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FILED PURSUANT TO RULE 424(B)(2)
REGISTRATION NO. 333-51913
PROSPECTUS SUPPLEMENT
(To prospectus dated May 6, 1998)
$200,000,000
LEHMAN BROTHERS INC.
7% SENIOR SUBORDINATED NOTES DUE 2002
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This is a public offering by Lehman Brothers Inc. of $200,000,000 of its 7%
Notes due 2002. Interest is payable on April 1 and October 1 of each year,
beginning April 1, 2000.
The Notes are unsecured senior subordinated debt securities, are not
redeemable prior to maturity or subject to a sinking fund, and are not
convertible or exchangeable.
The Notes should be delivered on or about September 28, 1999 through the
book-entry facilities of The Depository Trust Company.
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PER NOTE TOTAL
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<S> <C> <C>
Public offering price...................................................................... 99.972% $ 199,944,000
Underwriting discount...................................................................... .350% $ 700,000
Proceeds to Lehman Brothers Inc............................................................ 99.622% $ 199,244,000
</TABLE>
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined that
this prospectus supplement or the attached prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.
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LEHMAN BROTHERS
September 23, 1999
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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS SUPPLEMENT AND THE ATTACHED PROSPECTUS. NO ONE HAS
BEEN AUTHORIZED TO PROVIDE YOU WITH DIFFERENT INFORMATION. YOU SHOULD NOT ASSUME
THAT THE INFORMATION CONTAINED IN THIS PROSPECTUS SUPPLEMENT OR THE ATTACHED
PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE FRONT COVER OF
THE DOCUMENT. SECURITIES ARE NOT BEING OFFERED IN ANY STATE OR JURISDICTION
WHERE THE OFFER IS NOT PERMITTED.
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TABLE OF CONTENTS
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PAGE
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Prospectus Supplement
Description of the Notes............................................................... S-3
Interim Financial Data................................................................. S-3
Ratio of Earnings to Fixed Charges..................................................... S-4
Book-Entry Issuance.................................................................... S-4
United States Federal Income Tax Consequences.......................................... S-6
Underwriting........................................................................... S-12
Prospectus
Available Information.................................................................. 2
Documents Incorporated by Reference.................................................... 2
The Company............................................................................ 3
Use of Proceeds........................................................................ 3
Ratio of Earnings to Fixed Charges..................................................... 3
Description of Senior Debt Securities.................................................. 4
Limitations on Issuance of Bearer Securities........................................... 14
Description of Senior Subordinated Debt Securities..................................... 16
United States Taxation................................................................. 22
Capital Requirements................................................................... 28
Outstanding Subordinated Debt Instruments.............................................. 29
Plan of Distribution................................................................... 29
ERISA Matters.......................................................................... 30
Legal Opinions......................................................................... 30
Independent Accountants................................................................ 30
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DESCRIPTION OF THE NOTES
THE FOLLOWING DESCRIPTION OF THE PARTICULAR TERMS OF THE NOTES BEING OFFERED
PURSUANT TO THIS PROSPECTUS SUPPLEMENT IS INTENDED TO SUPPLEMENT THE MORE
GENERAL TERMS AND PROVISIONS OF LEHMAN BROTHERS' SENIOR SUBORDINATED DEBT
SECURITIES SET FORTH IN THE ATTACHED PROSPECTUS.
Lehman Brothers Inc. (referred to in this document as Lehman Brothers or the
Company) is offering Notes that 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 August
31, 1999, the Company had outstanding, on an unconsolidated basis, approximately
$119 billion of senior indebtedness, $3.7 billion of senior subordinated
indebtedness and $224 million of subordinated indebtedness outstanding.
The Notes will be issued under the subordinated debt indenture described in
the attached Prospectus under the heading "Description of Senior Subordinated
Debt Securities."
The trustee for the Notes is Bank One, N.A., formerly The First National
Bank of Chicago.
The Notes will mature on October 1, 2002 at 100% of their principal amount,
are not redeemable prior to maturity or subject to a sinking fund, and are not
convertible or exchangeable.
The Notes initially will be limited to $200,000,000 aggregage principal
amount. Lehman Brothers may, without the consent of the holders of the Notes,
create and issue additional notes ranking equally with the Notes and otherwise
similar in all respects so that such further notes shall be consolidated and
form a single series with the Notes. However, no additional notes can be issued
if an Event of Default has occurred with respect to the Notes.
Each Note will bear interest from September 28, 1999, at the annual rate of
7%, payable semiannually on April 1 and October 1 of each year, commencing April
1, 2000, to the person in whose name the Note is registered at the close of
business on the 15th day of the month prior to the interest payment. There will
be a long initial interest period from September 28, 1999 to April 1, 2000, and
the initial interest payment will be in the amount of $35.5833 per $1,000
principal amount of Notes. Interest on the Notes shall be computed on the basis
of a 360-day year of twelve 30-day months.
The subordinated debt indenture does not contain any covenants or other
provisions specifically intended to protect holders of the Notes in the event of
a highly leveraged transaction, restructuring or similar transaction that might
adversely affect holders. However, any such transaction would likely require
regulatory approval.
The subordinated debt indenture and the Notes are governed by New York law.
SAME-DAY SETTLEMENT AND PAYMENT
Holdings will make all payments of principal and interest in immediately
available funds. The Notes will trade in DTC's same-day funds settlement system
until maturity; purchases of Notes in secondary market trading must therefore be
in immediately available funds.
INTERIM FINANCIAL DATA
Revenues, net revenues and net income for Lehman Brothers Inc. for the nine
months ended August 31, 1999 were $12,027 million, $2,479 million and $452
million, respectively, compared to $13,659 million, $2,592 million and $518
million for the nine months ended August 31, 1998.
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RATIO OF EARNINGS TO FIXED CHARGES
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ELEVEN MONTHS SIX MONTHS
ENDED YEAR ENDED NOVEMBER 30 ENDED
NOVEMBER 30, -------------------------------------------------- MAY 31,
1994 1995 1996 1997 1998 1999
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* 1.01 1.03 1.05 1.06 1.07
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* Earnings were inadequate to cover fixed charges and would have had to
increase approximately $51 million in 1994 in order to cover deficiencies.
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.
BOOK-ENTRY ISSUANCE
The Notes will be represented by one or more global securities that will be
deposited with and registered in the name of DTC or its nominee. This means that
the Company will not issue certificates to you for the Notes. Each global
security will be issued to DTC which will keep a computerized record of its
participants (for example, a broker) whose clients have purchased the Notes.
Each participant will then keep a record of its clients. Unless it is exchanged
in whole or in part for a certificated security, a global security may not be
transferred. However, DTC, its nominees and their successors may transfer a
global security as a whole to one another.
Beneficial interests in a global security will be shown on, and transfers of
the global security will be made only through, records maintained by DTC and its
participants. DTC has provided the Company with the following information: DTC
is a limited-purpose trust company organized under the New York Banking Law, a
"banking organization" within the meaning of the New York Banking Law, a member
of the United States Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code and a "clearing agency"
registered under the provisions of Section 17A of the Securities Exchange Act of
1934. DTC holds securities that its participants ("direct participants") deposit
with DTC. DTC also records the settlements among direct participants of
securities transactions, such as transfers and pledges, in deposited securities
through computerized records for direct participants' accounts. This eliminates
the need to exchange certificates. Direct participants include securities
brokers and dealers, banks, trust companies, clearing corporations and certain
other organizations.
DTC's book-entry system is also used by other organizations such as
securities brokers and dealers, banks and trust companies that work through a
direct participant. The rules that apply to DTC and its participants are on file
with the SEC.
DTC is owned by a number of its direct participants and by the NYSE, the
American Stock Exchange, Inc. and the National Association of Securities
Dealers, Inc.
When you purchase Notes through the DTC system, the purchases must be made
by or through a direct participant, who will receive credit for the Notes on
DTC's records. Since you actually own the Notes, you are the beneficial owner.
Your ownership interest will only be recorded on the direct (or indirect)
participants' records. DTC has no knowledge of your individual ownership of the
Notes. DTC's records only show the identity of the direct participants and the
amount of the Notes held by or through them. You will not receive a written
confirmation of your purchase or sale or any periodic account statement directly
from DTC. You should instead receive these from your direct (or indirect)
participant. As a result, the direct (or indirect) participants are responsible
for keeping accurate account of the holdings of their customers like you. The
indenture trustee will wire payments on the Notes to DTC's nominee. Lehman
Brothers and the indenture trustee will treat DTC's nominee as the owner of each
global security for all purposes.
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Accordingly, Lehman Brothers, the indenture trustee and any paying agent will
have no direct responsibility or liability to pay amounts due on the global
security to you or any other beneficial owners in the global security. Any
redemption notices will be sent by the Company directly to DTC, who will in turn
inform the direct participants (or the indirect participants), who will then
contact you as a beneficial holder. If less than all of the Notes are being
redeemed, DTC will proportionally allot the amount of the interest of each
direct participant to be redeemed.
It is DTC's current practice, upon receipt of any payment of distributions
or liquidation amounts, to proportionately credit direct participants' accounts
on the payment date based on their holdings. In addition, it is DTC's current
practice to pass through any consenting or voting rights to such participants by
using an omnibus proxy. Those participants in turn will make payments to and
solicit votes from you, the ultimate owner of Notes, based on their customary
practices. Payments to you will be the responsibility of the participants and
not of DTC, the indenture trustee or Lehman Brothers.
Notes represented by a global security will be exchangeable for certificated
securities with the same terms in authorized denominations only if:
- DTC is unwilling or unable to continue as depositary or ceases to be a
clearing agency registered under applicable law, and a successor is not
appointed by the Company within 90 days; or
- Lehman Brothers decides to discontinue the book-entry system.
If the global security is exchanged for certificated securities, the
indenture trustee will keep the registration books for the Notes at its
corporate office and follow customary practices and procedures.
DTC's management is aware that some computer applications, systems and the
like for processing data that are dependent upon calendar dates, including dates
before, on, and after January 1, 2000, may encounter "Year 2000 problems." DTC
has informed its participants and other members of the financial community that
it has developed and is implementing a program so that its systems, as the same
relate to the timely payment of distributions (including principal and interest
payments) to security holders, book-entry deliveries, and settlement of trades
within DTC, continue to function appropriately. This program includes a
technical assessment and a remediation plan, each of which is complete.
Additionally, DTC's plan includes a testing phase, which is expected to be
completed within appropriate time frames.
However, DTC's ability to perform properly its services is also dependent
upon other parties, including but not limited to issuers and their agents, as
well as third-party vendors from whom DTC licenses software and hardware, and
third-party vendors on whom DTC relies for information of the provision of
services, including telecommunications and electrical utility service providers,
among others. DTC has informed its participants and other members of the
financial community that it is contacting (and will continue to contact)
third-party vendors from whom DTC acquires services to: impress upon them the
importance of such service being Year 2000 compliant; and determine the extent
of their efforts for Year 2000 remediation (and, as appropriate, testing) of
their services. In addition, DTC is in the process of developing such
contingency plans as it deems appropriate.
EUROCLEAR AND CEDELBANK
Links have been established among DTC, Cedelbank and Euroclear (two European
book-entry depositaries similar to DTC), to facilitate the initial issuance of
the Notes and cross-market transfers of the Notes associated with secondary
market trading.
Although DTC, Cedelbank and Euroclear have agreed to the procedures provided
below in order to facilitate transfers, they are under no obligation to perform
such procedures, and the procedures may be modified or discontinued at any time.
S-5
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Cedelbank and Euroclear will record the ownership interests of their
participants in much the same way as DTC, and DTC will record the aggregate
ownership of each of the U.S. agents of Cedelbank and Euroclear, as participants
in DTC.
When Notes are to be transferred from the account of a DTC participant to
the account of a Cedelbank participant or a Euroclear participant, the purchaser
must send instructions to Cedelbank or Euroclear through a participant at least
one business day prior to settlement. Cedelbank or Euroclear, as the case may
be, will instruct its U.S. agent to receive Notes against payment. After
settlement, Cedelbank or Euroclear will credit its participant's account. Credit
for the Notes will appear on the next day (European time).
Because settlement is taking place during New York business hours, DTC
participants can employ their usual procedures for sending Notes to the relevant
U.S. agent acting for the benefit of Cedelbank or Euroclear participants. The
sale proceeds will be available to the DTC seller on the settlement date. Thus,
to the DTC participant, a cross-market transaction will settle no differently
than a trade between two DTC participants.
When a Cedelbank or Euroclear participant wishes to transfer Notes to a DTC
participant, the seller must send instructions to Cedelbank or Euroclear through
a participant at least one business day prior to settlement. In these cases,
Cedelbank or Euroclear will instruct its U.S. agent to transfer Notes against
payment. The payment will then be reflected in the account of the Cedelbank or
Euroclear participant the following day, with the proceeds back-valued to the
value date (which would be the preceding day, when settlement occurs in New
York). If settlement is not completed on the intended value date (i.e., the
trade fails), proceeds credited to the Cedelbank or Euroclear participant's
account would instead be valued as of the actual settlement date.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following discussion is intended to supersede the tax discussion set
forth in the attached Prospectus.
In the opinion of Simpson Thacher & Bartlett, our special United States tax
counsel, the following discussion is an accurate summary of the material United
States federal income tax consequences of the purchase, ownership and
disposition of debt securities as of the date hereof. Except where noted, this
summary deals only with debt securities held as capital assets by United States
holders and does not deal with special situations. For example, this summary
does not address:
- tax consequences to holders who may be subject to special tax treatment,
such as dealers in securities or currencies, financial institutions,
tax-exempt entities or life insurance companies;
- tax consequences to persons holding debt securities as part of a hedging,
integrated, constructive sale or conversion transaction or a straddle;
- tax consequences to holders of debt securities whose "functional currency"
is not the U.S. dollar;
- alternative minimum tax consequences, if any; or
- any state, local or foreign tax consequences.
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 as of the date of this prospectus supplement. Those authorities may be
changed, perhaps retroactively, so as to result in United States federal income
tax consequences different from those discussed below.
IF YOU ARE CONSIDERING THE PURCHASE OF DEBT SECURITIES, YOU SHOULD CONSULT
YOUR OWN TAX ADVISORS CONCERNING THE FEDERAL INCOME TAX CONSEQUENCES TO YOU AND
ANY CONSEQUENCES ARISING UNDER THE LAWS OF ANY OTHER TAXING JURISDICTION.
S-6
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CONSEQUENCES TO UNITED STATES HOLDERS
The following is a summary of certain United States federal tax consequences
that will apply to you if you are a United States holder of debt securities.
Certain consequences to "non-United States holders" of debt securities are
described under "--Non-United States Holders" below.
"United States holder" means a beneficial owner of a debt security that is:
- a citizen or resident of the United States;
- a corporation or partnership created or organized in or under the laws of
the United States or any political subdivision of the United States;
- an estate the income of which is subject to United States federal income
taxation regardless of its source; or
- a trust that (x) is subject to the supervision of a court within the
United States and the control of one or more United States persons or (y)
has a valid election in effect under applicable United States Treasury
regulations to be treated as a United States person.
