<PAGE>
PROSPECTUS SUPPLEMENT (Subject to Completion, Dated August 11, 1995) (To
Prospectus dated August 2, 1995)
$100,000,000
ALEX. BROWN INCORPORATED
% SENIOR NOTES DUE 2005
The Senior Notes will mature on August 15, 2005. Interest on the Senior
Notes is payable semiannually on February 15 and August 15 of each year,
commencing February 15, 1996. The Senior Notes are not redeemable prior to
maturity and are not entitled to any sinking fund.
The Senior Notes will be represented by a global note registered in the
name of a nominee of The Depository Trust Company, as Depositary. Beneficial
interests in the Senior Notes will be shown on, and transfers thereof will be
effected only through, records maintained by the Depositary (with respect to
participants' interests) and its participants. Except as described in the
accompanying Prospectus, Senior Notes in certificated form will not be issued in
exchange for the global note. The Senior Notes have been approved for listing on
the New York Stock Exchange ("NYSE"), subject to notice of issuance.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE UNDERWRITING
TO DISCOUNTS AND PROCEEDS TO
PUBLIC(1) COMMISSIONS(2) COMPANY(1)(3)
<S> <C> <C> <C>
Per Senior Note................................... % % %
Total............................................. $ $ $
</TABLE>
(1) Plus accrued interest, if any, from August , 1995.
(2) See "Underwriting" for information related to indemnification of the
Underwriters.
(3) Before deduction of expenses payable by the Company estimated at $435,000.
The Senior Notes are offered by the Underwriters, subject to prior sale,
when, as and if delivered to and accepted by them, and subject to the right of
the Underwriters to reject any order in whole or in part. It is expected that
delivery of the Senior Notes will be made on or about August , 1995 through
the book-entry facilities of The Depository Trust Company against payment
therefor in immediately available funds.
ALEX. BROWN & SONS MORGAN STANLEY & CO.
INCORPORATED INCORPORATED
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS AUGUST , 1995.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY
TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY JURISDICTION IN
WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS SUPPLEMENT AND PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SECURITIES
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
PAGE
Prospectus Summary S-3
The Company S-5
Use of Proceeds S-5
Capitalization S-6
Selected Consolidated Financial Data S-7
Management's Discussion and Analysis of Results of Operations and Financial
Condition S-8
Description of Senior Notes S-11
Underwriting S-13
Legal Matters S-13
PROSPECTUS
Available Information 2
Incorporation of Certain Documents by Reference 2
The Company 3
Use of Proceeds 3
Ratio of Earnings to Fixed Charges 3
Description of Debt Securities 4
Limitations on Issuance of Bearer Debt Securities 10
Description of Capital Stock 11
Plan of Distribution 12
Legal Matters 13
Experts 13
ERISA Matters for Pension Plans and Insurance Companies 13
S-2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED
INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS.
THE COMPANY
Alex. Brown Incorporated (together with its subsidiaries, the "Company"),
incorporated in l986, is a holding company whose principal subsidiary is Alex.
Brown & Sons Incorporated ("Alex. Brown"), a major investment banking and
securities brokerage firm. Alex. Brown, founded in 1800, is the oldest
investment banking firm in the United States.
Through Alex. Brown, the Company provides investment services to individual
and institutional investors, and investment banking services to corporate and
municipal clients. Alex. Brown is a leading provider of investment banking
services to companies in those core industries where it has focused its research
activities: consumer products and services; financial services (banks,
insurance, real estate and specialty financial services); health care;
industrial growth (environmental, industrial technologies and transportation);
media/communications and technology. Within these focus areas, the Company
offers equity and debt financing in the public and private markets, merger and
acquisition advice, and restructuring and recapitalization services. The
Company's investment services include: research; sales and trading of
over-the-counter ("OTC") and listed equities, taxable fixed income and
tax-exempt securities; margin lending and asset management services for
individuals, corporations, trusts, pensions, foundations and endowments. The
Company provides additional investment management services through Brown
Advisory & Trust Company and makes investments, including merchant banking
investments, for its own account. In addition, Alex. Brown provides
administrative, execution, operational and clearing services to other securities
firms.
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEARS ENDED DECEMBER 31
JUNE 30, JUNE 24,
1995 1994 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
EARNINGS STATEMENT DATA:
Total revenues............. $ 352,451 $ 306,287 $ 605,488 $ 628,203 $ 455,724 $ 410,580 $ 271,702
Earnings before
income taxes............. 65,653 63,042 118,281 148,335 95,384 83,356 11,760
Net earnings............... 39,392 37,510 70,871 89,226 58,611 51,952 7,761
Return on average
stockholders' equity (1). - - 19.7% 28.8% 23.6% 26.5% 4.5%
Ratio of earnings to
fixed charges (2)........ 4.5x 6.1x 5.3x 8.5x 7.1x 5.8x 1.4x
<CAPTION>
JUNE 30, 1995 DECEMBER 31
(UNAUDITED) 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets............... $1,627,345 $ 1,346,433 $ 1,283,423 $ 1,085,034 $ 865,692 $ 786,852
5.75% Convertible
subordinated debentures
due 2001................. 20,860 24,690 24,642 24,593 24,545 24,496
Employee convertible
subordinated
debentures............... 41,631 34,670 31,506 4,130 2,125 --
Total liabilities.......... 1,199,616 973,005 937,758 810,639 644,012 617,069
Total stockholders'
equity................... 427,729 373,428 345,665 274,395 221,680 169,783
</TABLE>
(1) Calculated by dividing after-tax earnings for the year by the average
stockholders' equity for the year. Average stockholders' equity is
calculated by adding stockholders' equity on the first day of the year to
stockholders' equity on the last day of the year and dividing by two.
(2) For the purpose of calculating the ratio of earnings to fixed charges,
earnings consist of income from operations before income taxes and fixed
charges. Fixed charges for the purposes of calculating the ratio of earnings
to fixed charges consist of interest expense and that portion of rentals
deemed representative of an interest factor.
S-3
<PAGE>
THE OFFERING
Securities Offered....... $100,000,000 in aggregate principal amount
of % Senior Notes Due 2005.
Maturity................. August 15, 2005.
Interest Payment Dates... February 15 and August 15, commencing
February 15, 1996.
Redemption............... The Senior Notes are not redeemable prior
to maturity and are not entitled to
any sinking fund.
Ranking of Senior Notes.. The Senior Notes will rank pari passu with
all other unsecured and
unsubordinated debt of the Company and are
effectively subordinated to
indebtedness of the Company's subsidiaries.
At June 30, 1995, indebtedness of
subsidiaries for money borrowed totalled
approximately $514 million,
substantially all of which was incurred
under customary arrangements for
short-term borrowings utilized by the
securities brokerage industry.
Use of Proceeds.......... For general working capital purposes.
See "Use of Proceeds."
NYSE Listing............. The Senior Notes have been approved for listing
on the NYSE, subject to notice
of issuance, under the symbol "AB 05".
S-4
<PAGE>
THE COMPANY
The Company is a holding company whose principal subsidiary is Alex. Brown,
a major investment banking and securities firm. Alex. Brown, founded in 1800, is
the oldest investment banking firm in the United States. Through Alex. Brown,
the Company provides investment services to individual and institutional
investors, and investment banking services to corporate and municipal clients.
The Company's investment services include: research; sales and trading of OTC
and listed equities, taxable fixed income and tax-exempt securities; margin
lending and asset management services for individuals, corporations, trusts,
pensions, foundations and endowments. The Company provides additional investment
management services through Brown Advisory & Trust Company.
Alex. Brown is a leading provider of investment banking services to
companies in selected core industries: consumer products and services; financial
services (banks, insurance, real estate and specialty financial services);
health care; industrial growth (environmental, industrial technologies and
transportation); media/communications and technology. Within these focus areas,
the Company offers a full range of investment banking services including:
equity and debt financing in the public and private markets; merger and
acquisition advice; and restructuring and recapitalization services. The Company
also makes investments, including merchant banking investments, for its own
account. Alex. Brown also provides financial advice to, and raises capital for,
many types of issuers of tax-exempt securities, including states, counties,
cities, transportation authorities, sewer and water authorities and housing,
health and higher education agencies. In addition, Alex. Brown provides
administrative, execution, operational and clearing services to other securities
firms.
In 1994, the Company's revenues and net earnings of $605.5 million
and $70.9 million, respectively, were the second highest in the Company's
history resulting in a 19.7% return on average stockholders' equity and an
increase in book value per share to $26.13 from $22.51 in 1993. For the six
months ended June 30, 1995, the Company's revenues and net earnings were $352.5
million and $39.4 million, respectively, and represented the strongest first
half in the Company's history. At June 30, 1995, the book value per share was
$28.34.
The Company, headquartered in Baltimore, Maryland, employs over 2,300
people worldwide and has offices in 23 cities in the United States and in
London, Geneva and Tokyo.
Alex. Brown is a member of the NYSE, The American Stock Exchange, Inc., the
Chicago Board Options Exchange, Inc., other regional securities exchanges and
the National Association of Securities Dealers, Inc. (the "NASD"). Alex. Brown
is also a member of the Securities Investor Protection Corporation ("SIPC").
With respect to its activities in the U.K., two subsidiaries of Alex. Brown are
members of the Securities and Futures Authority. The Company's principal
executive offices are located at 135 East Baltimore Street, Baltimore, Maryland
21202 and its telephone number is (410) 727-1700. Unless the context otherwise
requires, the term "Company" means Alex. Brown Incorporated and its consolidated
subsidiaries.
USE OF PROCEEDS
The net proceeds from the sale of the Senior Notes offered hereby are
estimated to be $ . The Company intends to use the net proceeds for
general working capital purposes. Pending such uses, the net proceeds will be
used to repay certain short-term indebtedness which bears interest at rates
ranging from 6.2% to 6.8% per annum at July 31, 1995.
S-5
<PAGE>
CAPITALIZATION
The following table sets forth the unaudited consolidated short-term debt
and capitalization of the Company as of June 30, 1995 and as adjusted to reflect
the sale of the Senior Notes offered hereby and the anticipated use of net
proceeds therefrom:
<TABLE>
<CAPTION>
JUNE 30, 1995
ACTUAL AS ADJUSTED
<S> <C> <C>
(IN THOUSANDS)
Short-term debt (bank loans, current maturities)................................................... $ 88,019 $ 6,094
Long-term debt:
Bank loans, noncurrent maturities................................................................ $ 17,372 $ 17,372
Senior Notes offered hereby...................................................................... - 100,000
5.75% Convertible subordinated debentures due 2001............................................... 20,860 20,860
Employee convertible subordinated debentures..................................................... 41,631 41,631
Total long-term debt........................................................................ 79,863 179,863
Stockholders' equity:
Common stock, par value $.10 per share, 50,000,000 shares authorized,
15,093,339 shares issued and outstanding (1).................................................. 1,509 1,509
Additional paid-in capital....................................................................... 101,568 101,568
Loans to employees to purchase common stock...................................................... (11,547) (11,547)
Retained earnings................................................................................ 336,199 336,199
Total stockholders' equity.................................................................. 427,729 427,729
Total capitalization..................................................................... $507,592 $ 607,592
</TABLE>
(1) Does not include 1,777,421 shares reserved for issuance upon exercise of
outstanding stock options, 1,672,034 shares reserved for issuance upon
conversion of the Employee convertible subordinated debentures and 810,411
shares reserved for issuance upon the conversion of the Company's 5.75%
Convertible subordinated debentures due 2001.
