person or otherwise establishes an
exemption.
Any amounts withheld under the backup withholding rules will be allowed as
a refund or a credit against such holder's United States federal income tax
liability provided the required information is furnished to the IRS.
CAPITAL REQUIREMENTS
As registered broker-dealers, the Company and its subsidiary, Lehman
Government Securities Inc. ("LGSI"), are subject to the SEC's net capital rule
(Rule 15c3-1, the "Net Capital Rule"), promulgated under the Exchange Act. The
NYSE monitors the application of the Net Capital Rule by the Company and the
NASD monitors the application of the Net Capital Rule by LGSI. The Company and
LGSI compute net capital under the alternative method of the Net Capital Rule
which requires the maintenance of minimum net capital, as defined. A
broker-dealer may be required to reduce its business if its net capital is less
than 4% of aggregate debit balances and may also be prohibited from expanding
its business or paying cash dividends, if resulting net capital would be less
than 5% of aggregate debit balances. In addition, the Net Capital Rule does not
allow withdrawal of subordinated capital if net capital would be less than 5% of
such debit balances.
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The Net Capital Rule also limits the ability of broker-dealers to transfer
large amounts of capital to parent companies and other affiliates. Under the Net
Capital Rule equity capital can not be withdrawn from a broker-dealer without
the prior approval of the SEC when net capital after the withdrawal would be
less than 25% of its securities positions haircuts (which are deductions from
capital of certain specified percentages of the market value of securities to
reflect the possibility of a market decline prior to disposition). In addition,
the Net Capital Rule requires broker-dealers to notify the SEC and the
appropriate self-regulatory organization two business days before a withdrawal
of excess net capital if the withdrawal would exceed the greater of $500,000 or
30% of the broker-dealer's excess net capital, and two business days after a
withdrawal that exceeds the greater of $500,000 or 20% of excess net capital.
Finally, the Net Capital Rule authorizes the SEC to order a freeze on the
transfer of capital if a broker-dealer plans a withdrawal of more than 30% of
its excess net capital and the SEC believes that such a withdrawal would be
detrimental to the financial integrity of the firm or would jeopardize the
broker-dealer's ability to pay its customers.
Compliance with the Net Capital Rule could limit those operations of the
Company and LGSI that require the intensive use of capital, such as underwriting
and trading activities and the financing of customer account balances.
The Company is subject to other domestic and international regulatory
requirements with which it is required to comply.
OUTSTANDING SUBORDINATED DEBT INSTRUMENTS
The Company has issued various subordinated debt instruments in a form, and
to persons, approved by the NYSE in accordance with the provisions of NYSE Rule
325. When issued, the Securities shall constitute such subordinated debt. The
Company is permitted to treat such subordinated debt as capital for the purposes
of the Net Capital Rule and NYSE Rule 325. The instruments evidencing such
subordinated debt provide that they shall be subordinated and junior in right of
payment to the prior payment in full, or provision for such payment, of all
obligations to all other present and future creditors of the Company (except for
other subordinated debt similarly subordinated).
PLAN OF DISTRIBUTION
The Company may sell the Securities through, or through underwriting
syndicates managed by, Lehman Brothers Inc. ("Lehman Brothers") alone or with
one or more other underwriters. The specific managing underwriter or
underwriters with respect to the offer and sale of Securities are set forth on
the cover of the Prospectus Supplement relating to such Securities and the
members of the underwriting syndicate, if any, are named in such Prospectus
Supplement. Only the underwriters so named in the Prospectus Supplement are
underwriters in connection with the Securities offered thereby. The Prospectus
Supplement also describes the discounts and commissions to be allowed or paid to
the underwriters, all other items constituting underwriting compensation, the
discounts and commissions to be allowed or paid to dealers, if any, and the
exchanges, if any, on which the Securities will be listed.
The Securities will be acquired by the underwriters for their own account
and may be resold from time to time in one or more transactions, including
negotiated transactions, at a fixed public offering price or at varying prices
determined at the time of sale. The obligations of the underwriters to purchase
such Securities will be subject to certain conditions precedent, and the
underwriters will be obligated to purchase all the Securities of the series
offered by the Prospectus Supplement if any of such Securities are purchased.
Any initial public offering price and any discounts or concessions allowed or
reallowed or paid to dealers may be changed from time to time. To the extent, if
any, that Securities to be purchased by Lehman Brothers, as underwriter, are not
sold by it at the public offering price set forth in the Prospectus Supplement,
the Company, as issuer of such Securities, will not receive the full amount of
net proceeds of such Securities set forth on the cover of the Prospectus
Supplement.