PAYMENTS OF INTEREST
Except as set forth below, interest on a debt security will generally be
taxable to you as ordinary income from domestic sources at the time it is paid
or accrued in accordance with your method of accounting for tax purposes.
ORIGINAL ISSUE DISCOUNT
If you own debt securities issued with original issue discount ("OID"), you
will be subject to special tax accounting rules, as described in greater detail
below. In that case, you should be aware that you generally must include OID in
gross income in advance of the receipt of cash attributable to that income.
However, you generally will not be required to include separately in income cash
payments received on the debt securities, even if denominated as interest, to
the extent those payments do not constitute qualified stated interest, as
defined below.
A debt security with an issue price that is less than the "stated redemption
price at maturity" (the sum of all payments to be made on the debt security
other than "qualified stated interest") generally will be issued with OID if
that difference is at least 0.25% of the stated redemption price at maturity
multiplied by the number of complete years to maturity. The "issue price" of
each debt security in a particular offering will be the first price at which a
substantial amount of that particular offering is sold to the public. The term
"qualified stated interest" means stated interest that is unconditionally
payable in cash or in property, other than debt instruments of the issuer, and
the interest to be paid meets all of the following conditions:
- it is payable at least once per year;
- it is payable over the entire term of the debt security; and
- it is payable at a single fixed rate or, subject to certain conditions,
based on one or more interest indices.
If you own a debt security issued with "DE MINIMIS" OID, which is discount
that is not OID because it is less than 0.25% of the stated redemption price at
maturity multiplied by the number of complete years to maturity, you generally
must include the DE MINIMIS OID in income at the time payments, other than
qualified stated interest, on the debt securities are made in proportion to the
amount paid. Any amount of DE MINIMIS OID that you have included in income will
be treated as capital gain.
S-7
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Certain of the debt securities may contain provisions permitting them to be
redeemed prior to their stated maturity at our option and/or at your option.
Original issue discount debt securities containing those features may be subject
to rules that differ from the general rules discussed herein.
If you own original issue discount debt securities with a maturity upon
issuance of more than one year you generally must include OID in income in
advance of the receipt of some or all of the related cash payments using the
"constant yield method" described in the following paragraph. This method takes
into account the compounding of interest. The accruals of OID on an original
issue discount debt security will generally be less in the early years and more
in the later years.
The amount of OID that you must include in income if you are the initial
United States holder of an original issue discount debt security is the sum of
the "daily portions" of OID with respect to the debt security for each day
during the taxable year or portion of the taxable year in which you held that
debt security ("accrued OID"). The daily portion is determined by allocating to
each day in any "accrual period" a pro rata portion of the OID allocable to that
accrual period. The "accrual period" for an original issue discount debt
security may be of any length and may vary in length over the term of the debt
security, provided that each accrual period is no longer than one year and each
scheduled payment of principal or interest occurs on the first day or the final
day of an accrual period. The amount of OID allocable to any accrual period is
an amount equal to the excess, if any, of:
- the debt security's adjusted issue price at the beginning of the accrual
period multiplied by 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
- the aggregate of all qualified stated interest allocable to the accrual
period.
OID allocable to a final accrual period is the difference between the amount
payable at maturity, other than a payment of qualified stated interest, and the
adjusted issue price at the beginning of the final accrual period. The "adjusted
issue price" of a debt security at the beginning of any accrual period is equal
to its issue price increased by the accrued OID for each prior accrual period,
determined without regard to the amortization of any acquisition or bond
premium, as described below, and reduced by any payments made on the debt
security (other than qualified stated interest) on or before the first day of
the accrual period. Under these rules, you will have to include in income
increasingly greater amounts of OID in successive accrual periods. We are
required to provide information returns stating the amount of OID accrued on
debt securities held of record by persons other than corporations and other
exempt holders.
Floating rate debt securities are subject to special OID rules. In the case
of an original issue discount debt security that is a floating rate debt
security, both the "yield to maturity" and "qualified stated interest" will be
determined solely for purposes of calculating the accrual of OID as though the
debt security will bear interest in all periods at a fixed rate generally equal
to the rate that would be applicable to interest payments on the debt security
on its date of issue or, in the case of certain floating rate debt securities,
the rate that reflects the yield to maturity that is reasonably expected for the
debt security. Additional rules may apply if:
- the interest on a floating rate debt security is based on more than one
interest index; or
- the principal amount of the debt security is indexed in any manner.
This discussion does not address the tax rules applicable to debt securities
with an indexed principal amount. If you are considering the purchase of
floating rate original issue discount debt securities or securities with indexed
principal amounts, you should consult your own tax advisors regarding the United
States federal income tax consequences to you of holding and disposing of those
debt securities.
You may elect to treat all interest on any debt security as OID and
calculate the amount includible in gross income under the constant yield method
described above. For 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. You must make this
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election for the taxable year in which you acquired the debt security, and you
may not revoke the election without the consent of the Internal Revenue Service.
You should consult with your own tax advisors about this election.
SHORT-TERM DEBT SECURITIES
In the case of debt securities having a term of one year or less, all
payments, including all stated interest, will be included in the stated
redemption price at maturity and will not be qualified stated interest. As a
result, you will generally be taxed on the discount instead of stated interest.
The discount will be equal to the excess of the stated redemption price at
maturity over the issue price of a short-term debt security, unless you elect to
compute this discount using tax basis instead of issue price. In general,
individual and certain other cash method United States holders of short-term
debt securities are not required to include accrued discount in their income
currently unless they elect to do so, but may be required to include stated
interest in income as the income is received. United States holders that report
income for United States federal income tax purposes on the accrual method and
certain other United States holders are required to accrue discount on
short-term debt securities (as ordinary income) on a straight-line basis, unless
an election is made to accrue the discount according to a constant yield method
based on daily compounding. If you are not required, and do not elect, to
include discount in income currently, any gain you realize on the sale, exchange
or retirement of a short-term debt security will generally be ordinary income to
you to the extent of the discount accrued by you through the date of sale,
exchange or retirement. In addition, if you do not elect to currently include
accrued discount in income you may be required to defer deductions for a portion
of your interest expense with respect to any indebtedness attributable to the
short-term debt securities.
MARKET DISCOUNT
If you purchase a debt security, other than an original issue discount debt
security, for an amount that is less than its stated redemption price at
maturity, or, in the case of an original issue discount debt security, its
adjusted issue price, the amount of the difference will be treated as "market
discount" for United States federal income tax purposes, unless that difference
is less than a specified DE MINIMIS amount. Under the market discount rules, you
will be required to treat any payment, other than qualified stated interest, on,
or any gain on the sale, exchange, retirement or other disposition of, a debt
security as ordinary income to the extent of the market discount that you have
not previously included in income and are treated as having accrued on the debt
security at the time of its payment or disposition. In addition, you may be
required to defer, until the maturity of the debt security or its earlier
disposition in a taxable transaction, the deduction of all or a portion of the
interest expense on any indebtedness attributable to the debt security.
Any market discount will be considered to accrue ratably during the period
from the date of acquisition to the maturity date of the debt security, unless
you elect to accrue on a constant interest method. You 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. Your election to include market
discount in income currently, once made, applies to all market discount
obligations acquired by you on or after the first taxable year to which your
election applies and may not be revoked without the consent of the Internal
Revenue Service. You should consult your own tax advisor before making this
election.
ACQUISITION PREMIUM, AMORTIZABLE BOND PREMIUM
If you purchase an original issue discount debt security for an amount that
is greater than its adjusted issue price but equal to or less than the sum of
all amounts payable on the debt security after the purchase date other than
payments of qualified stated interest, you will be considered to have purchased
that debt security at an "acquisition premium." Under the acquisition premium
rules, the amount of OID that you must include in gross income with respect to
the debt security for any taxable year will be reduced by the portion of the
acquisition premium properly allocable to that year.
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If you purchase a debt security (including an original issue discount debt
security) for an amount in excess of the sum of all amounts payable on the debt
security after the purchase date other than qualified stated interest, you will
be considered to have purchased the debt security at a "premium" and, if it is
an original issue discount debt security, you will not be required to include
any OID in income. You generally may elect to amortize the premium over the
remaining term of the debt security on a constant yield method as an offset to
interest when includible in income under your regular accounting method. In the
case of instruments that provide for alternative payment schedules, bond premium
is calculated by assuming that (a) you will exercise or not exercise options in
a manner that maximizes your yield, and (b) we will exercise or not exercise
options in a manner that minimizes your yield (except that we will be assumed to
exercise call options in a manner that maximizes your yield). If you do not
elect to amortize bond premium, that premium will decrease the gain or increase
the loss you would otherwise recognize on disposition of the debt security. Your
election to amortize premium on a constant yield method will also apply to all
debt obligations held or subsequently acquired by you on or after the first day
of the first taxable year to which the election applies. You may not revoke the
election without the consent of the Internal Revenue Service. You should consult
your own tax advisor before making this election.
SALE, EXCHANGE AND RETIREMENT OF DEBT SECURITIES
Your tax basis in a debt security will, in general, be your cost for that
debt security, increased by OID, market discount or any discount with respect to
a short-term debt security that you previously included in income, and reduced
by any amortized premium and any cash payments on the debt security other than
qualified stated interest. Upon the sale, exchange, retirement or other
disposition of a debt security, you will recognize gain or loss equal to the
difference between the amount you realize upon the sale, exchange, retirement or
other disposition (less an amount equal to any accrued qualified stated interest
that you did not previously include in income, which will be taxable as such)
and the adjusted tax basis of the debt security. Except as described above with
respect to certain short-term debt securities or with respect to market
discounts, that gain or loss will be capital gain or loss. Capital gains of
individuals derived in respect of capital assets held for more than one year are
eligible for reduced rates of taxation. The deductibility of capital losses is
subject to limitations.
TAX CONSEQUENCES OF SATISFACTION, DISCHARGE OR DEFEASANCE
The Company may discharge its obligations under the debt securities as more
fully described under "Satisfaction and Discharge" in each of "Description of
Senior Debt Securities" and "Description of Senior Subordinated Debt Securities"
in the attached Prospectus. Such a discharge would generally for United States
federal income tax purposes constitute the retirement of the debt securities and
the issuance of new obligations. As a result, if you are a United States holder,
you would realize gain or loss (if any) on such a retirement, which would be
recognized subject to certain possible exceptions. Any such gain would generally
not be taxable to you if you are a non-United States holder of debt securities
under certain circumstances. Furthermore, following discharge, the debt
securities might be subject to withholding, backup withholding and/or
information reporting and might be issued with OID. Similar results might occur
if the Company defeases certain obligations as described under "Description of
Senior Debt Securities--Defeasance of Certain Obligations."
CONSEQUENCES TO NON-UNITED STATES HOLDERS
The following is a summary of certain United States federal income tax
consequences that will apply to you if you are a non-United States holder of
debt securities.
S-10
<PAGE>
UNITED STATES FEDERAL WITHHOLDING TAX
The 30% United States federal withholding tax will not apply to any payment
of principal or interest, including OID, on debt securities provided that:
- you do not actually or constructively own 10% or more of the total
combined voting power of all classes of our voting stock within the
meaning of the Code and United States Treasury regulations;
- you are not a controlled foreign corporation that is related to us through
stock ownership;
- you are not a bank whose receipt of interest on the debt securities is
described in section 881(c)(3)(A) of the Code; and
- either (a) you provide your name and address on an IRS Form W-8, and
certify, under penalty of perjury, that you are not a United States person
or (b) a financial institution holding the debt securities on your behalf
certifies, under penalty of perjury, that it has received an IRS Form W-8
from you as the beneficial owner and provides us with a copy.
If you cannot satisfy the requirements described above, payments of premium,
if any, and interest, including OID, made to you will be subject to the 30%
United States federal withholding tax, unless you provide us with a properly
executed:
- IRS Form 1001 claiming an exemption from, or reduction in, withholding
under the benefit of a tax treaty, or
- IRS Form 4224 stating that interest paid on the debt securities is not
subject to withholding tax because it is effectively connected with your
conduct of a trade or business in the United States.
Except as discussed below, the 30% United States federal withholding tax
will not apply to any gain or income that you realize on the sale, exchange,
retirement or other disposition of debt securities.
UNITED STATES FEDERAL ESTATE TAX
Your estate will not be subject to United States federal estate tax on debt
securities beneficially owned by you at the time of your death, provided that
(1) you do not own 10% or more of the total combined voting power of all classes
of our voting stock, within the meaning of the Code and United States Treasury
regulations, and (2) interest on those debt securities would not have been, if
received at the time of your death, effectively connected with the conduct by
you of a trade or business in the United States.
UNITED STATES FEDERAL INCOME TAX
If you are engaged in a trade or business in the United States and premium,
if any, or interest, including OID, on the debt securities is effectively
connected with the conduct of that trade or business, you will be subject to
United States federal income tax on that interest and OID on a net income basis
(although exempt from the 30% withholding tax) in the same manner as if you were
a United States holder. In addition, if you are a foreign corporation, you may
be subject to a branch profits tax equal to 30% (or lower applicable treaty
rate) of your earnings and profits for the taxable year, subject to adjustments.
For this purpose, any premium and interest, including OID, on debt securities
will be included in your earnings and profits.
You will generally not be subject to United States federal income tax on the
disposition of a debt security unless:
- the gain is effectively connected with your conduct of a trade or business
in the United States; or
- you are an individual who is present in the United States for 183 days or
more in the taxable year of that disposition, and certain other conditions
are met.
S-11
<PAGE>
INFORMATION REPORTING AND BACKUP WITHHOLDING
UNITED STATES HOLDERS
In general, information reporting requirements will apply to certain
payments of principal, interest, OID and premium paid on debt securities and to
the proceeds of sale of a debt security made to you (unless you are an exempt
recipient such as a corporation). A 31% backup withholding tax will apply to
such payments if you fail to provide a taxpayer identification number, a
certification of exempt status, or fail to report in full dividend and interest
income.
NON-UNITED STATES HOLDERS
In general, you will not be required to provide information reporting and
backup withholding regarding payments that we make to you provided that we do
not have actual knowledge that you are a United States person and we have
received from you the statement described above under "United States Federal
Withholding Tax."
In addition, you will not be required to pay backup withholding and provide
information reporting regarding the proceeds of the sale of a debt security made
within the United States or conducted through certain United States related
financial intermediaries, if the payor receives the statement described above
and does not have actual knowledge that you are a United States person or you
otherwise establish an exemption.
Final United States Treasury regulations generally modify the information
reporting and backup withholding rules applicable to certain payments made after
December 31, 1999. In general, the new United States Treasury regulations would
not significantly alter the present rules discussed above, except in certain
special situations.
Any amounts withheld under the backup withholding rules will be allowed as a
refund or a credit against your United States federal income tax liability
provided the required information is furnished to the Internal Revenue Service.