S-6
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data for the
Company for the periods indicated. Such financial data should be read in
conjunction with the detailed information and consolidated financial statements,
including notes thereto, included in the documents incorporated by reference in
the accompanying Prospectus. The following dollar amounts are in thousands.
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEARS ENDED DECEMBER 31
JUNE 30, JUNE 24,
1995 1994 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
EARNINGS STATEMENT DATA:
Revenues:
Commissions.............................. $ 83,735 $ 71,894 $ 140,026 $ 131,696 $ 108,733 $ 93,969 $ 68,017
Investment banking....................... 115,651 104,634 199,145 254,076 169,876 152,861 91,855
Principal transactions................... 64,627 62,211 118,468 129,774 90,884 83,535 30,526
Interest and dividends................... 45,233 30,442 68,597 49,278 36,765 39,600 48,265
Advisory and other....................... 43,205 37,106 79,252 63,379 49,466 40,615 33,039
Total revenues......................... 352,451 306,287 605,488 628,203 455,724 410,580 271,702
Operating expenses:
Compensation and benefits................ 191,738 170,812 329,504 344,344 250,100 224,559 158,377
Communications........................... 15,844 13,295 28,161 24,083 22,546 20,899 21,501
Occupancy and equipment.................. 19,719 13,889 32,160 26,461 24,365 22,276 19,718
Interest................................. 15,047 10,051 21,920 14,924 10,587 12,161 21,409
Floor brokerage, exchange and clearing
fees................................... 9,028 7,701 16,230 13,804 10,781 9,595 7,852
Other operating expenses................. 35,422 27,497 59,232 56,252 41,961 37,734 31,085
Total operating expenses............... 286,798 243,245 487,207 479,868 360,340 327,224 259,942
Earnings before income taxes............... 65,653 63,042 118,281 148,335 95,384 83,356 11,760
Income taxes............................... 26,261 25,532 47,410 59,109 36,773 31,404 3,999
Net earnings............................... $ 39,392 $ 37,510 $ 70,871 $ 89,226 $ 58,611 $ 51,952 $ 7,761
Return on average stockholders' equity (1). - - 19.7% 28.8% 23.6% 26.5% 4.5%
Ratio of earnings to fixed charges (2)..... 4.5x 6.1x 5.3x 8.5x 7.1x 5.8x 1.4x
<CAPTION>
JUNE 30, 1995 DECEMBER 31
(UNAUDITED) 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets............................... $1,627,345 $ 1,346,433 $ 1,283,423 $ 1,085,034 $ 865,692 $ 786,852
5.75% Convertible subordinated debentures
due 2001................................. 20,860 24,690 24,642 24,593 24,545 24,496
Employee convertible subordinated
debentures............................... 41,631 34,670 31,506 4,130 2,125 -
Total liabilities.......................... 1,199,616 973,005 937,758 810,639 644,012 617,069
Total stockholders' equity................. 427,729 373,428 345,665 274,395 221,680 169,783
</TABLE>
(1) Calculated by dividing after-tax earnings for the year by the average
stockholders' equity for the year. Average stockholders' equity is
calculated by adding stockholders' equity on the first day of the year to
stockholders' equity on the last day of the year and dividing by two.
(2) For the purpose of calculating the ratio of earnings to fixed charges,
earnings consist of income from operations before income taxes and fixed
charges. Fixed charges for the purposes of calculating the ratio of earnings
to fixed charges consist of interest expense and that portion of rentals
deemed representative of an interest factor.
S-7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The Company is a holding company whose primary subsidiary is Alex. Brown, a
major investment banking and securities brokerage firm. The Company, like other
securities firms, is directly affected by general economic and market
conditions, including fluctuations in volume and price levels of securities,
changes in interest rates and demand for investment banking and securities
brokerage services, all of which have an impact on the Company's revenues as
well as its liquidity. Substantial fluctuations can occur in the Company's
revenues and net earnings due to these and other factors.
In periods of reduced market activity, profitability is likely to be
adversely affected because certain expenses, consisting primarily of salaries
and benefits, communications and occupancy expenses, remain relatively fixed.
Accordingly, net earnings for any period should not be considered representative
of any other period.
RESULTS OF OPERATIONS
SIX MONTHS 1995 COMPARED TO SIX MONTHS 1994
REVENUES
Revenues for the six months totalled $352.5 million, a 15% increase as
compared to $306.3 million in the first six months of 1994. Commission revenues
increased 16% to $83.7 million during the first half of 1995, primarily as a
result of increased institutional and private client listed commissions over the
same period in the prior year. Investment banking revenues increased 11% to
$115.7 million, primarily as a result of increases from underwriting revenues.
Principal transaction revenues increased 4% to $64.6 million, due to increases
in OTC trading revenues. Interest and dividend revenues increased 49% to $45.2
million from $30.4 million, resulting from higher interest rates and an increase
in margin loan balances. Advisory and other revenues increased 16% to $43.2
million, reflecting increases in advisory and other fees, investment and
merchant banking revenues and an increase in correspondent services revenues.
OPERATING EXPENSES
Operating expenses totalled $286.8 million, an 18% increase as compared to
$243.2 million in the first six months of 1994. Compensation and benefits
increased 12% to $191.7 million, primarily as a result of increased incentive,
salary and commission expense. Communications expense increased 19% to $15.8
million, reflecting increased levels of business activity and increased
technology expenditures. Occupancy and equipment expense increased 42% to $19.7
million, primarily as a result of expansion in several offices, increased
technology expenditures and an expense provision related to vacating certain
office space prior to expiration of the lease of one of the Company's offices.
Interest expense increased 50% to $15.0 million from $10.1 million, primarily as
a result of the need to finance increased margin loans and interest rate
increases. Floor brokerage, exchange and clearing fees increased 17% to $9.0
million, reflecting an increased volume of listed trades. Other operating
expenses increased 29% to $35.4 million, primarily reflecting increases in
expenses associated with the level of business activity, which were partially
offset by a decline in affiliate expenses.
INCOME TAXES
The Company's effective tax rate for the six months was 40.0%, compared to
40.5% for the first six months of 1994.
NET EARNINGS
As a result of the above, net earnings increased by 5% to $39.4 million
from $37.5 million in the first six months of 1994. Primary and fully diluted
earnings per share were $2.61 and $2.28, respectively, as compared to $2.39 and
$2.11 for the same period in the prior year.
The weighted average number of shares outstanding for purposes of
calculating earnings per share includes shares related to outstanding dilutive
stock options and is affected by the market price of the Company's Common Stock.
Additionally, the calculation of fully diluted earnings per share assumes the
conversion into Common Stock of the Company's outstanding convertible
subordinated debt, if dilutive. These factors can result in lower rates of
S-8
<PAGE>
increase or higher rates of decrease in earnings per share as compared to the
rates of increase or decrease in net earnings.
1994 COMPARED TO 1993
REVENUES
Revenues totalled $605.5 million, a decrease of 4% from $628.2 million in
1993. Commission revenues totalled $140.0 million, a 6% increase from $131.7
million in 1993, primarily reflecting increased institutional listed
commissions. Investment banking revenues decreased 22% to $199.1 million from
$254.1 million in 1993, primarily as a result of decreased underwriting-related
revenues. Partially offsetting this decline was a significant increase in merger
and advisory fees. Principal transaction revenues decreased 9% to $118.5 million
from $129.8 million in 1993, due to declines in equity, high yield and
mortgage-backed trading reflecting unsettled market conditions experienced
throughout the year. Interest and dividend revenues increased 39% to $68.6
million from $49.3 million in 1993, due to higher interest rates and an increase
in margin loans. Advisory and other revenues totalled $79.3 million, a 25%
increase from $63.4 million in 1993. The largest contributor to this increase
was a gain of $7.8 million relating to the sale of the Company's interests in
Alex. Brown Kleinwort Benson Realty Advisory Holding Company. Additionally,
revenues from asset management operations increased. Net investment revenue
(excluding the gain on sale mentioned above) totalled $8.1 million for the year
as compared to $7.9 million in the previous year.
OPERATING EXPENSES
Total operating expenses were $487.2 million, a 2% increase from $479.9
million in 1993. Compensation and benefits expense decreased 4% to $329.5
million from $344.3 million in 1993, reflecting decreases in commissions and
incentive compensation, partially offset by increases in salary expense.
Communications expense increased 17% from $24.1 million to $28.2 million, due
primarily to increased levels of business activity and increased technology
expenditures. Occupancy and equipment expense increased 22% to $32.2 million
from $26.5 million in 1993, primarily as a result of planned growth, increased
technology expenditures and an expense provision related to vacating certain
office space prior to expiration of the lease of one of the Company's offices.
Interest expense increased 47% to $21.9 million from $14.9 million in 1993,
primarily as a result of financing increased margin loans and securities
positions and increased interest rates. Floor brokerage, exchange and clearing
fees increased 18% to $16.2 million from $13.8 million, reflecting higher
volumes of listed securities transactions by both Alex. Brown and its
correspondents. Other operating expenses increased 5% to $59.2 million from
$56.3 million in 1993, as a result of costs associated with higher levels of
business activity, which were partially offset by a decrease in affiliate
expenses.
INCOME TAXES
The Company's effective tax rate increased to 40.1% from 39.8% in 1993.
NET EARNINGS
As a result of the above, net earnings decreased to $70.9 million from
$89.2 million in 1993. Primary and fully diluted earnings per share were $4.60
and $4.05, respectively, as compared to $5.61 and $5.09 in 1993.
1993 COMPARED TO 1992
REVENUES
Revenues totalled $628.2 million, an increase of 38% from $455.7 million in
1992. Generally, the increase reflects the year's market strength which prompted
increases in trading volume on the major exchanges and in the OTC market and an
increased volume of public offerings. Commission revenues totalled $131.7
million, a 21% increase from $108.7 million in 1992, reflecting increased
private client and institutional activity, spurred by higher trading volumes on
the major exchanges. Investment banking revenues increased 50% to $254.1
million, primarily as a result of increased underwriting-related revenues.