If so indicated in the Prospectus Supplement, the Company will authorize
the underwriters to solicit offers by certain institutional investors to
purchase Securities providing for payment and delivery on a future
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date specified in the Prospectus Supplement. There may be limitations on the
minimum amount which may be purchased by any such institutional investor or on
the portion of the aggregate principal amount of the particular Securities which
may be sold pursuant to such arrangements. Institutional investors to which such
offers may be made, when authorized, include commercial and savings banks,
insurance companies, pension funds, educational and charitable institutions and
such other institutions as may be approved by the Company. The obligations of
any such purchasers pursuant to such delayed delivery and payment arrangements
will not be subject to any conditions except (i) the purchase by an institution
of the particular Securities shall not at the time of delivery be prohibited
under the laws of any jurisdiction in the United States to which such
institution is subject, and (ii) the Company shall have sold to such
underwriters the total principal amount of such Securities less the principal
amount thereof covered by such arrangements. Underwriters will not have any
responsibility in respect of the validity of such arrangements or the
performance of the Company or such institutional investors thereunder.
The underwriters may be entitled under agreements entered into with the
Company to indemnification by the Company against certain civil liabilities,
including liabilities under the Securities Act, or to contribution with respect
to payments which the underwriters may be required to make in respect thereof.
The underwriters may engage in transactions with, or perform services for, the
Company in the ordinary course of business.
Each underwriter or agent will represent and agree that (i) it has not
offered or sold and will not offer or sell in the United Kingdom, by means of
any document, any Securities other than to persons whose ordinary business it is
to buy or sell shares or debentures, whether as principal or agent (except in
circumstances which do not constitute an offer to the public within the meaning
of the Companies Act 1985); (ii) it has complied and will comply with all
applicable provisions of the Financial Services Act 1986 with respect to
anything done by it in relation to the Securities in, from or otherwise
involving the United Kingdom; and (iii) it has only issued or passed on and will
only issue or pass on to any person in the United Kingdom any document received
by it in connection with the issue of the Securities if that person is of a kind
described in Article 9(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1988.
The underwriting arrangements for this offering will comply with the
requirements of Schedule E of the By-laws of the NASD regarding an NASD member
firm underwriting its own securities. Pursuant to Section 5 of Schedule E to the
By-Laws of the NASD, the net proceeds to be received by the Company from the
sale of the Securities shall be placed in a duly established escrow account and
shall not be released therefrom or used by the Company in any manner until the
Company has filed with the NASD a computation of net capital in the manner
required by and meeting the requirements of Section 5 of Schedule E.
ERISA MATTERS
The Company may be considered a "party in interest" within the meaning of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and a
"disqualified person" under corresponding provisions of the Internal Revenue
Code of 1986, as amended (the "Code"), with respect to certain employee benefit
plans. Certain transactions between an employee benefit plan and a party in
interest or disqualified person may result in "prohibited transactions" within
the meaning of ERISA and the Code. ANY EMPLOYEE BENEFIT PLAN PROPOSING TO INVEST
IN THE SECURITIES SHOULD CONSULT WITH ITS LEGAL COUNSEL.
LEGAL OPINIONS
Unless otherwise indicated in an applicable Prospectus Supplement relating
to Offered Debt Securities, the validity of the Securities offered hereby will
be passed upon for the Company by David Marcus, General Counsel of the Company,
and for any underwriter by Simpson Thacher & Bartlett (a partnership which
includes professional corporations), 425 Lexington Avenue, New York, New York
10017. Simpson Thacher & Bartlett acts as counsel in various matters for Lehman
Brothers Holdings Inc., the Company and certain of their subsidiaries.
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INDEPENDENT ACCOUNTANTS
The consolidated financial statements and schedules of the Company for the
eleven months ended November 30, 1994, and for the years ended December 31, 1993
and December 31, 1992, appearing in the Company's Transition Report on Form 10-K
for the eleven months ended November 30, 1994, have been audited by Ernst &
Young LLP, independent auditors, as set forth in their report thereon included
therein and incorporated herein by reference. Such consolidated financial
statements and schedules are, and audited financial statements included in
subsequently filed documents will be, incorporated herein by reference in
reliance upon the reports of Ernst & Young LLP pertaining to such financial
statements (to the extent covered by consents filed with the Securities and
Exchange Commission) given upon the authority of such firm as experts in
accounting and auditing.
15
<PAGE> 19
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NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY AGENT OR UNDERWRITER. THIS PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER
THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS NOR
ANY SALE MADE HEREUNDER OR THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF.
---------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Description of Notes..................... S-2
Interim Financial Data................... S-2
Underwriting............................. S-3
PROSPECTUS
Available Information.................... 2
Incorporation of Certain Documents by
Reference.............................. 2
The Company.............................. 3
Use of Proceeds.......................... 3
Ratio of Earnings to Fixed Charges....... 3
Description of Securities................ 4
United States Taxation................... 7
Capital Requirements..................... 12
Outstanding Subordinated Debt
Instruments............................ 13
Plan of Distribution..................... 13
ERISA Matters............................ 14
Legal Opinions........................... 14
Independent Accountants.................. 15
</TABLE>
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- ----------------------------------------------------------
- ----------------------------------------------------------
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$250,000,000
LEHMAN BROTHERS INC.
7 1/8% SENIOR SUBORDINATED
NOTES DUE 2002
---------------------------
PROSPECTUS SUPPLEMENT
July 11, 1995
---------------------------
LEHMAN BROTHERS
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- ----------------------------------------------------------