UNDERWRITING
Lehman Brothers will self-underwrite the Notes and proposes to initially
offer the Notes to the public at the public offering price set forth on the
cover page of this prospectus supplement; it may also offer Notes to certain
dealers at such price less a concession not in excess of .300% of the principal
amount. After the initial public offering of the Notes is completed, the public
offering price and such concession may be changed.
In connection with the offering, the rules of the SEC permit the underwriter
to engage in certain transactions that stabilize the price of the Notes; such
transactions may consist of bids or purchases for the purpose of pegging, fixing
or maintaining the price of the Notes. If the underwriter creates a short
position in the Notes in connection with the offering (that is, if it sells a
larger principal amount of the Notes than is set forth on the cover page of this
prospectus supplement), the underwriter may reduce that short position by
purchasing Notes in the open market.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might otherwise be in the absence of such purchases. Lehman Brothers can make
no representation or prediction as to the direction or magnitude of any effect
that the transactions described above may have on the price of the Notes. In
addition, Lehman Brothers makes no representation that it will in fact engage in
such transactions, or that such transactions, once begun, will not be
discontinued without notice.
Lehman Brothers will pay certain expenses, expected to be approximately
$10,000, associated with the offer and sale of the Notes.
The underwriting arrangements for this offering comply with the requirements
of Rule 2720 of the NASD regarding an NASD member firm underwriting its own
securities.
S-12
<PAGE>
PROSPECTUS
LEHMAN BROTHERS INC.
DEBT SECURITIES
------------------------
Lehman Brothers Inc. (the "Company") may offer from time to time unsecured
senior debt securities ("Senior Debt Securities") and unsecured senior
subordinated debt securities ("Senior Subordinated Debt Securities" and together
with Senior Debt Securities, "Debt Securities") consisting of debentures, notes
and/or other evidences of indebtedness in one or more series for proceeds of up
to U.S.$1,995,000,000 or the equivalent thereof if any of the Senior Debt
Securities are denominated in a foreign currency or foreign currency unit.
The Senior Subordinated Debt Securities will (as hereinafter defined) rank
equally with all other senior subordinated indebtedness of the Company and are
subordinated to all Senior Indebtedness as defined in the Subordinated
Indenture. There is no limitation on the amount of Senior Indebtedness which may
be incurred by the Company.
The Debt Securities may be offered as separate series in amounts, at prices
and on terms to be determined at the time of sale. The Senior Debt Securities
may be sold for United States dollars, foreign currencies or foreign currency
units, and the principal of and interest, if any, on the Debt Securities may be
payable in United States dollars, foreign currencies or foreign currency units.
The Senior Subordinated Debt Securities may be sold only for, and may be payable
only in, United States dollars. The specific designation, priority, aggregate
principal amount, the currency or currency unit for which the Debt Securities
may be purchased, the currency or currency unit in which the principal and
interest, if any, is payable, the rate (or method of calculation) and time of
payment of interest, if any, authorized denominations, maturity, offering price,
any redemption terms, any listing on a securities exchange and the initial
public offering price and any other terms in connection with the offering and
sale of Debt Securities in respect of which this Prospectus is being delivered
are set forth in an applicable Prospectus Supplement.
The Senior Debt Securities may be issued in registered form or bearer form
with coupons attached. Senior Debt Securities in bearer form will be offered
only outside the United States to non-United States persons and to offices
located outside the United States of certain United States financial
institutions. See "Limitations on Issuance of Bearer Securities." The Senior
Subordinated Debt Securities may be issued only in registered form. In addition,
all or a portion of the Debt Securities of a series may be issued in global
form.
For a discussion of certain United States federal income tax consequences to
holders of Debt Securities, see "United States Taxation."
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
The Debt Securities may be sold through, or through underwriting syndicates
managed by, Lehman Brothers Inc. alone or with one or more other underwriters.
The applicable Prospectus Supplement sets forth the names of the specific
managing underwriter or underwriters and the members of the underwriting
syndicate, if any, involved in the sale of the Debt Securities in respect of
which this Prospectus is being delivered.
------------------------
This Prospectus, together with the applicable Prospectus Supplement, may
also be used by Lehman Brothers International (Europe) in connection with offers
and sales of Debt Securities related to market-making transactions at negotiated
prices related to prevailing market prices at the time of sale or otherwise.
Lehman Brothers International (Europe) may act as principal or agent in such
transactions.
------------------------
May 6, 1998
<PAGE>
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, 500 W. Madison Street, Chicago, Illinois
60661-2511. Copies of such material can be obtained from the Public Reference
Section of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. The SEC also maintains a Web site at http://www.sec.gov that
contains reports, proxy and information statements and other information
regarding registrants that file with the SEC. In addition, reports and other
information concerning the Company may be inspected at the offices of the New
York Stock Exchange, Inc. (the "NYSE") at 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.
------------------------
DOCUMENTS INCORPORATED BY REFERENCE
The Company's Annual Report on Form 10-K for the fiscal year ended November
30, 1997 and Quarterly Report on Form 10-Q for the fiscal quarter ended February
28, 1998 filed by the Company with the SEC pursuant to the Exchange Act are
hereby incorporated by reference in this Prospectus.
Each document 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 Debt Securities offered by an applicable
Prospectus Supplement shall be deemed to be incorporated by reference into this
Prospectus from the date of filing of such document. Any statement contained in
a document incorporated or deemed to be incorporated by reference herein shall
be deemed to be modified or superseded for purposes of the Registration
Statements and this Prospectus to the extent that a statement contained herein,
in an applicable Prospectus Supplement or in any subsequently filed document
which also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of the
Registration Statements or this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner of any of the Debt Securities, to whom a copy of this
Prospectus is delivered, upon the written or oral request of any such person, a
copy of any or all of the documents which are incorporated herein by reference,
other than exhibits to such documents (unless such exhibits are specifically
incorporated by reference into such documents). Requests should be directed to
the Controller's Office, Lehman Brothers Inc., 3 World Financial Center, 8th
Floor, New York, New York 10285 (telephone (212) 526-0660).
2
<PAGE>
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. 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 and its affiliates act as market markers in
all major equity and fixed income products in both the domestic and
international markets. The Company is a member of all principal securities and
commodities exchanges in the United States, as well as the National Association
of Securities Dealers, Inc. ("NASD"). 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. ("Holdings"). 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 otherwise may be set forth in an applicable Prospectus Supplement
accompanying this Prospectus, the Company intends to apply the net proceeds from
the sale of the Debt 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 the year ended December 31, 1993, the eleven months ended November
30, 1994, the three years ended November 30, 1995, 1996 and 1997 and the three
months ended February 28, 1998:
<TABLE>
<CAPTION>
ELEVEN MONTHS THREE MONTHS
YEAR ENDED ENDED YEAR ENDED NOVEMBER 30, ENDED
DECEMBER 31, NOVEMBER 30, ------------------------------------------------- FEBRUARY 28,
1993 1994 1995 1996 1997 1998
- ------------------- --------------------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
* * 1.01 1.03 1.05 1.06
</TABLE>
- ------------------------
* Earnings were inadequate to cover fixed charges and would have had to
increase approximately $214 million in 1993 and $51 million in the eleven
months ended November 30, 1994 in order to cover the deficiencies for the
respective periods.
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>
DESCRIPTION OF SENIOR DEBT SECURITIES
The following description sets forth general terms and provisions of the
Senior Debt Securities to which any Prospectus Supplement may relate. The
particular terms of the Senior Debt Securities offered by any Prospectus
Supplement and the extent, if any, to which such general provisions may or may
not apply to the Senior Debt Securities so offered will be described in the
Prospectus Supplement relating to such Senior Debt Securities.
The Senior Debt Securities are to be issued under an indenture, dated as of
October 23, 1995, between the Company and The Bank of New York, Trustee (the
"Senior Indenture"). A copy of the Senior Indenture is filed as an exhibit to
the Registration Statement of which this Prospectus is a part. This Prospectus
contains descriptions of all material provisions of the Senior Indenture. The
summaries of such provisions of the Senior 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 Senior Indenture, including the definitions
therein of certain terms. Wherever particular provisions or defined terms of the
Senior Indenture are referred to, such provisions or defined terms are
incorporated herein by reference. All articles and sections of the Senior
Indenture, and all capitalized terms set forth below, have the meanings
specified in the Senior Indenture.
GENERAL
The Indenture does not limit the amount of Senior Debt Securities which may
be issued thereunder and provides that Senior Debt Securities may be issued from
time to time in one or more series.
Reference is made to the applicable Prospectus Supplement for the following
terms and other information with respect to the Senior Debt Securities being
offered thereby: (1) the title of such Senior Debt Securities; (2) any limit on
the aggregate principal amount of such Senior Debt Securities; (3) whether such
Senior Debt Securities are to be issuable as Registered Securities or Bearer
Securities or both, and if Bearer Securities are issued, whether Bearer
Securities may be exchanged for Registered Securities and the circumstances and
places for such exchange, if permitted; (4) whether such Senior Debt Securities
are to be issued in whole or in part in the form of one or more temporary or
permanent global Senior Debt Securities ("Global Securities") in registered or
bearer form and, if so, the identity of the depositary, if any, for such Global
Security or Securities and the particular provisions applicable thereto; (5) the
date or dates (or manner of determining the same) on which such Senior Debt
Securities will mature; (6) the rate or rates (or manner of determining the
same) per annum at which such Senior Debt Securities will bear interest, if any,
and the date from which such interest will accrue; (7) the dates (or manner of
determining the same) on which such interest will be payable (the "Interest
Payment Dates") and the Regular Record Dates for such Interest Payment Dates for
Senior Debt Securities which are Registered Securities and the extent to which,
or the manner in which, any interest payable on a temporary or permanent Global
Security on an Interest Payment Date will be paid if other than in the manner
described under "Global Securities" below; (8) any mandatory or optional sinking
fund or obligation to purchase or analogous provisions; (9) each office or
agency where, subject to the terms of the applicable Senior Indenture as
described below under "Payment and Paying Agents", the principal of and premium,
if any, and interest, if any, on such Senior Debt Securities will be payable and
each office or agency where, subject to the terms of the Senior Indenture as
described below under "Denominations, Registration and Transfer," such Senior
Debt Securities may be presented for registration of transfer or exchange; (10)
the date, if any, after which, and the price or prices in the currency or
currency unit in which, such Senior Debt Securities are payable pursuant to any
optional or mandatory redemption provision; (11) any provisions for payment of
additional amounts for taxes and any provision for redemption, in the event the
Company must comply with reporting requirements in respect of any such Senior
Debt Security or must pay such additional amounts in respect of any such Senior
Debt Security; (12) the terms and conditions, if any, upon which the Senior Debt
Securities of such series may be repayable prior to maturity at the option of
the holder thereof (which option may be conditional) and the price or prices in
the currency or currency unit in which such Senior Debt Securities are payable;
(13) the denominations in which any such Senior Debt Securities which are
Registered Securities will be issuable if other than denominations of $1,000 and
any integral multiple thereof, and the denomination or denominations in which
any such Senior Debt Securities which are Bearer Securities will be issuable if
other than the denomination of $5,000; (14) the
4
<PAGE>
currency, currencies or currency units for which such Senior Debt Securities may
be purchased and the currency, currencies or currency units in which the
principal of and interest, if any, on such Senior Debt Securities may be
payable; (15) any index used to determine the amount of payments of principal of
and premium, if any, and interest, if any, on such Senior Debt Securities; (16)
the terms and conditions, if any, pursuant to which such Senior Debt Securities
may be converted or exchanged for other securities of the Company or any other
person; (17) the terms and conditions, if any, pursuant to which the principal
of and premium, if any, and interest, if any, on such Senior Debt Securities are
payable, at the election of the Company or a Holder thereof, in securities or
other property; and (18) other terms of such Senior Debt Securities.
If any of the Senior Debt Securities are sold for foreign currencies or
foreign currency units or if the principal of or interest, if any, on any series
of Senior Debt Securities is payable in foreign currencies or foreign currency
units, the restrictions, elections, tax consequences, specific terms and other
information with respect to such issue of Senior Debt Securities and such
currencies or currency units will be set forth in an applicable Prospectus
Supplement relating thereto.
One or more series of Senior Debt Securities may be sold at a substantial
discount below their stated principal amount, bearing no interest or interest at
a rate which at the time of issuance is below market rates. Federal income tax
consequences and special considerations applicable to any such series are
described under "United States Taxation" and may be further described in an
applicable Prospectus Supplement.
The Senior Debt Securities will be unsecured obligations of the Company
constituting part of the senior debt of the Company (the "Senior Debt") and will
rank equally with all other unsecured debt of the Company except subordinated
debt.
DENOMINATIONS, REGISTRATION AND TRANSFER
Unless otherwise provided with respect to a series of Senior Debt
Securities, the Senior Debt Securities will be issuable as Registered Securities
without coupons and in denominations of $1,000 or any integral multiple thereof.
Senior Debt Securities of a series may be issuable in whole or in part in the
form of one or more Global Securities, as described below under "Global
Securities." One or more Global Securities will be issued in a denomination or
aggregate denominations equal to the aggregate principal amount of Senior Debt
Securities of the series to be represented by such Global Security or
Securities. If so provided with respect to a series of Senior Debt Securities,
Senior Debt Securities of such series will be issuable solely as Bearer
Securities with coupons attached or as both Registered Securities and Bearer
Securities. (Section 201).
In connection with the sale during the "restricted period" as defined in
Section 1.163-5(c)(2)(i)(D)(7) of the United States Treasury Regulations
(generally, the first 40 days after the closing date and, with respect to unsold
allotments, until sold), no Bearer Security shall be mailed or otherwise
delivered to any location in the United States (as defined under "Limitations on
Issuance of Bearer Securities"). A Bearer Security in definitive form (including
interests in a permanent Global Security) may be delivered only if the Person
entitled to receive such Bearer Security furnishes written certification, in the
form required by the Indenture, to the effect that such Bearer Security is not
owned by or on behalf of a United States person (as defined under "Limitations
on Issuance of Bearer Securities"), or, if a beneficial interest in such Bearer
Security is owned by or on behalf of a United States person, that such United
States person (i) acquired and holds the Bearer Security through a foreign
branch of a United States financial institution, (ii) is a foreign branch of a
United States financial institution purchasing for its own account or resale
(and in either case, (i) or (ii), such financial institution agrees to comply
with the requirements of Section 165(j)(3)(A), (B) or (C) of the Internal
Revenue Code of 1986, as amended (the "Code"), and the regulations thereunder)
or (iii) is a financial institution purchasing for resale during the restricted
period only to non-United States persons outside the United States. (Sections
303, 304). See "Global Securities--Bearer Debt Securities" and "Limitations on
Issuance of Bearer Securities."