Principal transaction revenues increased 43% to $129.8 million from $90.9
million in 1992, primarily as a result of strong performance in OTC equity and
fixed income trading, including mortgage-backed securities. Interest and
dividend revenues increased 34% to $49.3 million from $36.8 million in 1992,
reflecting an increase in margin loans and fixed income inventories. Advisory
and other revenues totalled $63.4 million, a 28% increase from $49.5 million in
1992. This increase was primarily attributable to increased revenues from
S-9
<PAGE>
asset management operations and correspondent services and increases in net
investment revenue, including gains on merchant banking investments.
OPERATING EXPENSES
Reflecting general market conditions and related increases in transaction
volumes, total operating expenses were $479.9 million, a 33% increase from
$360.3 million in 1992. Compensation and benefits expense increased 38% to
$344.3 million, reflecting increases in commissions, salaries and benefits and
incentive compensation. Communications expense increased 7% from $22.5 million
to $24.1 million, due primarily to increased levels of business activity.
Occupancy and equipment expense increased 9% to $26.5 million in 1993. This
increase was primarily attributable to additional equipment expense and
expansion of offices. Interest expense increased 41% to $14.9 million, due
primarily to the need to finance increased margin loans and fixed income
inventories. Floor brokerage, exchange and clearing fees increased 28% to $13.8
million, as a result of higher volumes of listed securities transactions by both
Alex. Brown and its correspondents. Other operating expenses increased 34% to
$56.3 million from $42.0 million in 1992, as a result of increased processing
expenses associated with the higher volume of trades and other costs associated
with higher levels of business activity, including other professional and
affiliate expenses.
INCOME TAXES
The Company's effective tax rate increased to 39.8% from 38.6% in 1992, as
a result of higher rates.
NET EARNINGS
As a result of the above, net earnings increased to $89.2 million, from
$58.6 million in 1992. Primary and fully diluted earnings per share were $5.61
and $5.09, respectively, as compared to $3.72 and $3.50 in 1992.
LIQUIDITY AND CAPITAL RESOURCES
The Company's consolidated statement of financial condition as of June 30,
1995 reflects a liquid financial position. The majority of the long and short
securities positions in Alex. Brown's trading accounts are readily marketable
and actively traded. Customer receivables include margin balances and amounts
due on uncompleted transactions. Receivables from other brokers and dealers
generally represent either current open transactions, which usually settle
within a few days, or securities borrowed transactions which normally can be
closed out within a few days. Most of the Company's receivables are secured by
marketable securities. The Company also has investments in fixed assets and
illiquid securities but such investments are not a significant portion of the
Company's total assets.
High yield securities, also referred to as "junk" bonds, are non-investment
grade debt securities which are rated by Standard & Poor's as lower than BBB-
and by Moody's Investors Service as lower than Baa3. The market for high yield
securities can be extremely volatile and many high yield securities experienced
significant price declines in the past several years. At June 30, 1995, in its
high yield operations, Alex. Brown had $13.8 million of long inventory and $2.0
million of short inventory as compared to $21.3 million of long inventory and
$1.0 million of short inventory at year-end 1994.
As of June 30, 1995, the carrying value of the Company's merchant banking
investments was $21.6 million, compared to $13.6 million at year-end 1994. Gains
related to merchant banking investments were $3.7 million for the first six
months of 1995, reflecting increases in the carrying value of three merchant
banking investments. It is anticipated that merchant banking investments will
generally have a holding period of three years or more and will be funded with
existing sources of working capital. The Company has no outstanding bridge
loans.
From time to time the Company makes subordinated loans to correspondents as
part of its correspondent services business. These loans may be secured or
unsecured and are funded through general working capital sources. At June 30,
1995, $3.0 million of such loans were outstanding.
The Company finances its business through a number of sources, consisting
primarily of paid-in capital, funds generated from operations, free credit
balances in customers' accounts, deposits received on securities loaned,
repurchase agreements and bank loans.
The Company borrows from banks on a short-term basis under arrangements
pursuant to which the amount of funds available to the Company is based on the
value of the securities owned by the Company and customers' margin securities
pledged as collateral. In addition, the Company borrows on a long-term basis
from banks on both an
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<PAGE>
unsecured basis and with fixed assets pledged as collateral. The Company has
historically been able to obtain necessary bank borrowings and believes that it
will continue to be able to do so in the future. The Company also has a total of
$125 million of unsecured and secured financing from banks available under
committed revolving credit facilities (the "Credit Facilities"), of which $25
million expires in August 1995 and $100 million expires in August 1996. There
were no amounts outstanding under the Credit Facilities as of June 30, 1995. The
Company is currently in discussions with regard to renewing the $25 million
facility. The Credit Facilities and certain term loans contain various
restrictive covenants, the most significant of which require the maintenance of
minimum levels of net worth by both the Company and Alex. Brown and minimum
levels of net capital by Alex. Brown.
Alex. Brown is required to comply with the net capital rule of the SEC. The
rule may limit the Company's ability to withdraw capital from Alex. Brown. Alex.
Brown has consistently exceeded minimum net capital requirements under the rule.
At June 30, 1995, Alex. Brown had aggregate net capital of $235.1 million, which
exceeded its minimum net capital requirement by $216.0 million.
During the first six months of 1995, the Company repurchased a total of
9,298 shares, on a trade-date basis, of its Common Stock at a cost of $0.3
million. As of July 1995, the Company had a remaining repurchase authorization
of approximately 1.4 million shares. The Company anticipates that, subject to
market conditions, it will make additional repurchases in the future.
Management of the Company believes that existing capital and credit
facilities, when combined with funds generated from operations, will provide the
Company with sufficient resources to meet its present and reasonably foreseeable
cash and capital needs.
RISK MANAGEMENT
The Company records securities transactions on a settlement date basis,
generally the third business day following the transaction. The risk of loss on
unsettled transactions relates to customers' or brokers' inability or refusal to
meet the terms of their contracts. The Company monitors its exposure to market
and counterparty risk through a variety of financial, position and credit
exposure reporting and control procedures. The Risk Management, Credit and
Investment Committees, each of which meets on a regular basis, include members
of senior management. Each trading department is subject to internal position
limits established by the Risk Management Committee which also reviews positions
and results of the trading departments. Alex. Brown's Credit Committee
establishes and reviews appropriate credit limits for customers and brokers
seeking margin, repurchase and reverse repurchase agreement facilities and
securities borrowed and securities loaned arrangements. The Investment Committee
approves investment purchases and sales and reviews holdings.
INFLATION
Because the Company's assets are, to a large extent, liquid in nature, they
are not significantly affected by inflation. However, the rate of inflation
affects the Company's expenses such as employee compensation, office space
leasing costs and communication charges, and increases therein may not be
readily recoverable in the price of services offered by the Company. To the
extent inflation results in rising interest rates and has other adverse effects
upon the securities markets and on the value of securities owned by the Company,
it may adversely affect the Company's financial position and results of
operations.
DESCRIPTION OF SENIOR NOTES
GENERAL
The following description of the particular terms of the Senior Notes
offered hereby (referred to in the accompanying Prospectus as the "Offered Debt
Securities") supplements, and to the extent inconsistent therewith replaces, the
description of the general terms and provisions of Debt Securities set forth in
the accompanying Prospectus, to which description reference is hereby made. The
Senior Notes will constitute a series of Debt Securities and will be issued
under the Senior Debt Indenture dated as of July 10, 1995 between the Company
and Chemical Bank, as Trustee (the "Indenture").
The Senior Notes will be limited to $100,000,000 aggregate principal amount
and will mature on August 15, 2005. The Senior Notes will constitute part of the
senior debt of the Company and will rank pari passu with all other
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<PAGE>
unsecured and unsubordinated debt of the Company. The Company is a holding
company and the Senior Notes will be effectively subordinated to indebtedness of
the Company's subsidiaries. At June 30, 1995, indebtedness of such subsidiaries
for money borrowed totalled approximately $514 million, substantially all of
which was incurred under customary arrangements for short-term borrowings
utilized by the securities brokerage industry. The Company's rights and the
rights of its creditors, including holders of Senior Notes, to participate in
the distribution of assets of any subsidiary upon such subsidiary's liquidation
or reorganization will be subject to prior claims of such subsidiary's
creditors, including trade creditors, except to the extent the Company may
itself be a creditor with recognized claims against such subsidiary. See
"Description of Debt Securities -- General" in the accompanying Prospectus.
The Senior Notes will bear interest at the rate per annum shown on the
front cover of this Prospectus Supplement from August , 1995 or from the most
recent Interest Payment Date to which interest has been paid or provided for,
payable semiannually on February 15 and August 15 of each year commencing on
February 15, 1996 to the person in whose name the Senior Notes are registered at
the close of business on February 1 and August 1, as the case may be, next
preceding such Interest Payment Date. The Senior Notes will be issued only in
fully registered form in denominations of $1,000 and any integral multiple
thereof. Principal of, premium, if any, and interest on the Senior Notes will be
payable, and the transfer of Senior Notes will be registrable, through the
Depositary as described under "Book-Entry Procedures."
The Senior Notes will not be redeemable prior to maturity and are not
entitled to any sinking fund.
The Senior Debt Indenture permits the defeasance of the Senior Notes upon
the satisfaction of the conditions described under "Description of Debt
Securities -- Discharge, Defeasance and Covenant Defeasance" in the accompanying
Prospectus. The Senior Notes are subject to these defeasance provisions.
BOOK-ENTRY PROCEDURES
Upon issuance, all Senior Notes will be represented by a fully registered
global note (the "Global Note"). The Global Note will be deposited with, or on
behalf of, The Depository Trust Company, as Depositary (the "Depositary"), and
registered in the name of the Depositary or a nominee thereof. Unless and until
exchanged in whole or in part for Senior Notes in definitive form, the Global
Note may not be transferred except as a whole by the Depositary to a nominee of
such Depositary or by a nominee of such Depositary to such Depositary.
The Depositary has advised the Company as follows: The Depositary is a
limited-purpose trust company organized under the New York Banking Law, a
"Banking organization" within the meaning of the New York Banking Law, a member
of the Federal Reserve System, a "clearing corporation" within the meaning of
the New York Uniform Commercial Code, and a "clearing agency" registered
pursuant to the provisions of Section 17A of the Exchange Act. The Depositary
was created to hold securities of its participants and to facilitate the
clearance and settlement of transactions among its participants in such
securities through electronic book-entry changes in accounts of the
participants, thereby eliminating the need for physical movement of securities
certificates. The Depositary's participants include securities brokers and
dealers (including the Underwriters), banks, trust companies, clearing
corporations and certain other organizations, some of whom (and/or their
representatives) own the Depositary. Access to the Depositary book-entry system
is also available to others, such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a participant,
either directly or indirectly.
A further description of the Depositary's procedures with respect to the
Global Note is set forth in the Prospectus under "Description of Debt Securities
- -- Global Securities." The Depositary has confirmed to the Company, the
Underwriters and the Trustee that it intends to follow such procedures.
SAME-DAY SETTLEMENT AND PAYMENT
Settlement for the Senior Notes will be made by the Underwriters in
immediately available funds. All payments of principal and interest will be made
by the Company in immediately available funds.
Secondary trading in long-term notes and debentures of corporate issuers is
generally settled in clearinghouse or next-day funds. In contrast, the Senior
Notes will trade in the Depositary's Same-Day Funds Settlement System until
maturity, and secondary market trading activity in the Senior Notes will
therefore be required by the Depositary to settle in immediately available
funds. No assurance can be given as to the effect, if any, of settlement in
immediately available funds on trading activity in the Senior Notes.
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<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters, Alex. Brown & Sons Incorporated and Morgan Stanley & Co.
Incorporated, have agreed, severally, to purchase from the Company the principal
amounts of Senior Notes set forth opposite their respective names below. The
Underwriting Agreement provides that the obligations of the Underwriters are
subject to certain conditions precedent, and that the Underwriters will purchase
all Senior Notes offered hereby if any of such Senior Notes are purchased.
PRINCIPAL
AMOUNT
OF SENIOR
UNDERWRITER NOTES
Alex. Brown & Sons Incorporated................................. $ 50,000,000
Morgan Stanley & Co. Incorporated............................... 50,000,000
Total.................................................... $ 100,000,000
The Company has been advised that the Underwriters propose to offer the
Senior Notes to the public at the initial offering price set forth on the cover
page of this Prospectus Supplement and to certain dealers at such price less a
concession not in excess of % of the principal amount of the Senior Notes.
The Underwriters may allow, and such dealers may re-allow, a concession not in
excess of % of the principal amount of the Senior Notes to certain other
dealers. After the initial offering of the Senior Notes, the offering price and
other selling terms may from time to time be varied by the Underwriters.
The Underwriters intend to resell any Senior Notes which they are unable to
sell in this offering from time to time, at prevailing market prices, subject to
applicable prospectus delivery requirements.
The Company has been advised by the Underwriters that they presently intend
to make a market in the Senior Notes offered hereby after the Senior Notes are
listed on the NYSE; however, they are not obligated to do so, and any market
making activity may be discontinued at any time at the sole discretion of the
Underwriters. Accordingly, no assurance can be given as to the liquidity of, or
trading market for, the Senior Notes. The Senior Notes have been approved for
listing on the NYSE, subject to notice of issuance, under the symbol "AB 05".
Alex. Brown is a wholly owned subsidiary of the Company. Alex. Brown's
participation in this offering is in compliance with the requirements of
Schedule E of the Bylaws of the NASD regarding underwriting securities of an
affiliate.
The Company has agreed to indemnify the Underwriters against certain civil
liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the Senior Notes will be passed upon for the Company by
Shearman & Sterling, New York, New York and, with respect to certain matters
under Maryland law, by Robert F. Price, Secretary and General Counsel of the
Company and a Managing Director of Alex. Brown. Mr. Price beneficially owns, or
has rights to acquire under an employee benefit plan of the Company, less than
one percent of the Common Stock of the Company. Certain legal matters relating
to the Senior Notes will be passed upon for the Underwriters by Willkie Farr &
Gallagher, New York, New York.
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<PAGE>
PROSPECTUS
$150,000,000
ALEX. BROWN INCORPORATED
DEBT SECURITIES
CONVERTIBLE DEBT SECURITIES
Alex. Brown Incorporated (the "Company") may offer and issue from time to
time notes, debentures or other evidences of indebtedness ("Debt Securities") in
one or more series, which may be convertible ("Convertible Debt Securities")
into shares of the Company's Common Stock, par value $.10 per share (the "Common
Stock"). Debt Securities, including any Convertible Debt Securities, may be
issuable in registered form without coupons or in bearer form with or without
coupons attached. The Company will offer Debt Securities to the public on terms
determined by market conditions. Debt Securities may be sold for U.S. dollars,
foreign denominated currency or currency units; principal of and any interest on
Debt Securities may likewise be payable in U.S. dollars, foreign denominated
currency or currency units -- in each case, as the Company specifically
designates. The Debt Securities, including any Convertible Debt Securities, and
the Common Stock underlying any such Convertible Debt Securities are hereinafter
collectively referred to as the "Securities".
The accompanying Prospectus Supplement will set forth the specific terms of
the Debt Securities, including the ranking as senior or subordinated Debt
Securities, the specific designation, aggregate principal amount, purchase
price, maturity, redemption terms, interest rate (or manner of calculation
thereof), time of payment of interest (if any), terms for any conversion
(including the terms relating to the adjustment thereof), listing (if any) on a
securities exchange and any other specific terms of the Debt Securities. The
accompanying Prospectus Supplement will also set forth the name of and
compensation to each dealer, underwriter or agent (if any) involved in the sale
of the Debt Securities being offered and the managing underwriters with respect
to each series sold to or through underwriters. Any such underwriters (and any
representative thereof), dealers or agents may include Alex. Brown & Sons
Incorporated ("Alex. Brown").
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.
Securities may be offered through dealers, underwriters or agents designated
from time to time, as set forth in the accompanying Prospectus Supplement. Net
proceeds to the Company will be the purchase price in the case of sales to a
dealer, the public offering price less discount in the case of sales to an
underwriter or the purchase price less commission in the case of sales through
an agent -- in each case, less other expenses attributable to issuance and
distribution. See "Plan of Distribution" for possible indemnification
arrangements for dealers, underwriters and agents.
Following the initial distribution of a series of Securities, Alex. Brown
may offer and sell previously issued Debt Securities in the course of its
business as a broker-dealer. Alex. Brown may act as principal or agent in such
transactions. This Prospectus and the accompanying Prospectus Supplement may be
used by Alex. Brown in connection with such transactions. Such sales, if any,
will be made at varying prices related to prevailing market prices at the time
of sale.
ALEX. BROWN & SONS
INCORPORATED
The date of this Prospectus is August 2, 1995
<PAGE>
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY UNDERWRITER, DEALER OR AGENT. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY SECURITIES BY
ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED
OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO
SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Securities and Exchange
Commission (the "Commission"). Reports, proxy statements and other information
filed by the Company with the Commission can be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549 or at its Regional Offices located at Suite
1400, Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois
60661 and at Seven World Trade Center, 13th Floor, New York, New York 10048, and
copies of such material can be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
The Company's Common Stock, par value $.10 per share (the "Common Stock"), is
listed on the New York Stock Exchange ("NYSE"). Reports, proxy statements and
other information concerning the Company can be inspected at the offices of the
NYSE, 20 Broad Street, New York, New York 10005.
This Prospectus constitutes a part of a Registration Statement filed by the
Company with the Commission under the Securities Act of 1933, as amended (the
"Securities Act"). This Prospectus omits certain of the information contained in
the Registration Statement in accordance with the rules and regulations of the
Commission. Reference is hereby made to the Registration Statement and related
exhibits for further information with respect to the Company and the Securities.
Statements contained herein concerning the provisions of any document are not
necessarily complete and, in each instance, reference is made to the copy of
such document filed as an exhibit to the Registration Statement or otherwise
filed with the Commission. Each such statement is qualified in its entirety by
such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Annual Report on Form 10-K of the Company for the fiscal year ended
December 31, 1994 and Quarterly Report on Form 10-Q of the Company for the
quarter ended March 31, 1995 have been filed with the Commission and are
incorporated herein by reference. The Company incorporates by reference herein
the description of the Company's Common Stock contained in Item 4 of the
Company's Registration Statement on Form 8-A filed with the Commission on
February 27, 1986, pursuant to Section 12(g) of the Exchange Act, as amended
from time to time.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the later of (i) the termination of the offering of the Securities and (ii) the
date on which Alex. Brown ceases offering and selling previously issued
Securities shall be deemed to be incorporated by reference in this Prospectus
and to be a part hereof from the date of filing of such documents.
Any statement contained herein or in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any subsequently filed document that also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
Copies of the above documents (excluding exhibits) may be obtained upon
request without charge from the Company, 135 East Baltimore Street, Baltimore,
Maryland 21202, Attention: Beverly L. Wright, Chief Financial Officer (telephone
number (410) 727-1700).
IN CONNECTION WITH THE OFFERING OF CERTAIN SECURITIES, THE UNDERWRITERS MAY
OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES
OF SUCH SECURITIES OR OTHER SECURITIES OF THE COMPANY AT LEVELS ABOVE THOSE
WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE
EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE OVER-THE-COUNTER MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
THE COMPANY
Alex. Brown Incorporated (together with its subsidiaries, the "Company"),
incorporated in l986, is a holding company which is the successor to the
investment banking and brokerage business founded in 1800 by Alexander Brown.
The firm began operating in partnership form in approximately 1805 and continued
in that form until 1984 when the firm's investment banking and securities
brokerage businesses were transferred to Alex. Brown & Sons Incorporated ("Alex.
Brown"), the Company's principal operating subsidiary.
Through Alex. Brown, the Company provides investment services to individual
and institutional investors, and investment banking services to corporate and
municipal clients. To support the investment services provided to individual and
institutional investors, the Company effects transactions in equity and debt
securities as both agent and principal. In addition, the Company's Research
Division supplies investment advice to individual and institutional investors
regarding corporate securities in selected industry sectors, including consumer
products and services, environmental services, financial services, health care,
industrial technologies, media/communications, technology and transportation.
The Company provides investment banking services to corporate clients primarily
in the industry sectors selected for research coverage. The Company also
provides investment banking services to municipal clients, including, for
example, states, counties, cities, transportation authorities, sewer and water
authorities, and housing and health and higher education agencies.
The Company's operations are conducted from 24 offices in 14 states and the
District of Columbia and from representative offices in London, England, Geneva,
Switzerland and Tokyo, Japan. The Company's principal office is in Baltimore,
with other offices in major cities including New York, San Francisco, Los
Angeles, Boston, Chicago, Dallas, Atlanta, Philadelphia and Washington, D.C.
Alex. Brown is a member of the NYSE, The American Stock Exchange, Inc., the
Chicago Board Options Exchange, Inc., other regional securities exchanges and
the National Association of Securities Dealers, Inc. (the "NASD"). Alex. Brown
is also a member of the Securities Investor Protection Corporation ("SIPC"), and
with respect to its representative office in London, the Securities and Futures
Authority. The Company's principal executive offices are located at 135 East
Baltimore Street, Baltimore, Maryland 21202 and its telephone number is (410)
727-1700. Unless the context otherwise requires, the term "Company" means Alex.