Registered Securities of any series (other than a Global Security) will be
exchangeable for other Registered Securities of the same series and of a like
aggregate principal amount and tenor of different authorized denominations. In
addition, if Senior Debt Securities of any series are issuable as both
5
<PAGE>
Registered Securities and as Bearer Securities, at the option of the Holder upon
request confirmed in writing, and subject to the terms of the Senior Indenture,
definitive Bearer Securities (with all unmatured coupons, except as provided
below, and all matured coupons in default) of such series will be exchangeable
into definitive Registered Securities of the same series of any authorized
denominations and of a like aggregate principal amount and tenor. Unless
otherwise indicated in an applicable Prospectus Supplement, any definitive
Bearer Security surrendered in exchange for a definitive Registered Security
between a Regular Record Date or a Special Record Date and the relevant date for
payment of interest shall be surrendered without the coupon relating to such
date for payment of interest and interest will not be payable in respect of the
definitive Registered Security issued in exchange for such definitive Bearer
Security, but will be payable only to the Holder of such coupon when due in
accordance with the terms of the Senior Indenture. (Section 305). Except as
provided in an applicable Prospectus Supplement, Bearer Securities will not be
issued in exchange for Registered Securities.
Senior Debt Securities may be presented for exchange as provided above, and
Registered Securities (other than a Global Security) may be presented for
registration of transfer (with the form of transfer endorsed thereon duly
executed), at the office of the Security Registrar or at the office of any
transfer agent designated by the Company for such purpose with respect to any
series of Senior Debt Securities and referred to in an applicable Prospectus
Supplement, without service charge and upon payment of any taxes and other
governmental charges as described in the Senior Indenture. Such transfer or
exchange will be effected upon the Security Registrar or such transfer agent, as
the case may be, being satisfied with the documents of title and identity of the
person making the request. The Company has appointed the Trustee as Security
Registrar under the Senior Indenture. (Section 305). If a Prospectus Supplement
refers to any transfer agents (in addition to the Security Registrar) initially
designated by the Company with respect to any series of Senior Debt Securities,
the Company may at any time rescind the designation of any such transfer agent
or approve a change in the location through which any such transfer agent acts,
except that, if Senior Debt Securities of a series are issuable only as
Registered Securities, the Company will be required to maintain a transfer agent
in each Place of Payment for such series and, if Senior Debt Securities of a
series are issuable as Bearer Securities, the Company will be required to
maintain (in addition to the Security Registrar) a transfer agent in a Place of
Payment for such series located outside the United States. The Company may at
any time designate additional transfer agents with respect to any series of
Senior Debt Securities. (Section 1002).
In the event of any redemption in part, the Company shall not be required to
(i) issue, register the transfer of or exchange Senior Debt Securities of any
series during a period beginning at the opening of business 15 days before any
selection of Senior Debt Securities of that series to be redeemed and ending at
the close of business on (A) if Senior Debt Securities of the series are
issuable only as Registered Securities, the day of mailing of the relevant
notice of redemption and (B) if Senior Debt Securities of the series are
issuable as Bearer Securities, the day of the first publication of the relevant
notice of redemption or, if Senior Debt Securities of the series are also
issuable as Registered Securities and there is no publication, the mailing of
the relevant notice of redemption; (ii) register the transfer of or exchange any
Registered Security, or portion thereof, called for redemption, except the
unredeemed portion of any Registered Security being redeemed in part; or (iii)
exchange any Bearer Security called for redemption, except to exchange such
Bearer Security for a Registered Security of that series and like tenor which is
immediately surrendered for redemption. (Section 305).
PAYMENT AND PAYING AGENTS
Unless otherwise indicated in an applicable Prospectus Supplement, payment
of principal of (and premium, if any) and any interest on Bearer Securities will
be payable, subject to any applicable laws and regulations, at the offices of
such Paying Agents outside the United States as the Company may designate from
time to time, at the option of the Holder, by check or by transfer to an account
maintained by the payee with a bank located outside the United States. (Sections
307 and 1002). Unless otherwise indicated in an applicable Prospectus
Supplement, payment of interest on Bearer Securities on any Interest Payment
Date will be made only against surrender of the coupon relating to such Interest
Payment Date. (Section 1001). No payment of interest on a Bearer Security will
be made unless on the earlier of the date of the first such payment by the
Company or the delivery by the Company of the Bearer Security in permanent form
(including interests in a permanent Global Security) (the "Certification Date"),
a written certificate
6
<PAGE>
in the form and to the effect described under "Denominations, Registration and
Transfer" is provided to the Company. No payment with respect to any Bearer
Security will be made at any office or agency of the Company in the United
States or by check mailed to any address in the United States or by transfer to
an account maintained with a bank located in the United States. Notwithstanding
the foregoing, payment of principal of (and premium, if any) and interest on
Bearer Securities denominated and payable in U.S. dollars will be made at the
office of the Company's Paying Agent in the Borough of Manhattan, The City of
New York if, and only if, payment of the full amount thereof in U.S. dollars at
all offices or agencies outside the United States is illegal or effectively
precluded by exchange controls or other similar restrictions. (Section 1002).
Payment of principal of (and premium, if any) and any interest on Registered
Securities (other than a Global Security) will be made in U.S. dollars at the
office of such Paying Agent or Paying Agents as the Company may designate from
time to time, except that at the option of the Company payment of any interest
may be made (i) by check mailed to the address of the Person entitled thereto as
such address shall appear in the Security Register or (ii) by wire transfer to
an account maintained by the Person entitled thereto as specified in the
Security Register. (Sections 305, 307, 1002). Unless otherwise indicated in an
applicable Prospectus Supplement, payment of any instalment of interest on
Registered Securities will be made to the Person in whose name such Registered
Security is registered at the close of business on the Regular Record Date for
such interest payment. (Section 307).
The principal corporate trust office of the Trustee under the applicable
Senior Indenture in The City of New York will be designated as the Company's
sole Paying Agent for payments with respect to Senior Debt Securities which are
issuable solely as Registered Securities and as the Company's Paying Agent in
the Borough of Manhattan, The City of New York, for payments with respect to
Senior Debt Securities (subject to the limitations described above in the case
of Bearer Securities) which may be issuable as Bearer Securities. Any Paying
Agents outside the United States and any other Paying Agents in the United
States initially designated by the Company for the Senior Debt Securities will
be named in an applicable Prospectus Supplement. The Company may at any time
designate additional Paying Agents or rescind the designation of any Paying
Agents or approve a change in the office through which any Paying Agent acts,
except that, if Senior Debt Securities of a series are issuable only as
Registered Securities, the Company will be required to maintain a Paying Agent
in each Place of Payment for such series, and if Senior Debt Securities of a
series may be issuable as Bearer Securities, the Company will be required to
maintain (i) a Paying Agent in the Borough of Manhattan, The City of New York
for payments with respect to any Registered Securities of the series (and for
payments with respect to Bearer Securities of the series in the circumstances
described above, but not otherwise), and (ii) a Paying Agent in a Place of
Payment located outside the United States where Senior Debt Securities of such
series and any coupons appertaining thereto may be presented and surrendered for
payment; provided that if the Senior Debt Securities of such series are listed
on The Luxembourg Stock Exchange (the "Stock Exchange") or any other stock
exchange located outside the United States and such stock exchange shall so
require, the Company will maintain a Paying Agent in Luxembourg or any other
required city located outside the United States, as the case may be, for the
Senior Debt Securities of such series. (Section 1002).
All moneys paid by the Company to a Paying Agent for the payment of
principal of (and premium, if any) or interest on any Senior Debt Security which
remain unclaimed at the end of two years after such principal, premium or
interest shall have become due and payable will be repaid to the Company and the
Holder of such Senior Debt Security or any coupon will thereafter look only to
the Company for payment thereof. (Section 1003).
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GLOBAL SECURITIES
The Senior Debt Securities of a series may be issued in whole or in part in
the form of one or more Global Securities that will be deposited with or on
behalf of a depositary (a "Depositary") identified in the Prospectus Supplement
relating to such series. Global Securities may be issued in either registered or
bearer form and in either temporary or permanent form.
The specific terms of the depositary arrangement with respect to any Senior
Debt Securities of a series will be described in the Prospectus Supplement
relating to such series. The Company anticipates that the following provisions
will apply to all depositary arrangements.
Senior Debt Securities which are to be represented by a Global Security in
registered form to be deposited with or on behalf of a Depositary will be
registered in the name of such Depositary or its nominee. Upon the issuance of a
Global Security in registered form, the Depositary for such Global Security will
credit the respective principal amounts of the Senior Debt Securities
represented by such Global Security to the accounts of institutions that have
accounts with such depositary or its nominee ("participants"). The accounts to
be credited shall be designated by the underwriters or agents of such Senior
Debt Securities or by the Company, if such Senior Debt Securities are offered
and sold directly by the Company. Ownership of beneficial interests in such
Global Securities will be limited to participants or persons that may hold
interests through participants. Ownership of beneficial interests by
participants in such Global Securities will be shown on, and the transfer of
that ownership interest will be effected only through, records maintained by the
Depositary or its nominee for such Global Security. Ownership of beneficial
interests in Global Securities by persons that hold through participants will be
shown on, and the transfer of that ownership interest within such participant
will be effected only through, records maintained by such participant. The laws
of some jurisdictions require that certain purchasers of securities take
physical delivery of such securities in definitive form. Such limits and such
laws may impair the ability to transfer beneficial interests in a Global
Security.
So long as the Depositary for a Global Security in registered form, or its
nominee, is the registered owner of such Global Security, such Depositary or
such nominee, as the case may be, will be considered the sole owner or holder of
the Senior Debt Securities represented by such Global Security for all purposes
under the Senior Indenture. Except as set forth below, owners of beneficial
interests in such Global Securities will not be entitled to have Senior Debt
Securities of the series represented by such Global Security registered in their
names, will not receive or be entitled to receive physical delivery of Senior
Debt Securities of such series in definitive form and will not be considered the
owners or holders thereof under the Senior Indenture.
Payment of principal of, premium, if any, and any interest on Senior Debt
Securities registered in the name of or held by a Depositary or its nominee will
be made to the Depositary or its nominee, as the case may be, as the registered
owner or the holder of the Global Security. None of the Company, the Trustee,
any Paying Agent or the Security Registrar for such Senior Debt Securities will
have any responsibility or liability for any aspect of the records relating to
or payments made on account of beneficial ownership interests in a Global
Security or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests. (Section 308).
The Company expects that the Depositary for a permanent Global Security in
registered form, upon receipt of any payment of principal, premium or interest
in respect of a permanent Global Security, will credit immediately participants'
accounts with payments in amounts proportionate to their respective beneficial
interests in the principal amount of such Global Security as shown on the
records of such Depositary. The Company also expects that payments by
participants to owners of beneficial interests in such Global Security held
through such participants will be governed by standing instructions and
customary practices, as is now the case with securities held for the accounts of
customers in bearer form or registered in "street name," and will be the
responsibility of such participants.
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A Global Security in registered form may not be transferred except as a
whole by the Depositary for such Global Security to a nominee of such Depositary
or by a nominee of such Depositary to such Depositary or another nominee of such
Depositary or by such Depositary or any such nominee to a successor of such
Depositary or a nominee of such successor. If a Depositary for a permanent
Global Security in registered form is at any time unwilling or unable to
continue as Depositary and a successor Depositary is not appointed by the
Company within 90 days, the Company will issue Senior Debt Securities in
definitive form in exchange for all of the Global Securities representing such
Senior Debt Securities. In addition, the Company may at any time and in its sole
discretion determine not to have any Senior Debt Securities in registered form
represented by one or more Global Securities and, in such event, will issue
Senior Debt Securities in definitive form in exchange for all of the Global
Securities representing such Senior Debt Securities. (Section 305). Further, if
the Company so specifies with respect to the Senior Debt Securities of a series,
an owner of a beneficial interest in a Global Security representing Senior Debt
Securities of such series may, on terms acceptable to the Company and the
Depositary for such Global Security, receive Senior Debt Securities of such
series in definitive form. In any such instance, an owner of a beneficial
interest in a Global Security will be entitled to physical delivery in
definitive form of Senior Debt Securities of the series represented by such
Global Security equal in principal amount to such beneficial interest and to
have such Senior Debt Securities registered in its name (if the Senior Debt
Securities of such series are issuable as Registered Securities). Senior Debt
Securities of such series so issued in definitive form will be issued (a) as
Registered Securities in denominations, unless otherwise specified by the
Company, of $1,000 and integral multiples thereof if the Senior Debt Securities
of such series are issuable as Registered Securities, (b) as Bearer Securities
in the denomination, unless otherwise specified by the Company, of $5,000 if the
Senior Debt Securities of such series are issuable as Bearer Securities or (c)
as either Registered or Bearer Securities if the Senior Debt Securities of such
series are issuable in either form. (Section 305). See, however, "Limitations on
Issuance of Bearer Securities" below for a description of certain restrictions
on the issuance of a Bearer Security in definitive form in exchange for an
interest in a Global Security.
BEARER DEBT SECURITIES
If so specified in an applicable Prospectus Supplement, pending the
availability of a permanent Global Security, all or any portion of the Senior
Debt Securities of a series which may be issuable as Bearer Securities will
initially be represented by one or more temporary Global Securities, without
interest coupons, to be deposited with a common depositary in London for Morgan
Guaranty Trust Company of New York, Brussels Office, as operator of the
Euroclear System ("Euroclear") and Cedel Bank, societe anonyme ("Cedel") for
credit to the designated accounts. The interests of the beneficial owner or
owners in a temporary Global Security in bearer form will be exchangeable for:
(i) in whole, definitive Bearer Securities, (ii) in whole, Senior Debt
Securities to be represented thereafter by one or more permanent Global
Securities, in bearer form without interest coupons, and/or (iii) in whole or in
part, definitive Registered Securities, on or after the Exchange Date; provided,
however, that if definitive Bearer Securities have previously been issued in
exchange for an interest in a permanent Global Security in bearer form
representing Senior Debt Securities of the same series, then interests in such
Senior Debt Securities (with certain exceptions) shall only be exchangeable, in
whole, for definitive Bearer Securities, definitive Registered Securities, or
any combination thereof, representing Senior Debt Securities having the same
interest rate and Stated Maturity, but only upon written certification in the
form and to the effect described under "Denominations, Registration and
Transfer" unless such certification has been provided on an earlier interest
payment date. The beneficial owner of a Senior Debt Security represented by a
permanent Global Security in bearer form may, on or after the applicable
Exchange Date and upon 30 days' notice to the applicable Trustee given through
Euroclear or Cedel, exchange its interest in whole for definitive Bearer
Securities or, if specified in an applicable Prospectus Supplement, in whole or
in part, definitive Registered Securities of any authorized denomination,
provided, however, that if definitive Bearer Securities are issued in partial
exchange for Senior Debt Securities represented by such permanent
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Global Security such issuance (with certain exceptions) shall give rise to the
exchange of such permanent Global Security in whole for, at the option of the
Holders, definitive Bearer Securities, definitive Registered Securities, or any
combination thereof. No Bearer Security delivered in exchange for a portion of a
permanent Global Security shall be mailed or otherwise delivered to any location
in the United States in connection with such exchange. (Sections 303 and 304).
Unless otherwise specified in an applicable Prospectus Supplement, interest
in respect of any portion of a temporary Global Security in bearer form payable
in respect of an Interest Payment Date occurring prior to the issuance of a
permanent Global Security in bearer form will be paid to each of Euroclear and
Cedel with respect to the portion of the temporary Global Security in bearer
form held for its account. Each of Euroclear and Cedel will undertake in such
circumstances to credit such interest received by it in respect of a temporary
Global Security in bearer form to the respective accounts for which it holds
such temporary Global Security in bearer form as of the relevant Interest
Payment Date, but only upon receipt in each case of written certification, in
the form and to the effect described under "Denomination, Registration and
Transfer."
LIMITATION ON LIENS
So long as any Senior Debt Securities remain outstanding, unless an
applicable Prospectus Supplement relating thereto provides otherwise, the
Company will not, and will not permit any Designated Subsidiary (as defined
below), directly or indirectly, to create, issue, assume, incur or guarantee any
indebtedness for money borrowed which is secured by a mortgage, pledge, lien,
security interest or other encumbrance of any nature on any of the present or
future common stock of a Designated Subsidiary unless the Senior Debt Securities
and, if the Company so elects, any other indebtedness of the Company ranking at
least PARI PASSU with the Senior Debt Securities, shall be secured equally and
ratably with (or prior to) such other secured indebtedness for money borrowed so
long as it is outstanding. (Section 1005).
The term "Designated Subsidiary" means any present or future consolidated
subsidiary of the Company, the consolidated net worth of which constitutes at
least 5% of the consolidated net worth of the Company. As of February 28, 1998,
the Company's Designated Subsidiaries were Lehman Commercial Paper Inc.,
Structured Assets Securities Corporation, LB I Group Inc., LWLP Inc., Lehman VIP
Investment LDC and Lehman Brothers Financial Products Inc.
EVENTS OF DEFAULT
Except as may otherwise be set forth in an applicable Prospectus Supplement
relating to a series of Debt Securities, the following are Events of Default
under the Senior Indenture with respect to Senior Debt Securities of such
series: (a) failure to pay principal of or premium, if any, on any Senior Debt
Security of that series when due; (b) failure to pay interest, if any, on any
Senior Debt Security of that series and any related coupons when due, continued
for 30 days; (c) failure to deposit any sinking fund payment or analogous
obligation, when due, continued for 30 days, in respect of any Senior Debt
Security of that series; (d) failure to perform any other covenant of the
Company in the Senior Indenture (other than a covenant included in the Senior
Indenture solely for the benefit of a series of Senior Debt Securities other
than that series), continued for 90 days after written notice as provided in the
Senior Indenture; and (e) certain events in bankruptcy, insolvency or
reorganization in respect of the Company. (Section 501). An Event of Default
with respect to a particular series of Senior Debt Securities does not
necessarily constitute an Event of Default with respect to any other series of
Senior Debt Securities issued under the same or another Senior Indenture. The
Trustee may withhold notice to the Holders of any series of Senior Debt
Securities of any default with respect to such series (except in the payment of
principal, premium or interest, if any) if it considers such withholding to be
in the interests of such Holders. (Section 602).
If an Event of Default with respect to Senior Debt Securities of any series
at the time outstanding occurs and is continuing, unless the principal of all of
the Senior Debt Securities of such series shall have
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already become due and payable, either the Trustee or the Holders of at least
25% in principal amount of the outstanding Senior Debt Securities of that series
may declare the principal amount (or, if the Senior Debt Securities of that
series are (i) Original Issue Discount Securities, such portion of the principal
amount as may be specified in the terms of the series, or (ii) Indexed
Securities or Dual Currency Securities, the amount determined in accordance with
the specified terms of the series) of all the Senior Debt Securities of that
series to be due and payable immediately. At any time after a declaration of
acceleration with respect to Senior Debt Securities of any series has been made,
but before a judgment or decree based on acceleration has been obtained and
entered, the Holders of a majority in principal amount of the outstanding Senior
Debt Securities of that series may, under certain circumstances, rescind and
annul such acceleration. (Section 502). For information as to waiver of
defaults, see "Meetings, Modification and Waiver."
The Senior Indenture provides that the Trustee will be under no obligation,
subject to the duty of the Trustee during default to act with the required
standard of care, to exercise any of its rights or powers under such Senior
Indenture at the request or direction of any of the Holders, unless such Holders
shall have offered to the Trustee reasonable indemnity. (Section 603). Subject
to such provisions for indemnification of the Trustee, the Holders of a majority
in principal amount of the outstanding Senior Debt Securities of any series will
have the right to direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee, or exercising any trust or power
conferred on the Trustee, with respect to the Senior Debt Securities of that
series. (Section 512).
The Company will be required to furnish to the Trustee annually a statement
as to the performance by the Company of certain of its obligations under the
Senior Indenture and as to any default in such performance. (Section 1006).
SATISFACTION AND DISCHARGE
The Senior Indenture provides that the Company shall be discharged from its
obligations under the Senior Debt Securities of such series (with certain
exceptions) at any time prior to the Stated Maturity or redemption thereof when
(a) the Company has irrevocably deposited with the Trustee, in trust, (i)
sufficient funds in the currency or currency unit in which the Senior Debt
Securities of such series are payable to pay the principal of (and premium, if
any), and interest, if any, to Stated Maturity (or redemption) on, the Senior
Debt Securities of such series, or (ii) such amount of direct obligations of, or
obligations the principal of and interest, if any, on which are fully guaranteed
by, the government which issued the currency in which the Senior Debt Securities
of such series are payable, and which are not subject to prepayment, redemption
or call, as will, together with the predetermined and certain income to accrue
thereon without consideration of any reinvestment thereof, be sufficient to pay
when due the principal of (and premium, if any), and interest, if any, to Stated
Maturity (or redemption) on, the Senior Debt Securities of such series, or (iii)
such combination of such funds and securities as described in (i) and (ii),
respectively, as will, together with the predetermined and certain income to
accrue on any such securities as described in (ii), be sufficient to pay when
due the principal of (and premium, if any), and interest, if any, to Stated
Maturity (or redemption) on, the Senior Debt Securities of such series and (b)
the Company has paid all other sums payable with respect to the Senior Debt
Securities of such series and (c) certain other conditions are met. Upon such
discharge, the Holders of the Senior Debt Securities of such series shall no
longer be entitled to the benefits of the Indenture, except for certain rights,
including registration of transfer and exchange of the Senior Debt Securities of
such series and replacement of lost, stolen or mutilated Senior Debt Securities,
and shall look only to such deposited funds or obligations for payment.
(Sections 401 and 403).
DEFEASANCE OF CERTAIN OBLIGATIONS
If the terms of the Senior Debt Securities of any series so provide, the
Company may omit to comply with the restrictive covenants in Section 801
("Company May Consolidate, Etc., Only on Certain Terms"),
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Section 1005 ("Limitations on Liens on Common Stock of Designated Subsidiaries")
and any other specified covenant and any such omission with respect to such
Sections shall not be an Event of Default with respect to the Senior Debt
Securities of such series, if (a) the Company has irrevocably deposited with the
applicable Trustee, in trust, (i) sufficient funds in the currency or currency
unit in which the Senior Debt Securities of such series are payable to pay the
principal of (and premium, if any), and interest, if any, to Stated Maturity (or
redemption) on, the Senior Debt Securities of such series, or (ii) such amount
of direct obligations of, or obligations the principal of and interest, if any,
on which are fully guaranteed by, the government which issued the currency in
which the Senior Debt Securities of such series are payable and which are not
subject to prepayment, redemption or call, as will, together with the
predetermined and certain income to accrue thereon without consideration of any
reinvestment thereof, be sufficient to pay when due the principal of (and
premium, if any), and interest, if any, to Stated Maturity (or redemption) on,
the Senior Debt Securities of such series or, (iii) such combination of such
funds and securities as described in (i) and (ii), respectively, as will,
together with the predetermined and certain income to accrue on any such
securities as described in (ii), be sufficient to pay when due the principal of
(and premium, if any), and interest, if any, to Stated Maturity (or redemption)
on, the Senior Debt Securities of such series and (b) certain other conditions
are met. The obligations of the Company under the Senior Indenture with respect
to the Senior Debt Securities of such series, other than with respect to the
covenants referred to above shall remain in full force and effect. (Section
1009).
MEETINGS, MODIFICATION AND WAIVER
Modifications and amendments of the Senior Indenture may be made by the
Company and the Trustee with the consent of the Holders of not less than 66 2/3%
in principal amount of the Outstanding Debt Securities of each series issued
under the Senior Indenture affected by such modification or amendment; provided,
however, that no such modification or amendment may, without the consent of the
Holder of each Outstanding Debt Security affected thereby, (a) change the Stated
Maturity of the principal of, or any instalment of principal of or interest, if
any, on, any Senior Debt Security, (b) reduce the principal amount of, or the
premium, if any, or interest, if any, on, any Senior Debt Security, (c) change
any obligation of the Company to pay additional amounts, (d) reduce the amount
of principal of an Original Issue Discount Security payable upon acceleration of
the Maturity thereof, (e) adversely affect the right of repayment or repurchase,
if any, at the option of the Holder, (f) reduce the amount, or postpone the date
fixed for, any payment under any sinking fund or analogous provision, (g) change
the place or currency or currency unit of payment of principal of or premium, if
any, or interest, if any, on any Senior Debt Security, (h) change or eliminate
the right, if any, to elect payment in a coin or currency or currency unit other
than that in which Senior Debt Securities which are Registered Securities are
denominated or stated to be payable, (i) impair the right to institute suit for
the enforcement of any payment on or with respect to any Senior Debt Security,
(j) reduce the percentage in principal amount of Outstanding Debt Securities of
any series, the consent of the Holders of which is required for modification or
amendment of the Senior Indenture or for waiver of compliance with certain
provisions of the Senior Indenture or for waiver of certain defaults, (k) reduce
the requirements contained in the Senior Indenture for quorum or voting, or (l)
change any obligation of the Company to maintain an office or agency in the
places and for the purposes required in the Senior Indenture. (Section 902).
The Holders of not less than a majority in principal amount of the
Outstanding Debt Securities of any series may on behalf of the Holders of all
Senior Debt Securities of that series waive, insofar as that series is
concerned, compliance by the Company with certain restrictive provisions of the
Senior Indenture. (Section 1007). The Holders of not less than a majority in
principal amount of the Outstanding Debt Securities of any series may on behalf
of the Holders of all Senior Debt Securities of that series and any coupons
appertaining thereto waive any past default under the Senior Indenture with
respect to that series, except a default in the payment of the principal of or
premium, if any, or interest, if any, on any Senior Debt Security of that series
or in the payment of any sinking fund instalment or analogous obligation or in
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respect of a provision which under the Senior Indenture cannot be modified or
amended without the consent of the Holder of each Outstanding Debt Security of
that series affected. (Section 513).
The Senior Indenture contains provisions for convening meetings of the
Holders of Senior Debt Securities of a series if Senior Debt Securities of that
series are issuable as Bearer Securities. (Section 1301). A meeting may be
called at any time by the applicable Trustee, and also, upon request, by the
Company or Holders of at least 10% in principal amount of the Outstanding Debt
Securities of such series, in any such case upon notice given in accordance with
"Notices" below. (Section 1302). Except as limited by the proviso in the second
preceding paragraph, any resolution presented at a meeting or adjourned meeting
at which a quorum is present may be adopted by the affirmative vote of the
Holders of a majority in principal amount of the Outstanding Debt Securities of
that series; PROVIDED, HOWEVER, that, except as limited by the proviso in the
second preceding paragraph, any resolution with respect to any consent or waiver
which may be given by the Holders of not less than 66 2/3% in principal amount
of the Outstanding Debt Securities of a series may be adopted at a meeting or an
adjourned meeting at which a quorum is present only by the affirmative vote of
66 2/3% in principal amount of the Outstanding Debt Securities of that series;
and PROVIDED, FURTHER, that, except as limited by the proviso in the second
preceding paragraph, any resolution with respect to any request, demand,
authorization, direction, notice, consent, waiver or other action which may be
made, given or taken by the Holders of a specified percentage, which is less
than a majority, in principal amount of Outstanding Debt Securities of a series
may be adopted at a meeting or adjourned meeting duly reconvened at which a
quorum is present by the affirmative vote of the Holders of such specified
percentage in principal amount of the Outstanding Debt Securities of that
series. Any resolution passed or decision taken at any meeting of Holders of
Senior Debt Securities of any series duly held in accordance with the applicable
Senior Indenture will be binding on all Holders of Senior Debt Securities of
that series and the related coupons. The quorum at any meeting called to adopt a
resolution, and at any reconvened meeting, will be persons holding or
representing a majority in principal amount of the Outstanding Debt Securities
of a series; PROVIDED, HOWEVER, that if any action is to be taken at such
meeting with respect to a consent or waiver which may be given by the Holders of
not less than 66 2/3% in principal amount of the Outstanding Debt Securities of
a series, the persons holding or representing 66 2/3% in principal amount of the
Outstanding Debt Securities of such series will constitute a quorum. (Section
1304).
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company may, without the consent of any Holders of Outstanding Debt
Securities, consolidate or merge with or into, or transfer or lease its assets
substantially as an entirety to, any Person, and any other Person may
consolidate or merge with or into, or transfer or lease its assets substantially
as an entirety to, the Company, provided that (i) the Person (if other than the
Company) formed by such consolidation or into which the Company is merged or
which acquires or leases the assets of the Company substantially as an entirety
is organized under the laws of any United States jurisdiction and assumes the
Company obligations on the Senior Debt Securities and under the Senior
Indenture, (ii) after giving effect to the transaction, no Event of Default, and
no event which, after notice or lapse of time or both, would become an Event of
Default, shall have happened and be continuing, and (iii) certain other
conditions are met. (Section 801).
NOTICES
Except as may otherwise be set forth in an applicable Prospectus Supplement
relating to a series of Senior Debt Securities, notices to Holders of Bearer
Securities will be given by publication in a daily newspaper in the English
language of general circulation in The City of New York and in London, and so
long as such Bearer Securities are listed on the Stock Exchange and the Stock
Exchange shall so require, in a daily newspaper of general circulation in
Luxembourg or, if not practical, elsewhere in Western Europe. Such publication
is expected to be made in THE WALL STREET JOURNAL, the FINANCIAL TIMES and the
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LUXEMBURGER WORT. Notices to Holders of Registered Securities will be given by
mail to the addresses of such Holders as they appear in the Security Register.
(Sections 101 and 106).
TITLE
Title to any temporary global Senior Debt Security, any permanent global
Senior Debt Security, any Bearer Securities and any coupons appertaining thereto
will pass by delivery. The Company, the Trustee and any agent of the Company or
the Trustee may treat the bearer of any Bearer Security and the bearer of any
coupon and the registered owner of any Registered Security as the absolute owner
thereof (whether or not such Senior Debt Security or coupon shall be overdue and
notwithstanding any notice to the contrary) for the purpose of making payment
and for all other purposes. (Section 308).