Brown Incorporated and its consolidated subsidiaries.
USE OF PROCEEDS
Unless otherwise set forth in the applicable Prospectus Supplement, the net
proceeds from the sale of the Securities offered hereby will be used for general
corporate purposes of the Company, which may include additions to working
capital, the repayment of indebtedness and investments in, or extensions of
credit to, subsidiaries.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the unaudited consolidated ratios of
earnings to fixed charges for the Company for the periods indicated. Information
for the three months ended March 31, 1995 and March 25, 1994 was derived from
unaudited condensed consolidated financial statements of the Company.
Information for each of the years in the five-year period ended December 31,
1994 was derived from the audited consolidated financial statements of the
Company.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31 MARCH 25 YEARS ENDED DECEMBER 31
1995 1994 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges............................... 4.3 6.8 5.3 8.5 7.1 5.8 1.4
</TABLE>
For the purpose of calculating the ratio of earnings to fixed charges,
earnings consist of income from operations before income taxes and fixed
charges. Fixed charges for the purpose of calculating the ratio of earnings to
fixed charges consist of interest expense and that portion of rentals deemed
representative of an interest factor.
3
<PAGE>
DESCRIPTION OF DEBT SECURITIES
The Debt Securities will constitute either senior or subordinated debt of
the Company and, unless otherwise specified in a Prospectus Supplement, will be
issued, in the case of Debt Securities that will be senior debt, under a Senior
Indenture dated as of July 10, 1995 (the "Senior Debt Indenture"), between the
Company and Chemical Bank, as Trustee, and, in the case of Debt Securities that
will be subordinated debt, under a Subordinated Indenture dated as of July 10,
1995 (the "Subordinated Debt Indenture"), between the Company and Bankers Trust
Company ("Bankers Trust"), as Trustee. The Senior Debt Indenture and
Subordinated Debt Indenture are sometimes hereinafter referred to individually
as an "Indenture" and collectively as the "Indentures". Chemical Bank and
Bankers Trust are hereinafter referred to individually as a "Trustee" and
collectively as the "Trustees".
The following summaries of certain provisions of the Indentures and the
Debt Securities do not purport to be complete and such summaries are subject to
the detailed provisions of the applicable Indenture to which reference is hereby
made for a full description of such provisions, including the definition of
certain capitalized terms used herein, and for other information regarding the
Debt Securities. Numerical references in parentheses below are to sections in
the applicable Indenture. Wherever particular sections or defined terms of the
applicable Indenture are referred to, such sections or defined terms are
incorporated herein by reference as part of the statement made, and the
statement is qualified in its entirety by such reference. The Indentures are
substantially identical, except for the provisions relating to subordination and
the Company's negative pledge. See "Subordinated Debt" and "Certain Covenants".
The Debt Securities offered by this Prospectus and the accompanying Prospectus
Supplement are sometimes referred to herein as the "Offered Debt Securities". As
used under this caption, the term "Company" means Alex. Brown Incorporated.
GENERAL
Neither of the Indentures limits the amount of additional indebtedness that
the Company or any of its subsidiaries may incur. The Debt Securities will be
unsecured senior or subordinated obligations of the Company. Substantially all
of the assets of the Company are owned by its subsidiaries. Therefore, the
Company's rights and the rights of its creditors, including holders of Debt
Securities, to participate in the assets of any subsidiary upon such
subsidiary's liquidation or recapitalization will be subject to the prior claims
of such subsidiary's creditors, except to the extent that the Company may itself
be a creditor with recognized claims against the subsidiary. In addition,
dividends, loans and advances from certain of the Company's subsidiaries,
including Alex. Brown, to the Company are restricted by net capital requirements
under the Exchange Act and under rules of certain exchanges and various domestic
and foreign regulatory bodies.
The Indentures provide that Debt Securities may be issued from time to time
in one or more series and may be denominated and payable in foreign currencies
or units based on or relating to foreign currencies, including European Currency
Units ("ECUs"). Special United States federal income tax considerations
applicable to any Debt Securities so denominated are described in the relevant
Prospectus Supplement.
Reference is made to the Prospectus Supplement for the following terms of
and information relating to the Offered Debt Securities (to the extent such
terms are applicable to such Debt Securities): (i) classification as senior or
subordinated Debt Securities, the specific designation, aggregate principal
amount, purchase price and denomination; (ii) currency or units based on or
relating to currencies in which such Debt Securities are denominated and/or in
which principal (and premium, if any) and/or interest will or may be payable;
(iii) any date of maturity; (iv) interest rate or rates (or the method by which
such rate will be determined), if any; (v) the dates on which any such interest
will be payable; (vi) the place or places where the principal of, premium, if
any, and interest, if any, on the Offered Debt Securities will be payable; (vii)
any repayment, redemption, prepayment or sinking fund provisions; (viii) whether
the Offered Debt Securities will be issuable in registered form or bearer form
("Bearer Securities") or both and, if Bearer Securities are issuable, any
restrictions applicable to the exchange of one form for another and to the
offer, sale and delivery of Bearer Securities; (ix) the terms, if any, on which
such Debt Securities may be converted into or exchanged for stock or other
securities of the Company, any specific terms relating to the adjustment thereof
and the period during which such Debt Securities may be so converted or
exchanged; (x) listing (if any) on a securities exchange; (xi) any applicable
United States federal income tax consequences, including whether and under what
circumstances the Company will pay additional amounts on Offered Debt Securities
held by a person who is not a U.S. Person (as defined in the Prospectus
Supplement) in respect of any tax, assessment or governmental charge withheld or
deducted and, if so, whether the Company will have the option to redeem such
Debt Securities rather than pay such additional amounts; and (xii) any other
specific terms of the Offered Debt Securities, including any additional
4
<PAGE>
events of default or covenants provided for with respect to such Debt
Securities, and any terms which may be required by or advisable under applicable
laws or regulations.
Debt Securities may be presented for exchange and registered Debt
Securities may be presented for transfer in the manner, at the places and
subject to the restrictions set forth in the Debt Securities and the Prospectus
Supplement. Such services will be provided without charge, other than any tax or
other governmental charge payable in connection therewith, but subject to the
limitations provided in the applicable Indenture. Debt Securities in bearer form
and the coupons, if any, appertaining thereto will be transferable by delivery.
Debt Securities will bear interest at a fixed rate (a "Fixed Rate
Security") or a floating rate (a "Floating Rate Security"). Debt Securities
bearing no interest or interest at a rate that at the time of issuance is below
the prevailing market rate will be sold at a discount below their stated
principal amount. Special United States federal income tax considerations
applicable to any such discounted Debt Securities or to certain Debt Securities
issued at par which are treated as having been issued at a discount for United
States federal income tax purposes will be described in the relevant Prospectus
Supplement.
Debt Securities may be issued, from time to time, with the principal amount
payable on any principal payment date, or the amount of interest payable on any
interest payment date, to be determined by reference to one or more currency
exchange rates, commodity prices, equity indices or other factors. Holders of
such Debt Securities may receive a payment of principal on any principal payment
date, or a payment of interest on any interest payment date, that is greater
than or less than the amount of principal or interest otherwise payable on such
dates, depending upon the value on such dates of the applicable currency,
commodity, equity index or other factor. Information as to the methods for
determining the amount of principal or interest payable on any date, the
currencies, commodities, equity indices or other factors to which the amount
payable on such date is linked and certain additional tax considerations will be
set forth in the applicable Prospectus Supplement.
GLOBAL SECURITIES
The registered Debt Securities of a series may be issued in the form of one
or more fully registered global securities (a "Registered Global Security") that
will be deposited with a depositary (a "Debt Depositary") or with a nominee for
a Debt Depositary identified in the Prospectus Supplement relating to such
series and registered in the name of the Debt Depositary or a nominee thereof.
In such case, one or more Registered Global Securities will be issued in a
denomination or aggregate denominations equal to the portion of the aggregate
principal amount of outstanding registered Debt Securities of the series to be
represented by such Registered Global Securities. Unless and until it is
exchanged in whole for Debt Securities in definitive registered form, a
Registered Global Security may not be transferred except as a whole by the Debt
Depositary for such Registered Global Security to a nominee of such Debt
Depositary or by a nominee of such Debt Depositary to such Debt Depositary or
another nominee of such Debt Depositary or by such Debt Depositary or any such
nominee to a successor of such Debt Depositary or a nominee of such successor.
The specific terms of the depositary arrangement with respect to any
portion of a series of Debt Securities to be represented by a Registered Global
Security will be described in the Prospectus Supplement relating to such series.
The Company anticipates that the following provisions will apply to all
depositary arrangements.
Ownership of beneficial interests in a Registered Global Security will be
limited to persons that have accounts with the Debt Depositary for such
Registered Global Security ("participants") or persons that may hold interests
through participants. Upon the issuance of a Registered Global Security, the
Debt Depositary for such Registered Global Security will credit, on its
book-entry registration and transfer system, the participants' accounts with the
respective principal amounts of the Debt Securities represented by such
Registered Global Security beneficially owned by such participants. The accounts
to be credited shall be designated by any dealers, underwriters or agents
participating in the distribution of such Debt Securities. Ownership of
beneficial interests in such Registered Global Security will be shown on, and
the transfer of such ownership interests will be effected only through, records
maintained by the Debt Depositary for such Registered Global Security (with
respect to interests of participants) and on the records of participants (with
respect to interests of persons holding through participants). The laws of some
states may 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 own, transfer or pledge beneficial interests in Registered Global
Securities.
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So long as the Debt Depositary for a Registered Global Security, or its
nominee, is the registered owner of such Registered Global Security, such Debt
Depositary or such nominee, as the case may be, will be considered the sole
owner or holder of the Debt Securities represented by such Registered Global
Security for all purposes under the applicable Indenture. Except as set forth
below, owners of beneficial interests in a Registered Global Security will not
be entitled to have the Debt Securities represented by such Registered Global
Security registered in their names, will not receive or be entitled to receive
physical delivery of such Debt Securities in definitive form and will not be
considered the owners or holders thereof under the applicable Indenture.
Accordingly, each person owning a beneficial interest in a Registered Global
Security must rely on the procedures of the Debt Depositary for such Registered
Global Security and, if such person is not a participant, on the procedures of
the participant through which such person owns its interest, to exercise any
rights of a holder under the applicable Indenture. The Company understands that
under existing industry practices, if it requests any action of holders or if an
owner of a beneficial interest in a Registered Global Security desires to give
or take any action which a holder is entitled to give or take under the
applicable Indenture, the Debt Depositary for such Registered Global Security
would authorize the participants holding the relevant beneficial interests to
give or take such action, and such participants would authorize beneficial
owners owning through such participants to give or take such action or would
otherwise act upon the instructions of beneficial owners holding through them.
Principal, premium, if any, and interest payments on Debt Securities
represented by a Registered Global Security registered in the name of a Debt
Depositary or its nominee will be made to such Debt Depositary or its nominee,
as the case may be, as the registered owner of such Registered Global Security.
None of the Company, the Trustees or any other agent of the Company or agent of
the Trustees will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests in such Registered Global Security or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests.
The Company expects that the Debt Depositary for any Debt Securities
represented by a Registered Global Security, upon receipt of any payment of
principal, premium or interest in respect of such Registered Global Security,
will immediately credit participants' accounts with payments in amounts
proportionate to their respective beneficial interests in such Registered Global
Security as shown on the records of such Debt Depositary. The Company also
expects that payments by participants to owners of beneficial interests in such
Registered Global Security held through such participants will be governed by
standing customer instructions and customary practices, as is now the case with
the securities held for the accounts of customers in bearer form or registered
in "street name", and will be the responsibility of such participants.
If the Debt Depositary for any Debt Securities represented by a Registered
Global Security is at any time unwilling or unable to continue as Debt
Depositary or ceases to be a clearing agency registered under the Exchange Act,
and a successor Debt Depositary registered as a clearing agency under the
Exchange Act is not appointed by the Company within 90 days, the Company will
issue such Debt Securities in definitive form in exchange for such Registered
Global Security. In addition, the Company may at any time and in its sole
discretion determine not to have any of the Debt Securities of a series
represented by one or more Registered Global Securities and, in such event, will
issue Debt Securities of such series in definitive form in exchange for all of
the Registered Global Security or Securities representing such Debt Securities.
Any Debt Securities issued in definitive form in exchange for a Registered
Global Security will be registered in such name or names as the Debt Depositary
shall instruct the relevant Trustee. It is expected that such instructions will
be based upon directions received by the Debt Depositary from participants with
respect to ownership of beneficial interests in such Registered Global Security.
The Debt Securities of a series may also be issued in the form of one or
more bearer global Securities (a "Bearer Global Security") that will be
deposited with a common depositary for the Euro-clear System currently operated
by Morgan Guaranty Trust Company of New York, Brussels Office, or its successor
as operator of the Euro-clear System ("Euro-clear") and Cedel S.A. or its
successor ("Cedel"), or with a nominee for such depositary identified in the
Prospectus Supplement relating to such series. The specific terms and
procedures, including the specific terms of the depositary arrangement, with
respect to any portion of a series of Debt Securities to be represented by a
Bearer Global Security will be described in the Prospectus Supplement relating
to such series.
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SENIOR DEBT
The Debt Securities and, in the case of Bearer Securities, any coupons
appertaining thereto (the "Coupons"), that will constitute part of the senior
debt of the Company will be issued under the Senior Debt Indenture and will rank
pari passu with all other unsecured and unsubordinated debt of the Company.
SUBORDINATED DEBT
Unless otherwise set forth in a Prospectus Supplement, the Debt Securities
and Coupons that will constitute part of the subordinated debt of the Company
will be issued under the Subordinated Debt Indenture and will be subordinate and
junior in right of payment, to the extent and in the manner set forth in the
Subordinated Debt Indenture, to all "Senior Indebtedness" of the Company. The
Subordinated Debt Indenture defines "Senior Indebtedness" as obligations (other
than non-recourse obligations, the subordinated Debt Securities or any other
obligations specifically designated as being subordinate in right of payment to
Senior Indebtedness) of, or guaranteed or assumed by, the Company for borrowed
money or evidenced by bonds, debentures, notes or other similar instruments, and
amendments, renewals, extensions, modifications and refundings of any such
indebtedness or obligations. (Subordinated Debt Indenture, Section 1.1)
In the event (a) of any insolvency or bankruptcy proceedings, or any
receivership, liquidation, reorganization or other similar proceedings in
respect of the Company or a substantial part of its property, or (b) that (i) a
default shall have occurred with respect to the payment of principal of (and
premium, if any) or any interest on or other monetary amounts due and payable on
any Senior Indebtedness or (ii) there shall have occurred an event of default
(other than a default in the payment of principal, premium, if any, or interest,
or other monetary amounts due and payable) with respect to any Senior
Indebtedness, as defined therein or in the instrument under which the same is
outstanding, permitting the holder or holders thereof to accelerate the maturity
thereof (with notice or lapse of time, or both), and such event of default shall
have continued beyond the period of grace, if any, in respect thereof, and such
default or event of default shall not have been cured or waived or shall not
have ceased to exist, or (c) that the principal of and accrued interest on the
subordinated Debt Securities shall have been declared due and payable upon an
Event of Default pursuant to Section 5.1 of the Subordinated Debt Indenture and
such declaration shall not have been rescinded and annulled as provided therein,
then the holders of all Senior Indebtedness shall first be entitled to receive
payment of the full amount due thereon, or provision shall be made for such
payment in money or money's worth, before the holders of any of the subordinated
Debt Securities or Coupons are entitled to receive a payment on account of the
principal of (and premium, if any) or any interest on the indebtedness evidenced
by such subordinated Debt Securities or such Coupons. (Subordinated Debt
Indenture, Section 13.1) If this Prospectus is being delivered in connection
with a series of subordinated Debt Securities, the accompanying Prospectus
Supplement or the information incorporated herein by reference will set forth
the approximate amount of Senior Indebtedness outstanding as of the end of the
most recent fiscal quarter.
CERTAIN COVENANTS
NEGATIVE PLEDGE. The Senior Debt Indenture provides that the Company and
any successor corporation will not, and will not permit any Subsidiary (as
defined in such Indenture) to create, assume, incur or guarantee any
indebtedness for borrowed money secured by a pledge, lien or other encumbrance
(except for certain liens specifically permitted by such Indenture) on the
Voting Securities (as defined in such Indenture) of Alex. Brown without making
effective provision whereby the Debt Securities issued under such Indenture will
be secured equally and ratably with such secured indebtedness. (Senior Debt
Indenture, Section 3.6)
MERGER, CONSOLIDATION, SALE, LEASE OR CONVEYANCE. Each Indenture provides
that the Company will not merge or consolidate with any other corporation and
will not sell, lease or convey all or substantially all its assets to any
person, unless the Company shall be the continuing corporation, or the successor
corporation or person that acquires all or substantially all the assets of the
Company shall be a corporation organized under the laws of the United States or
a state thereof or the District of Columbia, and shall expressly assume all
obligations of the Company under such Indenture and the Debt Securities issued
thereunder, and immediately after such merger, consolidation, sale, lease or
conveyance, the Company, such person or such successor corporation shall not be
in default in the performance of the covenants and conditions of such Indenture
to be performed or observed by the Company. (Indentures, Section 9.1) This
covenant would not apply to a recapitalization transaction, a change of control
of the Company or a highly leveraged transaction unless such transactions or
change of control were structured to include a merger or consolidation or sale,
lease or conveyance of all or substantially all of the assets of the Company.
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Except as may be described in a Prospectus Supplement applicable to a
particular series of Debt Securities, there will be no covenants or other
provisions providing for a put or increased interest or otherwise that would
afford holders of Debt Securities additional protection in the event of a
recapitalization transaction, a change of control of the Company or a highly
leveraged transaction.
EVENTS OF DEFAULT
An Event of Default is defined under each Indenture with respect to Debt
Securities of any series issued under such Indenture as being: (a) default in
payment of any principal of the Debt Securities of such series, either at
maturity (or upon any redemption), by declaration or otherwise; (b) default for
30 days in payment of any interest on any Debt Securities of such series; (c)
default for 60 days after written notice in the observance or performance of any
other covenant or agreement in the Debt Securities of such series or such
Indenture other than a covenant included in such Indenture solely for the
benefit of a series of Debt Securities other than such series; (d) certain
events of bankruptcy, insolvency or reorganization; (e) failure by the Company
to make any payment at maturity, including any applicable grace period, in
respect of indebtedness, which term as used in each of the Indentures means
obligations (other than non-recourse obligations or the Debt Securities of such
series issued under such Indenture) of, or guaranteed or assumed by, the Company
for borrowed money or evidenced by bonds, debentures, notes or other similar
instruments ("Indebtedness") in an amount in excess of $10,000,000 and
continuance of such failure for a period of 30 days after written notice thereof
to the Company by the Trustee, or to the Company and the Trustee by the holders
of not less than 25% in principal amount of such outstanding Debt Securities
(treated as one class) issued under such Indenture; or (f) a default with
respect to any Indebtedness, which default results in the acceleration of
Indebtedness in an amount in excess of $10,000,000 without such Indebtedness
having been discharged or such acceleration having been cured, waived, rescinded
or annulled for a period of 30 days after written notice thereof to the Company
by the Trustee, or to the Company and the Trustee by the holders of not less
than 25% in principal amount of such outstanding Debt Securities (treated as one
class) issued under such Indenture; PROVIDED, HOWEVER, that if any such failure,
default or acceleration referred to in clause (e) or clause (f) above shall
cease or be cured, waived, rescinded or annulled, then the Event of Default by
reason thereof shall be deemed likewise to have been thereupon cured.
(Indentures, Section 5.1)
Each Indenture provides that (a) if an Event of Default due to the default
in payment of principal of, premium, if any, or interest on, any series of Debt
Securities issued under such Indenture or due to the default in the performance
or breach of any other covenant or warranty of the Company applicable to the
Debt Securities of such series but not applicable to all outstanding Debt
Securities issued under such Indenture shall have occurred and be continuing,
either the Trustee or the holders of not less than 25% in principal amount of
such Debt Securities of each affected series (treated as one class) issued under
such Indenture and then outstanding may then declare the principal of all Debt
Securities of each such affected series and interest accrued thereon to be due
and payable immediately; and (b) if an Event of Default due to a default in the
performance of any other of the covenants or agreements in such Indenture
applicable to all outstanding Debt Securities issued under such Indenture and
then outstanding or due to certain events of bankruptcy, insolvency and
reorganization of the Company shall have occurred and be continuing, either the
Trustee or the holders of not less than 25% in principal amount of all Debt
Securities issued under such Indenture and then outstanding (treated as one
class) may declare the principal of all such Debt Securities and interest
accrued thereon to be due and payable immediately, but upon certain conditions
such declarations may be annulled and past defaults may be waived (except a
continuing default in payment of principal of (or premium, if any) or interest
on such Debt Securities) by the holders of a majority in principal amount of the
Debt Securities of all such affected series then outstanding. (Indentures,
Sections 5.1 and 5.10)
Each Indenture contains a provision entitling the Trustee, subject to the
duty of the Trustee during a default to act with the required standard of care,
to be indemnified by the holders of Debt Securities (treated as one class)
issued under such Indenture before proceeding to exercise any right or power
under such Indenture at the request of such holders. (Indentures, Section 6.2)
Subject to such provisions in each Indenture for the indemnification of the
Trustee and certain other limitations, the holders of a majority in principal
amount of the outstanding Debt Securities (treated as one class) issued under
such Indenture may 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. (Indentures, Section 5.9)
Each Indenture provides that no holder of Debt Securities issued under such
Indenture may institute any action against the Company under such Indenture
(except actions for payment of overdue principal or interest) unless such holder
previously shall have given to the Trustee written notice of default and
continuance thereof and unless the
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holders of not less than 25% in principal amount of the Debt Securities of each
affected series (treated as one class) issued under such Indenture and then
outstanding shall have requested the Trustee to institute such action and shall
have offered the Trustee reasonable indemnity, the Trustee shall not have
instituted such action within 60 days of such request and the Trustee shall not
have received direction inconsistent with such written request by the holders of
a majority in principal amount of the Debt Securities of each affected series
(treated as one class) issued under such Indenture and then outstanding.