REPLACEMENT OF DEBT SECURITIES AND COUPONS
Any mutilated Senior Debt Security or a Senior Debt Security with a
mutilated coupon appertaining thereto will be replaced by the Company at the
expense of the Holder upon surrender of such Senior Debt Security to the
Trustee. Senior Debt Securities or coupons that become destroyed, stolen or lost
will be replaced by the Company at the expense of the Holder upon delivery to
the Trustee of the Senior Debt Security and coupons or evidence of the
destruction, loss or theft thereof satisfactory to the Company and the Trustee;
in the case of any coupon which becomes destroyed, stolen or lost, such coupon
will be replaced by issuance of a new Senior Debt Security in exchange for the
Senior Debt Security to which such coupon appertains. In the case of a
destroyed, lost or stolen Senior Debt Security or coupon an indemnity
satisfactory to the Trustee and the Company may be required at the expense of
the Holder of such Senior Debt Security or coupon before a replacement Senior
Debt Security will be issued. (Section 306).
CONCERNING THE TRUSTEES
The Company and its affiliates maintain bank accounts, borrow money and have
other customary banking relationships with the Trustee.
LIMITATIONS ON ISSUANCE OF BEARER SECURITIES
In compliance with United States federal tax laws and regulations, Bearer
Securities may not be offered or sold during the restricted period (as defined
under "Description of Senior Debt Securities-- Denominations, Registration and
Transfer"), or delivered in definitive form in connection with a sale during the
restricted period, in the United States or to United States persons other than
to (a) the United States office of (i) an international organization (as defined
in Section 7701(a)(18) of the Code), (ii) a foreign central bank (as defined in
Section 895 of the Code), or (iii) any underwriter, agent, or dealer offering or
selling Bearer Securities during the restricted period (a "Distributor")
pursuant to a written contract with the issuer or with another Distributor, that
purchases Bearer Securities for resale or for its own account and agrees to
comply with the requirements of Section 165(j)(3)(A), (B), or (C) of the Code,
or (b) the foreign branch of a United States financial institution purchasing
for its own account or for resale, which institution agrees to comply with the
requirements of Section 165(j)(3)(A), (B), or (C) of the Code. In addition, a
sale of a Bearer Security may be made during the restricted period to a United
States person who acquired and holds the Bearer Security on the Certification
Date through a foreign branch of a United States financial institution that
agrees to comply with the requirements of Section 165(j)(3)(A), (B) or (C) of
the Code. Any Distributor (including an affiliate of a Distributor) offering or
selling Bearer Securities during the restricted period must agree not to offer
or sell Bearer Securities in the United States or to United States persons
(except as discussed above) and must employ procedures reasonably designed to
ensure that its employees or agents directly engaged in selling Bearer
Securities are aware of these restrictions.
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Bearer Securities and their interest coupons will bear a legend
substantially to the following effect: "Any United States person who holds this
obligation will be subject to limitations under the United States income tax
laws, including the limitations provided in Section 165(j) and 1287(a) of the
Internal Revenue Code."
Purchasers of Bearer Securities may be affected by certain limitations under
United States tax laws. See "United States Taxation--Backup Withholding and
Information Reporting."
As used herein, "United States person" means 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, an estate the income of which is
subject to United States federal income taxation regardless of its source or a
trust which is subject to the supervision of a court within the United States
and the control of a United States person as described in Section 7701(a)(30) of
the Code, and "United States" means the United States of America (including the
States and the District of Columbia) and its possessions including Puerto Rico,
the U.S. Virgin Islands, Guam, American Samoa, Wake Island and the Northern
Mariana Islands. The term "Non-United States Holder" means any Holder which is
not an United States person.
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DESCRIPTION OF SENIOR SUBORDINATED DEBT SECURITIES
The following description sets forth certain general terms and provisions of
the Senior Subordinated Debt Securities to which any Prospectus Supplement may
relate. The particular terms of the Senior Subordinated Debt Securities offered
by any Prospectus Supplement and the extent, if any, to which such general
provisions may or may not apply to the Senior Subordinated Debt Securities so
offered will be described in the Prospectus Supplement relating to such Senior
Subordinated Debt Securities.
The Senior Subordinated Debt Securities are to be issued under an indenture,
dated as of March 1, 1996 (the "Subordinated Indenture") between the Company and
The First National Bank of Chicago, as trustee (the "Trustee"). The form of the
Subordinated Indenture is filed as an exhibit to the Registration Statement of
which this Prospectus is a part. This Prospectus contains descriptions of all
material provisions of the Subordinated Indenture. The summaries of such
provisions of the Subordinated 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 Subordinated Indenture, including the definitions therein of
certain terms. Wherever particular provisions or defined terms of the
Subordinated Indenture are referred to, such provisions or defined terms are
incorporated herein by reference. All articles and sections of the Subordinated
Indenture, and all capitalized terms set forth below, have the meanings
specified in the Subordinated Indenture.
GENERAL
The Subordinated Indenture does not limit the aggregate principal amount of
Senior Subordinated Debt Securities which may be issued thereunder and provides
that Senior Subordinated Debt Securities may be issued thereunder from time to
time in one or more series. The Subordinated Indenture requires the prior
approval of the NYSE for the issuance of any Senior Subordinated Debt Securities
and, to the extent required, certain other domestic stock exchanges or boards of
trade. The Senior Subordinated Debt Securities will be unsecured obligations of
the Company and will rank equally with all indebtedness of the Company
designated as Senior Subordinated Indebtedness. At February 28, 1998,
approximately $4 billion of Senior Subordinated Indebtedness (on an
unconsolidated basis) was outstanding.
Reference is made to the applicable Prospectus Supplement for the following
terms and other information with respect to the Senior Subordinated Debt
Securities being offered thereby: (1) the title of such Senior Subordinated Debt
Securities; (2) any limit on the aggregate principal amount of such Senior
Subordinated Debt Securities; (3) whether such Senior Subordinated Debt
Securities are to be issued in whole or in part in the form of one or more
temporary or permanent global Senior Subordinated Debt Securities ("Global
Securities") and, if so, the identity of the depositary for such Global Security
or Securities and the particular provisions applicable thereto; (4) the date or
dates (or manner of determining the same) on which such Senior Subordinated Debt
Securities will mature; (5) the rate or rates (or manner of determining the
same) per annum at which such Senior Subordinated Debt Securities will bear
interest, if any, and the date from which such interest will accrue; (6) the
dates (or manner of determining the same) on which such interest will be payable
(the "Interest Payment Dates") and the Regular Record Dates for such Interest
Payment Dates and the extent to which, or the manner in which, any interest
payable on a temporary or permanent Global Security on an Interest Payment Date
will be paid if other than in the manner described under "Global Securities"
below; (7) any mandatory or optional sinking fund or obligation to purchase or
analogous provisions; (8) the price or prices at which and the terms and
conditions upon which such Senior Subordinated Debt Securities may be redeemed,
as a whole or in part, at the option of the Company; (9) any additional
restrictive covenants included for the benefit of the Holders of such Senior
Subordinated Debt Securities; (10) any additional Events of Acceleration or
Events of Default provided with respect to such Senior Subordinated Debt
Securities; (11) the terms and conditions, if any, pursuant to which the payment
of principal and premium, if any, and interest, if any, due on such Senior
Subordinated Debt Securities are to be determined with reference to rates of
exchange, prices, indices or other similar methods; (12) the terms and
conditions, if any, pursuant to which such Senior Subordinated Debt Securities
may be converted or exchanged for other securities of the Company
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or any other person; (13) the terms and conditions, if any, pursuant to which
the principal of and premium, if any, and interest, if any, on such Senior
Subordinated Debt Securities are payable, at the election of the Company or a
Holder thereof, in securities or other property; and (14) other terms of such
Senior Subordinated Debt Securities.
The Subordinated Indenture provides the Company with the ability, in
addition to the ability to issue Senior Subordinated Debt Securities with terms
different from those of Senior Subordinated Debt Securities previously issued,
to "reopen" a previous issue of Senior Subordinated Debt Securities and issue
additional Senior Subordinated Debt Securities of such series. (Section 3.1).
Unless otherwise indicated in the Prospectus Supplement relating thereto,
principal of and premium, if any, and interest, if any, on the Senior
Subordinated Debt Securities (other than a Global Security) offered thereby will
be payable, and such Senior Subordinated 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
3.5, 3.7 and 3.9).
Unless otherwise indicated in the Prospectus Supplement relating thereto,
the Senior Subordinated Debt Securities offered thereby will be issued only in
fully registered form without coupons in denominations of $1,000 or any integral
multiple thereof. (Section 3.2). Senior Subordinated Debt Securities of a series
may be issuable in whole or in part in the form of one or more Global Securities
as described below under "Global Securities." One or more Global Securities will
be issued in denomination, or in aggregate denomination, equal to the aggregate
principal amount of Senior Subordinated Debt Securities of the series to be
represented by such Global Security or Securities. No service charge will be
made for any transfer or exchange of such Senior Subordinated Debt Securities,
but the Company may require payment of a sum sufficient to cover any tax or
other governmental charge payable in connection therewith. (Section 3.5).
Securities may be issued under the Subordinated 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
1.1). If the Senior Subordinated 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 Senior Subordinated 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 Senior Subordinated Debt Securities at a time
when the Company's net capital is below its Applicable Minimum Capital, the
Holders of the Senior Subordinated 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 7.2(b) and 12.3).
The Company may not make any optional redemptions of the Senior Subordinated
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 Senior Subordinated Debt
Securities notwithstanding the foregoing, the Holders of the Senior Subordinated
Debt
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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 12.3).
REDEMPTION
Unless otherwise indicated in the Prospectus Supplement relating thereto,
the Company at any time on or after the first anniversary of the issuance
thereof may redeem for cash Senior Subordinated Debt Securities in whole or in
part at their principal amount (or, if the Senior Subordinated Debt 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, provided, however, that permission of the New York Stock
Exchange, and, to the extent required, certain other domestic stock exchanges or
boards of trade, has been obtained. (Section 12.2).
SUBORDINATION
The payment of the principal of, premium, if any, and interest, if any, on
the Senior Subordinated Debt Securities is expressly subordinated, to the extent
and in the manner set forth in the Subordinated 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 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 Senior Subordinated 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
Senior Subordinated 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
Senior Subordinated Debt Securities unless all amounts due to the Holders of
Senior Indebtedness has been paid or provided for. (Sections 4.1 and 4.2).
There is no limitation in the Subordinated Indenture on the amount of Senior
Indebtedness or other Indebtedness that may exist. At February 28, 1998, Senior
Indebtedness (on an unconsolidated basis) was approximately $106 billion and
total assets of the Company (on an unconsolidated basis) were approximately $113
billion. The Prospectus Supplement related to a particular series of Senior
Subordinated Debt Securities will set forth the amount of Senior Indebtedness
then outstanding.
JUNIOR INDEBTEDNESS
The Senior Subordinated 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 4.11). At February 28, 1998, approximately $224
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 5.5).
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EVENTS OF DEFAULT AND ACCELERATION AND NOTICE THEREOF
The Holders of a majority in aggregate principal amount of the outstanding
Senior Subordinated Debt 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 Senior Subordinated Debt Securities of a series may, if an Event
of Acceleration as defined in the Subordinated Indenture occurs with respect to
Senior Subordinated Debt Securities of that series, declare, by notice in
writing, the principal amount (or, if the Senior Subordinated Debt 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 Senior Subordinated Debt Securities in any event) and, if such Event of
Acceleration is not cured by the Company prior to such last business day, the
Outstanding Senior Subordinated Debt Securities of that series will be due and
payable on that date. In case an Event of Default with respect to Senior
Subordinated Debt Securities of any series shall occur, the principal amount
(or, if the Senior Subordinated Debt 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. If, with respect to any series
of Senior Subordinated Debt Securities, the Company shall (i) fail for 30 days
to pay interest upon any Senior Subordinated Debt Security of that series, (ii)
fail to pay principal or premium, if any, on any Senior Subordinated Debt
Security of that series when due or (iii) fail to make or satisfy any sinking
fund payment or analogous obligation on any Senior Subordinated Debt Security
when due, the Company will, upon demand of the Trustee with respect to the
Senior Subordinated Debt Securities of such series, pay to such Trustee for the
benefit of the holders of such Senior Subordinated Debt Securities the amount
then due and payable on such Senior Subordinated Debt Securities, including, to
the extent legally enforceable, interest on any overdue principal and premium,
if any, and on any overdue interest at the rate or rates prescribed therefor in
such Senior Subordinated Debt Securities, together with an amount to cover the
costs and expenses of collection. If the Company fails to pay such amounts and
such failure continues unremedied (or is not waived) on the last business day of
the sixth full calendar month following the date of the demand of the Trustee
referred to above, such Trustee may institute and prosecute a judicial
proceeding for the collection of such amounts. (Section 7.5). 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 Subordinated Indenture at the
request of any of the Holders of Senior Subordinated Debt Securities unless they
shall have offered to the Trustee reasonable security or indemnity. Except as
specifically provided in the Subordinated 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 7.2(a), 7.3, 7.14, 8.1
and 8.3(e)).
The following events constitute Events of Acceleration as defined in the
Subordinated Indenture with respect to any series of Senior Subordinated Debt
Securities: failure for 30 days to pay interest upon any Senior Subordindated
Debt Security of that series when due; failure to pay principal or premium, if
any, on any Senior Subordinated Debt Security of that series when due; failure
for 60 days after notice to perform a certain covenant in the Subordinated
Indenture; and, subject to certain conditions, acceleration of the maturity of
Indebtedness of the Company constituting net capital aggregating more that
$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
7.1).
The Subordinated 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 Subordinated Indenture with respect to Senior Subordinated Debt
Securities of any series,
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give to the Holders of the outstanding Senior Subordinated Debt Securities of
that series notice of all uncured defaults known to it with respect to Senior
Subordinated Debt 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 Subordinated Debt
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 Senior Subordinated Debt Securities of that series.
(Section 8.2).
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 fulfillment of the
covenants, agreements and obligations contained in the Subordinated Indenture
with respect to any series of Senior Subordinated Debt Securities and, if so,
specifying each such default and the nature thereof. (Section 5.6).
MODIFICATION OF THE SUBORDINATED INDENTURE
Modifications and amendments of the Subordinated 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 Senior Subordinated
Debt Securities of each series affected thereby; PROVIDED, HOWEVER, that no such
modification or amendment may, without the consent of the Holder of each
outstanding Senior Subordinated Debt 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 Senior Subordinated Debt Security; (b) reduce the
principal amount of, or the premium (if any) or interest, if any, on, any Senior
Subordinated Debt Security; (c) adversely affect any right of repayment at the
option of the Holder of any Senior Subordinated Debt 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 Senior Subordinated Debt Security; (f) impair the
right to institute suit for the enforcement of any payment on or with respect to
any Senior Subordinated Debt Security; or (g) reduce the percentage in principal
amount of outstanding Senior Subordinated Debt Securities of any series, the
consent of the Holders of which is required for modification or amendment of the
Subordinated Indenture or for waiver of compliance with certain provisions of
the Subordinated Indenture or for waiver of certain defaults. (Section 10.2).
The Holders of not less than a majority in aggregate principal amount of the
outstanding Senior Subordinated Debt Securities of any series may on behalf of
the Holders of all Senior Subordinated Debt Securities of that series waive,
insofar as that series is concerned, compliance by the Company with certain
restrictive covenants of the Subordinated Indenture. (Section 5.7). The Holders
of a majority in aggregate principal amount of the outstanding Senior
Subordinated Debt Securities of any series may on behalf of the Holders of all
Senior Subordinated Debt Securities of that series waive any past default under
the Subordinated 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 Senior Subordinated Debt Security of that series or in respect of a
provision which under the Subordinated Indenture cannot be modified or amended
without the consent of the Holder of each outstanding Senior Subordinated Debt
Security of that series affected. (Section 7.15).
SATISFACTION AND DISCHARGE
The Subordinated Indenture may be fully satisfied and discharged not earlier
than two years after payment of all outstanding Senior Subordinated Debt
Securities shall have been made or duly provided for. (Section 6.1).
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GLOBAL SECURITIES
The Senior Subordinated Debt Securities of a series may be issued in whole
or in part in the form of one or more Global Securities that will be deposited
with or on behalf of a depository (a "Depository") identified in the Prospectus
Supplement relating to such series. Global Securities will be issued in
registered form in either temporary or permanent form.
The specific terms of the depository arrangement with respect to any Senior
Subordinated Debt Securities of a series will be described in the Prospectus
Supplement relating to such series. The Company anticipates that the following
provisions will apply to all depository arrangements.
Senior Subordinated Debt Securities which are to be represented by a Global
Security to be deposited with or on behalf of a Depository will be registered in
the name of such Depository or its nominee. Upon the issuance of a Global
Security, the Depository for such Global Security will credit the respective
principal amounts of the Senior Subordinated Debt Securities represented by such
Global Security to the accounts of institutions that have accounts with such
depository or its nominee ("participants"). The accounts to be credited shall be
designated by the underwriters or agents of such Senior Subordinated Debt
Securities or by the Company, if such Senior Subordinated Debt Securities are
offered and sold directly by the Company. Ownership of beneficial interests in
such Global Securities will be limited to participants or persons that may hold
interests through participants. Ownership of beneficial interests by
participants in such Global Securities will be shown on, and the transfer of
that ownership interest will be effected only through, records maintained by the
Depository or its nominee for such Global Security. Ownership of beneficial
interests in Global Securities by persons that hold through participants will be
shown on, and the transfer of that ownership interest within such participant
will be effected only through, records maintained by such participant. The laws
of some jurisdictions require that certain purchasers of securities take
physical delivery of such securities in definitive form. Such limits and such
laws may impair the ability to transfer beneficial interests in a Global
Security.
So long as the Depository for a Global Security, or its nominee, is the
registered owner of such Global Security, such depository or such nominee, as
the case may be, will be considered the sole owner or holder of the Senior
Subordinated Debt Securities represented by such Global Security for all
purposes under the Subordinated Indenture. Except as set forth below, owners of
beneficial interests in such Global Securities will not be entitled to have
Senior Subordinated Debt Securities of the series represented by such Global
Security registered in their names, will not receive or be entitled to receive
physical delivery of Senior Subordinated Debt Securities of such series in
definitive form and will not be considered the owners or holders thereof under
the Subordinated Indenture.
Payment of principal of, and premium, if any, and any interest on Senior
Subordinated Debt Securities registered in the name of or held by a Depository
or its nominee will be made to the Depository or its nominee, as the case may
be, as the registered owner or the holder of the Global Security. None of the
Company, the Trustee, any Paying Agent or the Security Registrar for such Senior
Subordinated Debt Securities will have any responsibility or liability for any
aspect of the records relating to or payments made on account of beneficial
ownership interests in a Global Security or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests. (Section
3.11).
The Company expects that the Depository for a permanent Global Security,
upon receipt of any payment of principal, premium or interest in respect of a
permanent Global Security, will credit immediately participants' accounts with
payments in amounts proportionate to their respective beneficial interests in
the principal amount of such Global Security as shown on the records of such
Depository. The Company also expects that payments by participants to owners of
beneficial interests in such Global Security held through such participants will
be governed by standing instructions and customary practices, as is now the case
with securities held for the accounts of customers in bearer form or registered
in "street name," and will be the responsibility of such participants.
A Global Security may not be transferred except as a whole by the Depository
for such Global Security to a nominee of such depository or by a nominee of such
depository to such depository or another
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nominee of such depository or by such depository or any such nominee to a
successor of such depository or a nominee of such successor. If a Depository for
a permanent Global Security is at any time unwilling or unable to continue as
depository and a successor depository is not appointed by the Company within 90
days, the Company will issue Senior Subordianted Debt Securities in definitive
form in exchange for all of the Global Securities representing such Senior
Subordinated Debt Securities. In addition, the Company may at any time and in
its sole discretion determine not to have any Senior Subordinated Debt
Securities represented by one or more Global Securities and, in such event, will
issue Senior Subordinated Debt Securities in definitive form in exchange for all
of the Global Securities representing such Senior Subordinated Debt Securities.
(Section 3.5). Further, if the Company so specifies with respect to the Senior
Subordinated Debt Securities of a series, an owner of a beneficial interest in a
Global Security representing Senior Subordinated Debt Securities of such series
may, on terms acceptable to the Company and the Depository for such Global
Security, receive Senior Subordinated Debt Securities of such series in
definitive form. In any such instance, an owner of a beneficial interest in a
Global Security will be entitled to physical delivery in definitive form of
Senior Subordinated Debt Securities of the series represented by such Global
Security equal in principal amount to such beneficial interest and to have such
Senior Subordinated Debt Securities registered in its name. Senior Subordinated
Debt Securities of such series so issued in definitive form will be issued as
registered securities in denominations, unless otherwise specified by the
Company, of $1,000 and integral multiples thereof. (Section 3.5).
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
In the opinion of Simpson Thacher & Bartlett, special United States tax
counsel to the Company, the following discussion is an accurate summary of the
material United States federal income tax consequences of the purchase,
ownership and disposition of Debt Securities as of the date hereof. Except where
noted, it deals only with Debt Securities held as capital assets by United
States Holders (as defined below) and does not deal with special situations,
such as those of dealers in securities or currencies, financial institutions,
tax-exempt entities, life insurance companies, persons holding Debt Securities
as a part of a hedging, conversion or contructive sale transaction or a straddle
or United States Holders whose "functional currency" is not the U.S. dollar.
Furthermore, the discussion below is based upon the provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), and regulations, rulings and
judicial decisions thereunder as of the date hereof, and such authorities may be
repealed, revoked or modified so as to result in federal income tax consequences
different from those discussed below. This summary deals with Debt Securities
that will be classified as debt for United States federal income tax purposes.
Any special United States federal income tax considerations relevant to a
particular issue of Debt Securities will be provided in the applicable
Prospectus Supplement. PERSONS CONSIDERING THE PURCHASE, OWNERSHIP OR
DISPOSITION OF DEBT 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.
PAYMENTS OF INTEREST
Except as set forth below, interest on a Debt Security will generally be
taxable to a United States Holder as ordinary income at the time it is paid or
accrued in accordance with the United States Holder's method of accounting for
tax purposes. As used herein, a "United States Holder" of a Debt Security means
a holder that is a citizen or resident of the United States, a corporation,
partnership or other entity created or organized in or under the laws of the
United States or any political subdivision thereof, an estate the income of
which is subject to United States federal income taxation regardless of its
source or a trust which is subject to the supervision of a court within the
United States and the control of a United
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States person as described in Section 7701(a)(30) of the Code. A "Non-United
States Holder" is a holder that is not a United States Holder.
ORIGINAL ISSUE DISCOUNT
United States Holders of Debt Securities issued with original issue discount
("OID") will be subject to special tax accounting rules, as described in greater
detail below. United States Holders of such Debt Securities should be aware that
they generally must include OID in gross income in advance of the receipt of
cash attributable to that income. However, United States Holders of such Debt
Securities generally will not be required to include separately in income cash
payments received on the Debt Securities, even if denominated as interest, to
the extent such payments do not constitute qualified stated interest (as defined
below). Debt Securities issued with OID will be referred to as "Original Issue
Discount Debt Securities." Notice will be given in the applicable Prospectus
Supplement when the Company determines that a particular Debt Security will be
an Original Issue Discount Debt Security.
This summary is based upon Treasury regulations applicable to debt
instruments issued with OID (the "OID Regulations"). The following discussion
does not address Debt Securities providing for contingent payments. Investors
should carefully examine the applicable Prospectus Supplement regarding the
United States federal income tax consequences of the holding and disposition of
any Notes providing for contingent payments that do not bear qualified stated
interest.
A Debt Security with an "issue price" that is less than its stated
redemption price at maturity (the sum of all payments to be made on the Debt
Security other than "qualified stated interest") will be issued with OID if such
difference is at least 0.25 percent of the stated redemption price at maturity
multiplied by the number of complete years to maturity. The "issue price" of
each Debt Security in a particular offering will be the first price at which a
substantial amount of that particular offering is sold (other than to an
underwriter, placement agent or wholesaler). The term "qualified stated
interest" means stated interest that is unconditionally payable in cash or in
property (other than debt instruments of the issuer) at least annually at a
single fixed rate or, subject to certain conditions, based on one or more
indices. Interest is payable at a single fixed rate only if the rate
appropriately takes into account the length of the interval between payments.
Notice will be given in the applicable Prospectus Supplement when the Company
determines that a particular Debt Security will bear interest that is not
qualified stated interest.
In the case of a Debt Security issued with de minimis OID (I.E., discount
that is not OID because it is less than 0.25 percent of the stated redemption
price at maturity multiplied by the number of complete years to maturity), the
United States Holder generally must include such de minimis OID in income as
principal payments on the Debt Securities are made in proportion to the stated
principal amount of the Debt Security. Any amount of de minimis OID that has
been included in income shall be treated as capital gain.
Original Issue Discount Debt Securities that may be redeemed prior to their
stated maturity at the option of the Company and/or at the option of the Holder
may be subject to rules that differ from the general rules discussed herein.
Persons considering the purchase of Original Issue Discount Debt Securities with
such features should carefully examine the applicable Prospectus Supplement and
should consult their own tax advisors with respect to such features since the
tax consequences with respect to OID will depend, in part, on the particular
terms and features of the Debt Securities.
United States Holders of Original Issue Discount Debt Securities with a
maturity upon issuance of more than one year must, in general, include OID in
income in advance of the receipt of some or all of the related cash payments.
The amount of OID includible in income by the initial United States Holder of an
Original Issue Discount Debt Security is the sum of the "daily portions" of OID
with respect to the Debt Security for each day during the taxable year or
portion of the taxable year in which such United States Holder held such Debt
Security ("accrued OID"). The daily portion is determined by allocating to each
day in any "accrual period" a pro rata portion of the OID allocable to that
accrual period. The "accrual period" for an Original Issue Discount Debt
Security may be of any length and may vary in length over the
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term of the Debt Security, provided that each accrual period is no longer than
one year and each scheduled payment of principal or interest occurs on the first
day or the final day of an accrual period. The amount of OID allocable to any
accrual period is an amount equal to the excess, if any, of (a) the product of
the Debt Security's adjusted issue price at the beginning of such accrual period
and its yield to maturity (determined on the basis of compounding at the close
of each accrual period and properly adjusted for the length of the accrual
period) over (b) the sum of any qualified stated interest allocable to the
accrual period. OID allocable to a final accrual period is the difference
between the amount payable at maturity (other than a payment of qualified stated
interest) and the adjusted issue price at the beginning of the final accrual
period. Special rules will apply for calculating OID for an initial short
accrual period. The "adjusted issue price" of a Debt Security at the beginning
of any accrual period is equal to its issue price increased by the accrued OID
for each prior accrual period (determined without regard to the amortization of
any acquisition or bond premium, as described below) and reduced by any payments
made on such Debt Security (other than qualified stated interest) on or before
the first day of the accrual period. Under these rules, a United States Holder
will have to include in income increasingly greater amounts of OID in successive
accrual periods. The Company is required to provide information returns stating
the amount of OID accrued on Debt Securities held of record by persons other
than corporations and other exempt Holders.
In the case of an Original Issue Discount Debt Security that is a floating
rate Debt Security, both the "yield to maturity" and "qualified stated interest"
will be determined solely for purposes of calculating the accrual of OID as
though the Debt Security will bear interest in all periods at a fixed rate
generally equal to the rate that would be applicable to interest payments on the
Debt Security on its date of issue or, in the case of certain floating rate Debt
Securities, the rate that reflects the yield to maturity that is reasonably
expected for the Debt Security. Additional rules may apply if interest on a
floating rate Debt Security is based on more than one interest index. Persons
considering the purchase of Floating Rate Debt Securities should carefully
examine the applicable Prospectus Supplement and should consult their own tax
advisors regarding the U.S. federal income tax consequences of the holding and
disposition of such Debt Securities.
United States Holders may elect to treat all interest on any Debt Security
as OID and calculate the amount includible in gross income under the constant
yield method described above. For the purposes of this election, interest
includes stated interest, acquisition discount, OID, de minimis OID, market
discount, de minimis market discount and unstated interest, as adjusted by any
amortizable bond premium or acquisition premium. The election is to be made for
the taxable year in which the United States Holder acquired the Debt Security,
and may not be revoked without the consent of the Internal Revenue Service (the
"IRS"). UNITED STATES HOLDERS SHOULD CONSULT WITH THEIR OWN TAX ADVISORS ABOUT
THIS ELECTION.
SHORT-TERM DEBT SECURITIES
In the case of Original Issue Discount Debt Securities having a term of one
year or less ("Short-Term Debt Securities"), under the OID Regulations all
payments (including all stated interest) will be included in the stated
redemption price at maturity and, thus, United States Holders will generally be
taxable on the discount in lieu of stated interest. The discount will be equal
to the excess of the stated redemption price at maturity over the issue price of
a Short-Term Debt Security, unless the United States Holder elects to compute
this discount using tax basis instead of issue price. In general, individuals
and certain other cash method United States Holders of a Short-Term Debt
Security are not required to include accrued discount in their income currently
unless they elect to do so (but may be required to include any stated interest
in income as it is received). United States Holders that report income for
federal income tax purposes on the accrual method and certain other United
States Holders are required to accrue discount on such Short-Term Debt
Securities (as ordinary income) on a straight-line basis, unless an election is
made to accrue the discount according to a constant yield method based on daily
compounding. In the case of a United States Holder that is not required, and
does not elect, to include discount in income currently, any gain realized on
the sale, exchange or retirement of the Short-Term Debt Security will generally
be ordinary income to the extent of the discount accrued through the date of
sale, exchange or retirement. In addition, a United
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States Holder that does not elect to include currently accrued discount in
income may be required to defer deductions for a portion of the United States
Holder's interest expense with respect to any indebtedness incurred or continued
to purchase or carry such Debt Securities.