(Indentures, Sections 5.6 and 5.9)
Each Indenture contains a covenant that the Company will file annually with
the Trustee a certificate of no default or a certificate specifying any default
that exists. (Indentures, Section 3.5)
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
The Company can discharge or defease its obligations under an Indenture as
set forth below. (Indentures, Section 10.1)
Under terms satisfactory to the Trustee, the Company may discharge certain
obligations to holders of any series of Debt Securities issued under such
Indenture which have not already been delivered to the Trustee for cancellation
and which have either become due and payable or are by their terms due and
payable within one year (or scheduled for redemption within one year) by
irrevocably depositing with the Trustee cash or, in the case of Debt Securities
payable only in U.S. dollars, U.S. Government Obligations (as defined in such
Indenture) as trust funds in an amount certified to be sufficient to pay at
maturity (or upon redemption) the principal of and interest on such Debt
Securities.
The Company may also discharge any and all of the obligations to holders of
any series of Debt Securities issued under an Indenture at any time
("defeasance"), but may not thereby avoid any duty to register the transfer or
exchange of such series of Debt Securities, to replace any mutilated, destroyed,
lost, or stolen Debt Securities of such series or to maintain an office or
agency in respect of such series of Debt Securities. Under terms satisfactory to
the relevant Trustee, the Company may instead be released with respect to any
outstanding series of Debt Securities issued under the relevant Indenture from
the obligations imposed by Sections 3.6 (in the case of the Senior Debt
Indenture) and 9.1 (which contain the covenants described above limiting liens
and consolidations, mergers, asset sales and leases), and omit to comply with
such Sections without creating an Event of Default ("covenant defeasance").
Defeasance or covenant defeasance may be effected only if, among other things:
(i) the Company irrevocably deposits with the relevant Trustee cash or, in the
case of Debt Securities payable only in U.S. dollars, U.S. Government
Obligations, as trust funds in an amount certified to be sufficient to pay at
maturity (or upon redemption) the principal of and interest on all outstanding
Debt Securities of such series issued under such Indenture; (ii) the Company
delivers to the relevant Trustee an opinion of counsel to the effect that the
holders of such series of Debt Securities will not recognize income, gain or
loss for United States federal income tax purposes as a result of such
defeasance or covenant defeasance and that defeasance or covenant defeasance
will not otherwise alter such holders' United States federal income tax
treatment of principal and interest payments on such series of Debt Securities
(in the case of a defeasance, such opinion must be based on a ruling of the
Internal Revenue Service or a change in United States federal income tax law
occurring after the date of such Indenture, since such a result would not occur
under current tax law); and (iii) in the case of the Subordinated Debt Indenture
(a) no event or condition shall exist that, pursuant to certain provisions
described under "Subordinated Debt" above, would prevent the Company from making
payments of principal of (and premium, if any) and interest on the subordinated
Debt Securities at the date of the irrevocable deposit referred to above or at
any time during the period ending on the 91st day after such deposit date and
(b) the Company delivers to the Trustee for the Subordinated Debt Indenture an
opinion of counsel to the effect that (1) the trust funds will not be subject to
any rights of holders of Senior Indebtedness and (2) after the 91st day
following the deposit, the trust funds will not be subject to the effect of any
applicable bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally, except that if a court were to rule under any such
law in any case or proceeding that the trust funds remained property of the
Company, then the relevant Trustee and the holders of the subordinated Debt
Securities would be entitled to certain rights as secured creditors in such
trust funds.
MODIFICATION OF THE INDENTURES
Each Indenture provides that the Company and the Trustee may enter into
supplemental indentures without the consent of the holders of Debt Securities
to: (a) secure any Debt Securities, (b) evidence the assumption by a successor
corporation of the obligations of the Company, (c) add covenants for the
protection of the holders of Debt Securities, (d) cure any ambiguity or correct
any inconsistency in such Indenture, (e) establish the forms or terms of Debt
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Securities of any series and (f) evidence the acceptance of appointment by a
successor trustee. (Indentures, Section 8.1)
Each Indenture also contains provisions permitting the Company and the
Trustee, with the consent of the holders of not less than a majority in
principal amount of Debt Securities of all series issued under such Indenture
then outstanding and affected (voting as one class), to add any provisions to,
or change in any manner or eliminate any of the provisions of, such Indenture or
modify in any manner the rights of the holders of the Debt Securities of each
series so affected; PROVIDED that the Company and the Trustee may not, without
the consent of the holder of each outstanding Debt Security affected thereby,
(a) extend the stated maturity of the principal of any Debt Security, or reduce
the principal amount thereof or reduce the rate or extend the time of payment of
interest thereon, or reduce any amount payable on redemption thereof or change
the currency in which the principal thereof (including any amount in respect of
original issue discount), premium, if any, or interest thereon is payable or
reduce the amount of any original issue discount security payable upon
acceleration or provable in bankruptcy or alter certain provisions of such
Indenture relating to the Debt Securities issued thereunder not denominated in
U.S. dollars or impair the right to institute suit for the enforcement of any
payment on any Debt Security when due or (b) reduce the aforesaid percentage in
principal amount of Debt Securities of any series issued under such Indenture,
the consent of the holders of which is required for any such modification.
(Indentures, Section 8.2)
The Subordinated Debt Indenture may not be amended to alter the
subordination of any outstanding subordinated Debt Securities without the
consent of each holder of Senior Indebtedness then outstanding that would be
adversely affected thereby. (Subordinated Debt Indenture, Section 8.6)
CONCERNING THE TRUSTEES
The Company and its subsidiaries maintain ordinary banking relationships
and credit facilities with Chemical Bank. In addition, Bankers Trust acts as
Trustee under an Indenture dated as of June 12, 1986 related to the Company's
5.75% Convertible Subordinated Debentures due 2001.
LIMITATIONS ON ISSUANCE OF BEARER DEBT SECURITIES
Except as may otherwise be provided in the Prospectus Supplement applicable
thereto, in compliance with United States federal income tax laws and
regulations, Bearer Securities (including Bearer Securities in global form) will
not be offered, sold, resold or delivered, directly or indirectly, in the United
States or its possessions or to United States persons (as defined below), except
as otherwise permitted by United States Treasury Regulations Section 1.163-
5(c)(2)(i)(D). Any underwriters, agents and dealers participating in the
offerings of Bearer Securities, directly or indirectly, must agree that they
will not, in connection with the original issuance of any Bearer Securities or
during the restricted period (as defined in United States Treasury Regulations
Section 1.163-5(c)(2)(i)(D)(7)) (the "restricted period"), offer, sell, resell
or deliver, directly or indirectly, any Bearer Securities in the United States
or its possessions or to United States persons (other than as permitted by the
applicable Treasury Regulations described above). In addition, any such
underwriters, agents and dealers must have procedures reasonably designed to
ensure that its employees or agents who are directly engaged in selling Bearer
Securities are aware of the above restrictions on the offering, sale, resale or
delivery of Bearer Securities. Moreover, Bearer Securities (other than temporary
global Debt Securities and Bearer Securities that satisfy the requirements of
United States Treasury Regulations Section 1.163-5(c)(2)(i)(D)(3)(iii)) and any
Coupons appertaining thereto will not be delivered in definitive form unless the
Company has received a signed certificate in writing (or an electronic
certificate described in United States Treasury Regulations Section
1.163-5(c)(2)(i)(D)(3)(ii)) stating that on such date such Bearer Security (i)
is owned by a person that is not a United States person, (ii) is owned by a
United States person that (a) is a foreign branch of a United States financial
institution (as defined in United States Treasury Regulations Section
1.165-12(c)(1)(v)) (a "financial institution") purchasing for its own account or
for resale, or (b) is acquiring such Bearer Security through a foreign branch of
a United States financial institution and who holds the Bearer Security through
such financial institution through such date (and in either case (a) or (b)
above, each such United States financial institution agrees, on its own behalf
or through its agent, that the Company may be advised that it will comply with
the requirements of Section 165(j)(3)(A), (B) or (C) of the Internal Revenue
Code of 1986, as amended, and the regulations thereunder) or (iii) is owned by a
United States or foreign financial institution for the purposes of resale during
the restricted period and, in addition, if the owner of such Bearer Security is
a United States or foreign financial institution described in clause (iii) above
(whether or not also described in clause (i) or clause (ii) above), such
financial institution certifies that it has not
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acquired the Bearer Security for purposes of resale directly or indirectly to a
United States person or to a person within the United States or its possessions.
Bearer Securities (other than temporary global Debt Securities) and any
Coupons appertaining thereto 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 federal income tax laws, including the
limitations provided in Sections 165(j) and 1287(a) of the United States
Internal Revenue Code." The sections referred to in such legend provide that,
with certain exceptions, a United States person will not be permitted to deduct
any loss and will not be eligible for capital gain treatment with respect to any
gain, realized on the sale, exchange or redemption of such Bearer Security or
Coupon.
As used herein, "United States person" means a citizen, national 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, or an estate or trust the income of which is subject to
United States federal income taxation regardless of its source.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 50,000,000 shares
of Common Stock, par value $.10 per share. As of June 30, 1995, there were
outstanding 15,093,339 shares of Common Stock. As of such date, there were
34,906,661 shares of authorized but unissued Common Stock, including 4,493,803
shares reserved for issuance pursuant to various employee and director
compensation plans and 810,411 shares reserved for issuance upon conversion of
the Company's 5.75% Convertible Subordinated Debentures due 2001. Pursuant to
the 1991 Equity Incentive Plan, awards may be made in each calendar year in
respect of a maximum of 7.5% of the total shares of Common Stock outstanding on
the first day of such year.