MARKET DISCOUNT
If a United States Holder purchases a Debt Security (other than an Original
Issue Discount Debt Security) for an amount that is less than its stated
redemption price at maturity or, in the case of an Original Issue Discount Debt
Security, its adjusted issue price, the amount of the difference will be treated
as "market discount" for federal income tax purposes, unless such difference is
less than a specified de minimis amount. Under the market discount rules, a
United States Holder will be required to treat any principal payment on, or any
gain on the sale, exchange, retirement or other disposition of, a Debt Security
as ordinary income to the extent of the market discount which has not previously
been included in income and is treated as having accrued on such Debt Security
at the time of such payment or disposition. In addition, the United States
Holder may be required to defer, until the maturity of the Debt Security or its
earlier disposition in a taxable transaction, the deduction of all or a portion
of the interest expense on any indebtedness incurred or continued to purchase or
carry such Debt Security.
Any market discount will be considered to accrue ratably during the period
from the date of acquisition to the maturity date of the Debt Security, unless
the United States Holder elects to accrue on a constant interest method. A
United States Holder of a Debt Security may elect to include market discount in
income currently as it accrues (on either a ratable or constant interest
method), in which case the rule described above regarding deferral of interest
deductions will not apply. This election to include market discount in income
currently, once made, applies to all market discount obligations acquired on or
after the first taxable year to which the election applies and may not be
revoked without the consent of the IRS.
ACQUISITION PREMIUM; AMORTIZABLE BOND PREMIUM
A United States Holder that purchases a Debt Security for an amount that is
greater than its adjusted issue price but equal to or less than the sum of all
amounts payable on the Debt Security after the purchase date other than payments
of qualified stated interest will be considered to have purchased such Debt
Security at an "acquisition premium." Under the acquisition premium rules, the
amount of OID which such holder must include in its gross income with respect to
such Debt Security for any taxable year will be reduced by the portion of such
acquisition premium properly allocable to such year.
A United States Holder that purchases a Debt Security for an amount in
excess of the sum of all amounts payable on the Debt Security after the purchase
date other than qualified stated interest will be considered to have purchased
such Debt Security at a "premium" and will not be required to include any OID in
income. A United States Holder generally may elect to amortize the premium over
the remaining term of the Debt Security on a constant yield method as an offset
to interest when includible in income under the United States Holder's regular
accounting method. In the case of instruments that provide for alternative
payment schedules, bond premium is calculated by assuming that (i) the holder
will exercise or not exercise options in a manner that maximizes the holder's
yield and (ii) the issuer will exercise or not exercise options in a manner that
minimizes the holder's yield except with respect to call options for which the
issuer is assumed to exercise such call options in a manner that maximizes the
holder's yield. Bond premium on a Debt Security held by a United States Holder
that does not make such an election will decrease the gain or increase the loss
otherwise recognized on disposition of the Debt Security. The election to
amortize premium on a constant yield method once made applies to all debt
obligations held or subsequently acquired by the electing United States Holder
on or after the first day of the first taxable year to which the election
applies and may not be revoked without the consent of the IRS.
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SALE, EXCHANGE AND RETIREMENT OF DEBT SECURITIES
A United States Holder's tax basis in a Debt Security will, in general, be
the United States Holder's cost therefor, increased by OID, market discount or
any discount with respect to a Short-Term Debt Security previously included in
income by the United States Holder and reduced by any amortized premium and any
cash payments on the Debt Security other than qualified stated interest. Upon
the sale, exchange, retirement or other disposition of a Debt Security, a United
States Holder will recognize gain or loss equal to the difference between the
amount realized upon the sale, exchange, retirement or other disposition (less
any accrued qualified stated interest, which will be taxable as such) and the
adjusted tax basis of the Debt Security. Except as described above with respect
to certain Short-Term Debt Securities or with respect to market discount, such
gain or loss will be capital gain or loss. Capital gains of individuals derived
in respect of capital assets held for more than one year are eligible for
reduced rates of taxation which may vary depending upon the holding period of
such capital assets. Prospective investors should consult their own tax advisors
with respect to the treatment of capital gains and losses. The deductibility of
capital losses is subject to limitations.
TAX CONSEQUENCES OF SATISFACTION AND DISCHARGE
The Company may discharge its obligations under the Debt Securities as more
fully described under "Satisfaction and Discharge" in each of "Description of
Senior Debt Securities" and "Description of Senior Subordinated Debt Securities"
above. Such a discharge would generally for federal income tax purposes
constitute the retirement of the Debt Securities and the issuance of new
obligations with the result that Holders of the Debt Securities would realize
gain or loss (if any) on such exchange, which would be recognized depending
upon, for example, whether the exchange qualified as a tax-free recapitalization
for federal income tax purposes or whether the wash sale loss disallowance rules
applied. Any such gain would generally not be taxable to Non-United States
Holders under the circumstances outlined below. Furthermore, following
discharge, the Debt Securities might be subject to withholding, backup
withholding and/or information reporting and might be issued with OID. Similar
results might occur if the Company defeases certain obligations as described
under "Description of Senior Debt Securities--Defeasance of Certain
Obligations."
NON-UNITED STATES HOLDERS
Under present United States federal income and estate tax law, and subject
to the discussion below concerning backup withholding:
(a) no withholding of United States federal income tax will be required
with respect to the payment by the Company or any Paying Agent of principal,
premium, if any, or interest (which for purposes of this discussion includes
OID) on a Debt Security owned by a Non-United States Holder, provided (i)
that the beneficial owner does not actually or constructively own 10% or
more of the total combined voting power of all classes of stock of the
Company entitled to vote within the meaning of section 871(h)(3) of the Code
and the regulations thereunder, (ii) the beneficial owner is not a
controlled foreign corporation that is related to the Company through stock
ownership, (iii) the beneficial owner is not a bank whose receipt of
interest on a Debt Security is described in section 881(c)(3)(A) of the
Code, (iv) in the case of a Registered Security, the beneficial owner
satisfies the statement requirement (described generally below) set forth in
section 871(h) and section 881(c) of the Code and the regulations thereunder
and (v) such interest is not considered contingent interest under Section
871(h)(4)(A) 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, retirement or other disposition of a Debt Security;
and
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(c) a Debt Security beneficially owned by an individual who at the time
of death is a Non-United States Holder will not be subject to United States
federal estate tax as a result of such individual's death, provided that
such individual does not actually or constructively own 10% or more of the
total combined voting power of all classes of stock of the Company entitled
to vote within the meaning of section 871(h)(3) of the Code and provided
that the interest payments with respect to such Debt Security would not have
been, if received at the time of such individual's death, effectively
connected with the conduct of a United States trade or business by such
individual.
To satisfy the requirement referred to in (a)(iv) above, the beneficial
owner of such Debt Security, or a financial institution holding the Debt
Security on behalf of such owner, must provide, in accordance with specified
procedures, a paying agent of the Company with a statement to the effect that
the beneficial owner is not a United States person. Currently, these
requirements will be met if (1) the beneficial owner provides his name and
address, and certifies, under penalties of perjury, that he is not a United
States person (which certification may be made on an Internal Revenue Service
Form W-8 (or successor form)) or (2) a financial institution holding the Debt
Security on behalf of the beneficial owner certifies, under penalties of
perjury, that such statement has been received by it and furnishes a paying
agent with a copy thereof. Under recently finalized Treasury regulations (the
"Final Regulations"), the statement requirement referred to in (a)(iv) above may
also be satisfied with other documentary evidence for interest paid after
December 31, 1999 with respect to an offshore account or through certain foreign
intermediaries.
If a Non-United States Holder cannot satisfy the requirements of the
"portfolio interest" exception described in (a) above, payments of premium, if
any, and interest (including OID) made to such Non-United States Holder will be
subject to a 30% withholding tax unless the beneficial owner of the Debt
Security provides the Company or its paying agent, as the case may be, with a
properly executed (1) Internal Revenue Service Form 1001 (or successor form)
claiming an exemption from (or reduction in) withholding under the benefit of an
applicable tax treaty or (2) Internal Revenue Service Form 4224 (or successor
form) stating that interest paid on the Note is not subject to withholding tax
because it is effectively connected with the beneficial owner's conduct of a
trade or business in the United States. Under the Final Regulations, Non-United
States Holders will generally be required to provide IRS Form W-8 in lieu of IRS
Form 1001 and IRS Form 4224, although alternative documentation may be
applicable in certain situations.
If a Non-United States Holder is engaged in a trade or business in the
United States and premium, if any, or interest (including OID) on the Debt
Security is effectively connected with the conduct of such trade or business,
the Non-United States Holder, although exempt from the withholding tax discussed
above (provided the Non-United States Holder complies with the relevant
certification requirements), will be subject to United States federal income tax
on such interest and OID on a net income basis in the same manner as if it were
a United States Holder. In addition, if such holder is a foreign corporation, it
may be subject to a branch profits tax equal to 30% (or lower applicable treaty
rate) of its effectively connected earnings and profits for the taxable year,
subject to adjustments. For this purpose, such premium, if any, and interest
(including OID) on a Debt Security will be included in such foreign
corporation's earnings and profits.
Any gain or income realized upon the sale, exchange, retirement or other
disposition of a Debt Security generally will not be subject to United States
federal income tax unless (i) such gain or income is effectively connected with
a trade or business in the United States of the Non-United States Holder, or
(ii) in the case of a Non-United States Holder who is an individual, such
individual is present in the United States for 183 days or more in the taxable
year of such sale, exchange retirement or other disposition, and certain other
conditions are met.
Special rules may apply to certain Non-United States Holders, such as
"controlled foreign corporations," "passive foreign investment companies" and
"foreign personal holding companies," that are subject
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to special treatment under the Code. Such entities should consult their own tax
advisors to determine the United States federal, state, local and other tax
consequences that may be relevant to them.
BACKUP WITHHOLDING AND INFORMATION REPORTING
In general, information reporting requirements will apply to certain
payments of principal, interest, OID and premium paid on Debt Securities and to
the proceeds of sale of a Debt Security made to United States Holders other than
certain exempt recipients (such as corporations). A 31% backup withholding tax
will apply to such payments if the United States Holder fails to provide a
taxpayer identification number or certification of foreign or other exempt
status or fails to report in full dividend and interest income.
In general, 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)(iv) under "Non-United States
Holders" has been received (and the payor does not have actual knowledge that
the beneficial owner is a United States person).
In addition, backup withholding and information reporting may apply to the
proceeds of the sale of a Debt Security within the United States or conducted
through certain United States related financial intermediaries unless the
statement described in (a)(iv) under "Non-United States Holders" has been
received (and the payor does not have actual knowledge that the beneficial owner
is a United States person) or the holder otherwise establishes an exemption.
CAPITAL REQUIREMENTS
As registered broker-dealers, the Company and certain of its subsidiaries
(the "Regulated Subsidiaries") are subject to the SEC's net capital rule (Rule
15c3-1, the "Net Capital Rule"), promulgated under the Exchange Act. The
Exchange monitors the application of the Net Capital Rule by the Company, and
the NASD monitors the application of the Net Capital Rule by the Regulated
Subsidiaries. The Company and the Regulated Subsidiaries 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.
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 its Regulated Subsidiaries that require the intensive use of
capital, such as underwriting and trading activities and the financing of
customer account balances.
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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 Debt 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 Debt 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 Debt Securities are set forth
on the cover of a Prospectus Supplement relating to such Debt Securities and the
members of the underwriting syndicate, if any, are named in such Prospectus
Supplement. Only the underwriters so named in a Prospectus Supplement are
underwriters, in connection with the Debt 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 Debt Securities will be listed.
The Debt 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 Debt Securities will be subject to certain
conditions precedent, and the underwriters will be obligated to purchase all the
Debt Securities of the series offered by the Prospectus Supplement if any of
such Debt 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 Debt 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
Debt Securities, will not receive the full amount of net proceeds of such Debt
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
Debt Securities providing for payment and delivery on a future 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 Debt Securities which may be sold
pursuant to such arrangements. Institutional investors to which such offers may
be made, when authorized, include commercial and savings banks, insurance
companies, pension funds, educational 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 Debt Securities shall not at the time of delivery be prohibited under
the laws of any jurisdiction in the United States to which such institution is
subject, and (ii) the Company shall have sold to such underwriters the total
principal amount of such Debt 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.
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The underwriters may engage in transactions with, or perform services for, the
Company in the ordinary course of business.
Each underwriter will represent and agree that (i) it has not offered or
sold and will not offer or sell any Debt Securities to persons in the United
Kingdom except to persons whose ordinary activities involve then in acquiring,
holding, managing or disposing of investments (as principal or agent) for the
purposes of their businesses or otherwise in circumstances which have not
resulted and will not result in an offer to the public in the United Kingdom
within the meaning of the Public Offers of Securities Regulations 1995 (the
"Regulations"); (ii) it complied and will comply with all applicable provisions
of the Financial Services Act 1986 and the Regulations with respect to anything
done by it in relation to the Debt 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 Debt Securities if that person is of a kind
described in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1995 or is a person to whom such document may
otherwise lawfully be issued or passed on.
This Prospectus, together with an applicable Prospectus Supplement, may also
be used by Lehman Brothers International (Europe) ("LBIE") in connection with
offers and sales of Securities related to market making transactions, by and
through LBIE, at negotiated prices related to prevailing market prices at the
time of sale or otherwise. LBIE may act as principal or agent in such
transactions.
The underwriting arrangements for any offering of the Debt Securities 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 Debt 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 Code, with respect
to certain employee benefit plans. Certain transactions between an employee
benefit plan and a party in interest or disqualified person may result in
"prohibited transactions" within the meaning of ERISA and the Code. ANY EMPLOYEE
BENEFIT PLAN PROPOSING TO INVEST IN THE DEBT SECURITIES SHOULD CONSULT WITH ITS
LEGAL COUNSEL.
LEGAL OPINIONS
Unless otherwise indicated in an applicable Prospectus Supplement, the
validity of the Debt Securities offered hereby will be passed upon for the
Company by Karen M. Muller, Esq., Deputy General Counsel of the Company, and for
the underwriters by Simpson Thacher & Bartlett, 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.
INDEPENDENT ACCOUNTANTS
The consolidated financial statements of the Company for each of the three
years ended November 30, 1997 appearing in the Company's Annual Report on Form
10-K for the year ended November 30, 1997, 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 are
incorporated herein by reference in reliance upon the reports of Ernst & Young
LLP pertaining to such financial statements (to the extent covered by consents
filed with the Securities and Exchange Commission) given upon the authority of
such firm as experts in accounting and auditing.
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$200,000,000
LEHMAN BROTHERS INC.
7% SENIOR SUBORDINATED NOTES DUE 2002
------------------
PROSPECTUS SUPPLEMENT
SEPTEMBER 23, 1999
(INCLUDING PROSPECTUS DATED
MAY 6, 1998)
------------------------
LEHMAN BROTHERS