Except as otherwise provided in the charter or required by law, the holders
of shares of Common Stock are entitled to one vote per share on all matters to
be voted on by stockholders and do not have the right of cumulative voting in
connection with elections for directors, which means that holders of more than
half the outstanding shares of Common Stock can elect all of the directors of
the Company.
The holders of Common Stock of the Company are entitled to receive, pro
rata, dividends, when and as declared by the Board of Directors in its
discretion out of funds legally available therefor. The ability of the Company,
as a holding company, to pay dividends on its Common Stock will be dependent
upon, among other factors, the Company's earnings, financial condition and cash
requirements at the time such payment is considered, and payment to it of
dividends or principal and interest by, or the availability of other funds from,
its subsidiaries. Dividends, loans and advances from certain subsidiaries,
including Alex. Brown, to the Company are restricted by net capital requirements
under the Exchange Act and under rules of certain exchanges and various domestic
and foreign regulatory bodies. Such restrictions could limit the ability of the
Company to pay dividends to its stockholders.
In the event of the dissolution of the Company, whether voluntary or
involuntary, the holders of Common Stock are entitled to share ratably in the
assets of the Company legally available for distribution to its stockholders
after the payment of the liquidation preference of any outstanding preferred
stock. The holders of Common Stock have no preemptive, subscription, conversion
or redemption rights, and are not subject to further calls or assessments by the
Company. The Common Stock currently outstanding is validly issued, fully paid
and non-assessable.
The Board of Directors has the authority by resolution to reclassify any
authorized but unissued shares of Common Stock as Preferred Stock and to
determine all of the characteristics of such Preferred Stock without any further
action by stockholders. For example, the Board of Directors is authorized to
issue a series of Preferred Stock that would have the right to vote, separately
or with any other series of Preferred Stock, on any proposed amendment to the
Company's charter or any other proposed corporate action, including business
combinations and other transactions. These additional shares may be utilized for
a variety of proper corporate purposes, including future public offerings to
raise additional capital or in connection with corporate acquisitions. One of
the effects of the existence of unissued and unreserved Common Stock which may
be reclassified as Preferred Stock may be to enable the Board of Directors to
render more difficult or to discourage an attempt to obtain control of the
Company by means of a merger, tender offer, proxy contest or otherwise, and
thereby to protect the continuity of the Company's management. In this regard,
the charter grants the Board of Directors broad power to establish the rights
and preferences of the authorized and unissued Preferred Stock. Such rights
could include the right to vote separately as a class on any proposed merger or
consolidation, to cast a proportionately larger vote than the Common Stock on
any such transaction or for all
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purposes, to elect directors having terms of office or effective voting rights
greater than those of other directors, to convert Preferred Stock into a larger
number of shares of Common Stock or other securities, to demand redemption at a
specified price under prescribed circumstances related to a change of control or
to exercise other rights designed to impede a takeover. The issuance of shares
of Preferred Stock pursuant to the Board's authority described above could
adversely affect the rights of the holders of the Common Stock. However, the
Board of Directors currently does not contemplate the issuance of any Preferred
Stock and is not aware of any pending or proposed transactions that would be
affected by such issuance.
Chemical Bank, New York, New York is the transfer agent and registrar for
the Company's Common Stock.
The Managing Directors and Principals of Alex. Brown and certain other
persons are parties to the Company's First Amended and Restated Stockholders'
Agreement (the "Stockholders' Agreement") and as of June 30, 1995 hold in the
aggregate approximately 4.1 million shares of the Company's Common Stock and 7.5
million shares of the Company's Common Stock assuming exercise of all
outstanding options and conversion of all outstanding convertible subordinated
debentures. As of such date such shares constituted approximately 27% and 39%,
respectively, of the votes that are entitled to be cast by the Common Stock at
any meeting of the Company's stockholders. The parties to the Stockholders'
Agreement are required to vote their shares of the Company's Common Stock in
accordance with the vote of the holders of the majority of the shares subject to
the Stockholders' Agreement. Subject to certain limitations, parties to the
Stockholders' Agreement retain dispositive control of stock held subject to the
terms of the Stockholders' Agreement.
SPECIAL VOTING REQUIREMENTS
Under the Maryland General Corporation Law, certain stock issuances,
mergers, capital reorganizations, and other transactions with a holder of more
than 10% of the voting stock of a Maryland corporation (an "Interested
Stockholder") not otherwise prohibited by law must be recommended by the board
of directors of the corporation and approved by the affirmative vote of at least
(i) 80% of the votes entitled to be cast by the holders of outstanding voting
stock of the corporation, and (iii) two-thirds of the votes entitled to be cast
by the holders of voting stock other than voting stock held by the Interested
Stockholder or an affiliate or associate thereof (with dissenting stockholders
having appraisal rights), unless certain value and other standards are met or an
exemption is available.
PLAN OF DISTRIBUTION
The Company may sell the Securities being offered hereby in three ways: (i)
through agents, (ii) through underwriters and (iii) through dealers. Any such
underwriters, dealers or agents may include Alex. Brown.
Offers to purchase Securities may be solicited by agents designated by the
Company from time to time. Any such agent, who may be deemed to be an
underwriter as that term is defined in the Securities Act, involved in the offer
or sale of the Securities in respect of which this Prospectus is delivered will
be named, and any commissions payable by the Company to such agent set forth, in
the Prospectus Supplement. Unless otherwise indicated in the Prospectus
Supplement, any such agent will be acting on a reasonable efforts basis for the
period of its appointment. Agents may be entitled under agreements which may be
entered into with the Company to indemnification by the Company against certain
civil liabilities, including liabilities under the Securities Act, and may be
customers of, engage in transactions with or perform services for the Company in
the ordinary course of business.
If any underwriters are utilized in the sale of the Securities in respect
of which this Prospectus is delivered, the Company will enter into an
underwriting agreement with such underwriters at the time of sale to them and
the names of the underwriters and the terms of the transaction will be set forth
in the Prospectus Supplement, which will be used by the underwriters to make
resales of the Securities in respect of which this Prospectus is delivered to
the public. The underwriters may be entitled, under the relevant underwriting
agreement, to indemnification by the Company against certain liabilities,
including liabilities under the Securities Act, and may be customers of, engage
in transactions with or perform services for the Company in the ordinary course
of business.
If a dealer is utilized in the sale of the Securities in respect of which
the Prospectus is delivered, the Company will sell such Securities to the
dealer, as principal. The dealer may then resell such Securities to the public
at varying prices to be determined by such dealer at the time of resale. Dealers
may be entitled to indemnification by the Company against certain liabilities,
including liabilities under the Securities Act, and may be customers of, engage
in transactions with or perform services for the Company in the ordinary course
of business.
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Debt Securities may also be offered and sold, if so indicated in the
Prospectus Supplement, in connection with a remarketing upon their purchase, in
accordance with a redemption or repayment pursuant to their terms, or otherwise,
by one or more firms, which may include Alex. Brown ("remarketing firms"),
acting as principals for their own accounts or as agents for the Company. Any
remarketing firm will be identified and the terms of its agreement, if any, with
the Company and its compensation will be described in the Prospectus Supplement.
Remarketing firms may be entitled under agreements which may be entered into
with the Company to indemnification by the Company against certain civil
liabilities, including liabilities under the Securities Act, and may be
customers of, engage in transactions with or perform services for the Company in
the ordinary course of business.
If so indicated in the Prospectus Supplement, the Company will authorize
agents and underwriters or dealers to solicit offers by certain purchasers to
purchase Offered Debt Securities from the Company at the public offering price
set forth in the Prospectus Supplement pursuant to delayed delivery contracts
providing for payment and delivery on a specified date in the future. Such
contracts will be subject to only those conditions set forth in the Prospectus
Supplement, and the Prospectus Supplement will set forth the commission payable
for solicitation of such offers.
Any underwriters, agents or dealers utilized in the sale of Debt Securities
will not confirm sales to accounts over which they exercise discretionary
authority.
Alex. Brown is a wholly owned subsidiary of the Company. Each offering of
Debt Securities and any market-making activities by Alex. Brown with respect to
Securities will be conducted in compliance with the requirements of Schedule E
of the By-Laws of the NASD regarding a NASD member firm's distributing the
securities of an affiliate. Following the initial distribution of any
Securities, Alex. Brown may offer and sell Debt Securities in the course of its
business as a broker-dealer. Alex. Brown may act as principal or agent in such
transactions. This Prospectus may be used by Alex. Brown in connection with such
transactions. Such sales, if any, will be made at varying prices related to
prevailing market prices at the time of sale or otherwise. Alex. Brown is not
obligated to make a market in any Securities and may discontinue any
market-making activities at any time without notice.
LEGAL MATTERS
The validity of the Securities will be passed upon for the Company by
Shearman & Sterling, New York, New York and, with respect to certain matters
under Maryland law, by Robert F. Price, Secretary and General Counsel of the
Company and a Managing Director of Alex. Brown. Mr. Price beneficially owns, or
has rights to acquire under an employee benefit plan of the Company, less than
one percent of the common stock of the Company. Certain legal matters relating
to the Securities will be passed upon for the Underwriters by Willkie Farr &
Gallagher, New York, New York.
EXPERTS
The consolidated financial statements of the Company included in and
incorporated by reference in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994 have been audited by KPMG Peat Marwick LLP,
independent auditors, as set forth in their report thereon included therein and
incorporated herein by reference. Such consolidated financial statements are
incorporated herein in reliance upon the report of KPMG Peat Marwick LLP
pertaining to such financial statements (to the extent covered by consents filed
with the Commission) given upon the authority of such firm as experts in
accounting and auditing. To the extent that KPMG Peat Marwick LLP audits and
reports on consolidated financial statements of the Company issued at future
dates, and consents to the use of their report thereon, such financial
statements also will be incorporated herein in reliance upon their report and
said authority.
ERISA MATTERS FOR PENSION PLANS AND INSURANCE COMPANIES
The Company and certain affiliates of the Company, including Alex. Brown,
may each be considered a "party in interest" within the meaning of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), or a "disqualified
person" within the meaning of the Code with respect to many employee benefit
plans. Prohibited transactions within the meaning of ERISA or the Code may
arise, for example, if the Debt Securities are acquired by or with the assets of
a pension or other employee benefit plan with respect to which Alex. Brown or
any of its affiliates is a service provider, unless such Debt Securities are
acquired pursuant to an exemption for transactions effected on behalf of such
plan by a "qualified professional asset manager" or pursuant to any other
available exemption. The assets of a pension or other employee benefit plan may
include assets held in the general account of an insurance company that are
deemed to be "plan assets" under ERISA. ANY INSURANCE COMPANY OR PENSION OR
EMPLOYEE BENEFIT PLAN PROPOSING TO INVEST IN THE DEBT SECURITIES SHOULD CONSULT
WITH ITS LEGAL COUNSEL.
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